Milken Global Settlement would have the effect of providing a total and final resolution of all Drexel-related claims against them, except as to known opt outs from Presidential Life or those plaintiffs in other existing actions who chose not to participate in the Milken Global Settlement. To avoid the existence of any risk from any of these known unresolved claims, the Settling Defendants bargained for the Termination Provision as part of their attempt to obtain peace through the Milken Global Settlement, at the cost of $ 1.2 billion. The Termination Provision afforded the Settling Defendants an unqualified right to terminate the Milken Global Settlement in the event that they formulated a reasonable belief that unresolved claims, which posed a financial risk that was not addressed adequately by the $ 50 million Indemnity Fund, would remain. The existence of the Termination Provision caused class counsel, Drexel's counsel, the Settling Defendants' counsel, and counsel to certain other parties to the Milken Global Settlement to seek to resolve all of the Presidential Life opt out claims.
44. In the period between March 9, 1992 and the date when the Milken Global Settlement became effective on September 29, 1993, class counsel and the Settling Defendants devoted substantial time and intense effort to assessing the claims that would survive the Milken Global Settlement and the settlement of Presidential Life, primarily by identifying, cataloguing and analyzing the opt outs from the Presidential Life settlement. Class counsel and the Settling Defendants resolved those claims by negotiations and discussions between counsel for the opt outs and the parties to the Milken Global Settlement.
45. After determining, on the basis of information then available, that their remaining opt out-related exposure posed an acceptable financial risk, the Settling Defendants elected not to exercise their rights under the Termination Provision, and the Milken Global Settlement became effective on September 29, 1993.
46. The Settling Defendants would not have waived their right to terminate the Milken Global Settlement absent satisfactory resolution of the Presidential Life opt out claims. Specifically, in view of the putative magnitude of the claim that TLC now seeks to assert -- a claim that, standing alone, may allegedly exceed the value of the entire Indemnity Fund -- the Settling Defendants likely would not, had they been aware of that claim, have allowed the Milken Global Settlement to become effective without satisfactory resolution of TLC's claim.
47. The effectuation of the Milken Global Settlement consumed a substantial amount of this Court's attention and effort over a period of almost eighteen months. Michael Milken and the other Settling Defendants paid millions of dollars in legal fees and expenses related to the Milken Global Settlement.
48. Class plaintiffs also incurred very substantial costs, fees and expenses in, among other things, reviewing and evaluating the 4,778 proofs of claim which were filed by class members.
49. Administrative processes to distribute funds from the Presidential Life settlement were established at substantial time and expense on the part of Class Counsel, the Court and an executive committee, including a representative of the Securities and Exchange Commission ("SEC"), formed by the Court to administer the allocation process (the "Executive Committee"). In the process of reviewing and evaluating the Presidential Life claims, the Executive Committee, among other things: (1) developed, approved and implemented guidelines for purposes of evaluating the claims; (2) reviewed voluminous documentation of the claims; (3) engaged in extensive negotiations with claimants; (4) evaluated the claims that were determined to be eligible for purposes of distribution; and (5) prepared the requisite papers and secured this Court's approval of the Executive Committee's treatment of all of the filed claims.
50. The Court held a hearing on June 26, 1996 to consider the application brought by the Executive Committee for approval of the evaluations. Two objectors appeared at that hearing.
51. By an Order dated July 8, 1996, the Court approved the evaluations arrived at by the Executive Committee. That order is now final. The two claims submitted by Presidential Life Insurance Company and a related entity were evaluated in an amount in excess of $ 23.7 million.
52. The Rule 60(b) motion was not made within the obligatory "reasonable time." No exceptional circumstances exist that would justify the relief sought by TLC in its Rule 60(b) Motion.
53. TLC failed to act to protect its purported interests for years despite its knowledge of the Presidential Life settlement and its rights with respect thereto prior to the expiration of the opt out period. The Settling Defendants, including Carlton, as well as the plaintiff class, relied to their detriment on TLC's failure to opt out or to object earlier. It is too late for intervention, substantial equities have intervened which cannot be unwound and which it is unfair to disturb or prejudice. Beatrice is and conscionably should be estopped from challenging any aspect of Presidential Life.
54. If this Court were to grant the instant motions, the result would severely prejudice the existing parties. This prejudice would include a massive potential litigation risk to the Presidential Life defendants in addition to, at the very least, a delay of the distribution of the Presidential Life settlement proceeds and increased legal costs to the other class members.
55. TLC has not identified any interest that it holds which has not been represented adequately by the representative plaintiff and its counsel. It is noteworthy in this regard that other class members with equity stripping claims similar to those of TLC participated actively in Presidential Life.
56. The foregoing shall constitute this Court's findings of fact.
CONCLUSIONS OF LAW
TLC's Rule 60(b) Motion
57. TLC's Rule 60(b) Motion is denied. Rule 60(b) contains the explicit command that "The motion shall be made within a reasonable time"; it was not made within the prescribed "reasonable time." It is the law of this circuit that relief is available under Rules 60(b)(4) and 60(b)(6) only upon a showing of "exceptional circumstances."
TLC has failed to demonstrate that such circumstances exist here.
58. The Court concludes that because the notice program in Presidential Life met and exceeded all requirements of Federal Rule of Civil Procedure 23(c)(2) and due process, TLC is bound by the Judgment, and its request for relief from the Judgment is inadequate as a matter of law. The sufficiency of the notice program is illustrated by the over 200 publications in which the notice was published on two occasions and the more than 42,000 notices mailed to prospective class members, as well as by the nearly two hundred opt outs, the 4,778 proofs of claim that were ultimately filed in this matter and the over 4,000 notices that were mailed to individuals and entities who requested individual notices after learning of the settlement through the notice program.
59. A class action settlement is binding on an absent class member if the notice program is procedurally adequate, even if the absent class member does not receive individual notice.
TLC does not challenge the adequacy of the content of the Notice of Pendency of Class Action, of Proposed Settlement and of Settlement Hearing or of the published notice employed in Presidential Life, but does challenge the adequacy of the procedures employed for distributing the notice. TLC's assertion that the Presidential Life notice program was inadequate because the class representatives failed to canvass each of the hundreds of defendants for class members' addresses lacks legal basis.
The notice program in Presidential Life, which employed Drexel's account records as the source for class members addresses, was procedurally adequate.
The use of Drexel's account records for this purpose was particularly appropriate because the Presidential Life Complaint focused exclusively on the Settling Defendants' Drexel-related activities.
60. Although the procedural adequacy of the notice program in Presidential Life makes it unnecessary to do so for these purposes, this Court concludes further that the record establishes that TLC and its counsel had both actual and constructive notice of the Presidential Life settlement and its rights with respect thereto.
61. Rule 60(b) relief is particularly inappropriate where the relevant challenge is brought to a class action settlement.
In light of the procedural adequacy of the Presidential Life notice program, and especially given TLC's actual and constructive notice of the settlement, the Court finds that the interests of finality outweigh TLC's remaining objections, which include TLC's untimely challenges premised on the Court's purported lack of subject matter jurisdiction, TLC's assertions that the Presidential Life settlement was the result of collusion, and TLC's arguments that the class was afforded inadequate representation.
Accordingly, the Court denies TLC's Rule 60(b) Motion.
62. In addition, TLC is estopped from raising its challenges three years after entry of the Judgment.
A party to a settlement may be estopped from objecting thereto once another party to the settlement has relied, to its detriment, on the first party's failure to object to the settlement terms.
TLC was aware, prior to the expiration of the Presidential Life opt out period, of the circumstances surrounding Carlton's acquisition of TLC's stock, of the existence of Presidential Life, of the terms of the settlement and of the issues that it now raises in its belated objections to Presidential Life. Accordingly, the Settling Defendants were justified in their reliance on TLC's failure to opt out of Presidential Life. Such reliance was particularly justifiable in light of TLC's failure to object to the Presidential Life settlement prior to the effective date of the Milken Global Settlement, despite its knowledge of the Termination Provision. Finally, the Settling Defendants did so rely in determining to permit the settlement to become effective.
The class similarly relied on TLC's failure to act in a timely fashion by undertaking the allocation of the Presidential Life settlement fund.
63. Despite the fact that a consideration of the merits of TLC's remaining challenges to the Judgment is unnecessary because of TLC's failure to act earlier, the following conclusions address each of those challenges in turn in the interests of conclusion and finality.
64. Presidential Life is not void as a collusive suit. This Court found previously that the negotiations were conducted at arm's-length. Moreover, those negotiations were the subject of extensive supervision by the Court.
65. The fact that a suit is settled prior to class certification does not, in and of itself, demonstrate the existence of collusion. The law of this circuit, and of every other circuit to address the question, is that "settlement classes" are permissible.
TLC's use of the pejorative term "collusive" to describe the negotiation and settlement of the claims in this matter is a mischaracterization of what courts have deemed to be appropriate -- the simultaneous filing and settlement of a class action.
Subject Matter Jurisdiction
66. This Court properly exercised subject matter jurisdiction over Presidential Life. TLC has not even attempted to demonstrate that this Court "usurped" the power of a district court by exercising jurisdiction.
Because TLC has not demonstrated that this Court lacks even an "arguable basis on which it could have rested a finding that it had jurisdiction,"
and particularly because the class members, including TLC, had a full opportunity to raise previously the supposed lack of jurisdiction, the Court need not reach TLC's arguments regarding the existence of a case or controversy or the representative plaintiff's standing. Nonetheless, the Court will address TLC's assertions that Presidential Life did not constitute a case or controversy and that the representative plaintiff lacked standing to sue each defendant.
Case or Controversy
67. Presidential Life constituted a case or controversy. To satisfy the requirements of Article III, there must be before the Court "a claim of substantive right."
The instant action involves a "claim of substantive right." The Complaint in Presidential Life alleged that the defendants had caused the representative plaintiff and the class members substantial injury through numerous violations of, inter alia, various provisions of the federal securities and antitrust laws. The Complaint also alleged that the defendants engaged in wrongdoing that involved a broad-based conspiracy and set forth three separate and distinct schemes which gave rise to the claims alleged therein. The substantial nature of these claims is demonstrated by the $ 50 million recovery. Only individuals who could allege Drexel-related claims against the Settling Defendants that they could have pursued if no settlement eventuated could satisfy the class definition. Moreover, the 180 plus actions settled in the Milken Global Settlement, as well as the allegations of the complaint in FDIC v. Milken, were premised on the same purportedly improper Drexel-related conduct that was the focus of the active controversy between the parties to Presidential Life.
68. The representative plaintiff and the Presidential Life defendants were true adversaries. The $ 23.7 million evaluation of the claims submitted by Presidential Life Insurance Company and a related entity provides further evidence of the substantial nature of the representative plaintiff's claims.
69. The Presidential Life settlement does not circumvent the bankruptcy laws. The relief afforded to the Presidential Life defendants is not equivalent to a discharge in bankruptcy both because class members could opt out of the settlement and because the defendants received releases only as to the Drexel-related claims against them. In contrast, a discharge in bankruptcy applies to virtually all claims, of whatever source or nature, against a debtor. Indeed, the Presidential Life settlement was part of the Milken Global Settlement which, in turn, was part and parcel of, and significantly facilitated, Drexel's plan of reorganization.
70. This Court found previously that the settlement negotiations were conducted at arm's length. Also, the Presidential Life settlement was subject to, and after careful scrutiny and deliberation received, Court approval.
71. The representative plaintiff in Presidential Life had standing to assert the claims alleged in the Complaint. A class representative who alleges a conspiracy by a group of defendants has standing to sue each defendant, even if it did not enter into separate transactions with each defendant.
The Presidential Life Complaint alleges a tremendously complex conspiracy. It alleges concerted action, including conspiracy, in violation of the federal RICO statute and the antitrust laws, and alleges bases for "control person" and "aiding-and-abetting" liability. It alleges that each of the named defendants participated in the purported misconduct and identifies the role that each class of defendants played in the alleged conspiracy.
72. In the Second Circuit's opinion affirming this Court's approval of the Milken Global Settlement, Judge Cardamone described, in broad terms, the allegations that Michael Milken monopolized the entire "high yield junk bond market," in part through the use of "investment partnerships."
Judge Cardamone's reference to allegations of such a wide-ranging scheme in the very opinion in which the Second Circuit approved a settlement resolving claims against the same individuals and entities that constitute the Settling Defendants in Presidential Life is dispositive of TLC's standing argument.
73. Even if the Complaint's allegations were not clearly sufficient to allege a conspiracy, then TLC's argument would devolve into nothing more than a belated challenge to the adequacy -- i.e., the particularity -- of the pleadings in Presidential Life. This argument, however, does not cast any doubt on whether the representative plaintiff had standing to pursue its claims. The Complaint clearly was not a baseless "attempt to establish a connection between the defendants in support of the motion for class certification."
Adequacy of Representation
74. The Court concludes that the representative plaintiff and class counsel in Presidential Life afforded the plaintiff class adequate representation. TLC fails to identify any harm flowing to the class as a result of what it claims was inadequate representation. As the Court found in its July 1992 Findings and Conclusions, class counsel made an extensive review of the facts underlying Drexel-related claims in connection with the Presidential Life settlement, Drexel's bankruptcy and the Milken Global Settlement, among other proceedings. Moreover, class counsel represented plaintiffs with Drexel-related claims in the Drexel bankruptcy and In re Ivan F. Boesky Securities Litigation, MDL Dkt. No. 732, M21-45-MP (S.D.N.Y.), and had access to voluminous discovery and pleadings from related actions, including the Drexel bankruptcy. Thus, class counsel were informed adequately to assess the class members' claims.
75. TLC's purported concern that Class Counsel could not have adequately represented the plaintiff class in Presidential Life because of class counsel's role in related litigation is also without merit. Class counsel had strong incentives, in addition to their motivation to serve their clients' interests in good faith, to maximize the recovery in Presidential Life : (1) to minimize the number of opt outs, increasing the likelihood that the settlement would ultimately become effective; and (2) to ensure that the Presidential Life settlement fund was sufficient to survive the Court's scrutiny pursuant to Federal Rule of Civil Procedure 23(e).
76. Particularly given class counsel's zealous representation of the Presidential Life class, and their role in the Drexel bankruptcy and other Milken related litigations, as well as the Court's close supervision of this settlement, TLC's argument that this action was settled with inadequate investigation of the class members' claims is without merit.
77. Class counsel and the members of the Executive Committee, including the SEC representative who is a member of that Committee, have undertaken extensive procedures in the allocation of the Presidential Life settlement fund among the eligible class members. Of the 4,778 claims filed in these proceedings, only two claimants filed objections to the Committee's proposed treatment of their claims. The net result of the allocation process is that by Order dated July 8, 1996, this Court approved all of the Committee's claims evaluations, including those of the two objectors. The allocation process and the eligible class members' overwhelming support of that process further reflect the adequacy of class counsel's representation.
78. TLC has failed to identify antagonism between issuers, such as TLC, who alleged that Drexel had "stripped" equity from them in connection with issuances of bonds or other securities, and bondholders who claimed that they had obtained the right to receive such stock when they purchased the bonds at issue. The Second Circuit entered an opinion affirming this Court's order approving the Claims Agreement settling the securities claims in Drexel's bankruptcy proceedings, claims which also involved equity stripping claims brought by both issuers and security holders.
The Second Circuit determined that the class members' interests were not antagonistic and affirmed this Court's determination that the class received adequate representation.
Moreover, the Presidential Life claims have been resolved through the extensive allocation proceedings undertaken by class counsel and the Executive Committee, including the SEC representative, resulting in evaluations that have been approved by the Court.
79. Furthermore, adequate notice combined with class members' right to opt out from classes certified pursuant to Rule 23(b)(3) mitigates any concerns that this Court might otherwise have regarding conflicts among class members.
TLC's Intervention Motion
80. The Court finds that TLC's Intervention Motion is grossly untimely. The potential prejudice that may flow to the Settling Defendants and other class members if TLC is afforded relief from the Judgment, three years after its entry, makes intervention impermissible.
81. TLC's Intervention Motion is also inadequate because, for the reasons stated above, TLC has failed to demonstrate that it has any valid interest which it could pursue if the Court permitted it to intervene. The Motion is futile because the counterclaims that TLC requests leave to bring in the New York Action appear on their face to be time-barred,
and because TLC in 1994 ratified the Agreement that is the subject of that Action and which TLC now desires to repudiate by its counterclaims.
Similarly, TLC has already been afforded all of the relief sought by its Intervention and Rule 60(b) Motions with respect to its Affirmative Defenses.
82. TLC pursued the right to bring its proposed counterclaims, as opposed to invoking affirmative defenses, only after Carlton initiated the contempt proceedings herein. TLC's inability to pursue its apparently tactically motivated counterclaims does not prejudice TLC, particularly given the denial of the contempt motion.
83. Finally, the Intervention Motion fails because TLC has not demonstrated that it has any interest which was not represented adequately by the representative plaintiff.
84. TLC is thus precluded from attempting to upset the bargain which the parties made as the result of intensely hard-fought negotiations, and thereby interfering with and delaying the satisfaction of the legitimate interests of other class members who actually did participate in a timely manner in these proceedings. TLC has not made a showing that circumstances exist that entitle it to expose the Settling Defendants to the risk that "other class members would come forward to request exclusion and the settlement would begin to unravel."
TLC's Request for Discovery
85. Taking into consideration the affidavits and other factual materials submitted by the parties, TLC has failed to raise any factual issues relevant to the instant motions that would require discovery. Moreover, TLC has failed to rebut the showing of the procedural adequacy of the Presidential Life notice program, or TLC's actual and constructive knowledge of the settlement therein, and thus has not demonstrated the need for discovery or an additional evidentiary hearing.
86. The foregoing shall constitute this Court's conclusions of law.
Dated: New York, New York
November 4, 1996
SENIOR UNITED STATES DISTRICT JUDGE
The Tennessee Public Service Commission has exclusive jurisdiction of some or all of plaintiffs' claims.
Some or all of plaintiffs' claims are barred under the Keough or filed-rate doctrine.
Robert J. Walker, R. Dale Grimes, Bass, Berry & Sims, Nashville, Tennessee.
Charles L. Howorth, Jr. BellSouth Telecommunications, Inc., Nashville, Tennessee, Attorneys for Defendant.
CERTIFICATE OF SERVICE
I hereby certify that a true and exact copy of the foregoing document has been furnished to Robert E. Couhig, Jr., Esq., and Karen L. Lewis, Esq., Adams and Reese, 4500 One Shell Square, New Orleans, Louisiana 70139, and Gordon Ball, Esq., 750 Sovran Center, 550 West Main Avenue, Knoxville, Tennessee 37902, on this the 16th day of august, 1992.
Robert J. Walker