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IN RE AUCTION HOUSES ANTITRUST LITIGATION

April 12, 2001

IN RE AUCTION HOUSES ANTITRUST LITIGATION THIS DOCUMENT RELATES TO: ALL ACTIONS


The opinion of the court was delivered by: Kaplan, District Judge.

MEMORANDUM OPINION (corrected)

The background of this action is amply set forth in previous opinions, familiarity with which is assumed.*fn1 On February 22, 2001, this Court granted final approval to the proposed settlement of these actions for more than $512 million subject to the conditions that the parties amend (1) "[t]he settlement documents to conform the releases to the requirements of [the Court's] opinion," and (2) other settlement documents to contain provisions satisfactory to the Court "to maximize the value of the certificates, the prospects for the development of an efficient secondary market, and the likelihood that one or more qualified persons will make a market in the certificates."*fn2

On March 12, 2001, plaintiffs and the auction house defendants submitted for approval proposed changes in the settlement designed to address the Court's conditions. Rather than conforming the release to the requirements of the Court's opinion, they propose to allocate $7 million in face amount of discount certificates that previously were intended to compensate class members for injuries sustained in U.S. auction transactions to compensate class members who also have claims based on foreign auctions for giving up any rights they may have to sue on such claims in U.S. courts. They seek to deal with the second condition by altering the certificate plan in a variety of ways. A number of objectors continue to resist final approval, arguing that the proposed changes in the settlement do not satisfy the Court's conditions.*fn3

I

The proposed release provides in substance that "[u]pon final approval and distribution of the settlement funds, class members who do not opt out [will] release Christie's, Sotheby's, and certain of their present or former employees, from all claims `based on any allegedly collusive activity or activities . . . wherever occurring or located'" with two important exceptions:

(1) All class members will remain free to sue in foreign courts on the basis of foreign law for damages allegedly suffered in foreign auctions.
(2) Class members who choose not to claim benefits under this settlement will retain also whatever rights they otherwise might have to sue in United States courts for damages allegedly suffered in foreign auctions.*fn4

The Settlement Opinion carefully considered this objection. It began by pointing out that the use of the word "release" to describe the controversial feature of this document is a misnomer because:

"No one is being asked to surrender all claims with respect to foreign auctions. Mixed Class Members may claim the benefit of this settlement and sue abroad under applicable foreign law to recover injuries allegedly sustained abroad. All that is sought in exchange for the settlement consideration is a release of the right to pursue claims based on foreign auctions in courts in this country and under U.S. law in foreign courts."*fn5

Nevertheless, the Court, applying National Super Spuds, Ine. v. New York Mercantile Exchange,*fn6 concluded that there is no reason "why some class members should be forced to give up something of value to enable other class members to benefit from a settlement made richer at their expense."*fn7 It therefore conditioned approval of the settlement on alteration to the "release" to delete the requirement that Mixed Class Members who claim benefits under the settlement sacrifice such rights as they may have to sue in the United States based on alleged overcharges in foreign auctions.

The parties have seized upon language in the Settlement Opinion to contend that the problem the Court perceived might be cured by allocating some of the settlement consideration to compensate Mixed Class Members for the loss of their rights to sue here on claims that are based on foreign auctions. They point out that the proposed settlement called for payment of $512 million — $412 million in cash and discount certificates valued at $100 million*fn8 — but that defendants have agreed to give $125 million in principal amount of certificates, which the Court has valued in excess of $100 million. So the settlement proponents propose to give some part of an assumed amount in excess of $100 million in value to the Mixed Class Members who claim benefits here, thus keeping the bargain with respect to U.S. auction losses intact while giving those Mixed Class Members some consideration for their loss of a possible U.S. forum for their foreign auction claims. But this proposed solution is not satisfactory.

The Court's objection to the scope of the "release" was that the Mixed Class Members were being asked to surrender something of value, however modest, in order to benefit the other class members. Perhaps if the claims pursued on behalf of the class that was certified had included the foreign auction issues and the deal had been structured from the outset to allocate part of the consideration to compensate Mixed Class Members in this way, it would not have been objectionable.*fn9 Certainly class action settlements frequently are structured to give different compensation to different groups of class members who were affected differently by the conduct at issue. But that is not the way this settlement came to pass.

Here, the foreign auction claims, while mentioned in the complaint, never were among the claims pursued on behalf of the class, which was defined solely in terms of participation in U.S. auctions during the relevant period. The settlement was negotiated in terms of compensation to be paid with respect to claimed overcharges for services rendered in U.S. auctions. And while the Court does not question anyone's good faith or professionalism, this history explains how Plaintiffs' Lead Counsel have come to have a structural conflict on this issue. They reached a settlement that, as modified, called for payment of $412 million in cash and $125 million in principal amount of discount certificates to class members based on their overcharges in U.S. auctions. By doing so, they earned themselves a fee of more than $26.75 million, contingent upon the settlement becoming effective. At that moment, they gained a powerful incentive to protect the settlement and thus their large fee. They thus have an incentive to acquiesce in defendants' insistence that the deal proceed without modifying the "release." And that incentive has manifested itself in ...


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