The opinion of the court was delivered by: Platt, District Judge.
This class action lawsuit was commenced on behalf of a Class
of persons who allegedly paid inflated legal fees to a law firm
in connection with closings on residential mortgage loans
obtained from the Long Island Savings Bank, FSB ("LISB") from
January 1, 1983 to December 31, 1992. Weil v. Long Island
Savings Bank, 200 F.R.D. 164, 167 (E.D.N.Y. 2001).
The alleged scheme went as follows. Class members were
required to pay, directly to the law firms of Power, Meehan &
Petrelli, P.C. and Power, Meehan and Power, P.C., the legal fees
LISB incurred in processing and closing the mortgagors' loans.
Id. at 167. The aforementioned law firms were the successors
in interest to Conway & Ryan, P.C., which was James J. Conway,
Jr.'s ("Conway") former law firm. Id. Conway was LISB's Chief
Executive Officer during the Class period. Id.
Part of the allegedly inflated legal fees Class members paid
were used by the law firms to fund kickbacks to Conway and his
family members. Id. Those kickbacks were paid to Conway in
return for his promise that LISB would use only his law firm and
its successors in interest to perform LISB's residential
mortgage loan legal work. Id. Accordingly, it was claimed that
the Class members paid inflated legal fees to LISB's law firms
in order to fund an illegal kickback scheme, the primary
beneficiary of which was Conway.
On March 23, 1994, Plaintiffs brought this action, alleging
violations of the Racketeer Influenced and Corrupt Organizations
Act ("RICO"), 18 U.S.C. § 1962, the Truth-In-Lending Act
("TILA"), 15 U.S.C. § 1638, the Real Estate Settlement
Procedures Act ("RESPA"), 12 U.S.C. § 2607, common law fraud,
violations of section 349 of the New York General Business Law,
and negligent supervision.
On November 15, 1999, this Court partially denied and
partially granted Defendants' Motion to Dismiss. Weil v. Long
Island Savings Bank, 77 F. Supp.2d 313, 316 (E.D.N.Y. 1999). On
May 7, 2001, the Court certified a plaintiffs' Class consisting
of residential mortgage borrowers who closed their mortgage
loans between January 1, 1983 and December 12, 1992. Weil v.
Long Island Savings Bank, 77 F. Supp.2d 313, 316 (E.D.N.Y.
Class members must submit acceptable documentation to receive
a settlement award. Acceptable documentation constitutes a
signed proof of claim and release and one document from either
column A or column B in the chart below.
* Conway & Ryan, P.C. and its legal successors
Class members who submit documents from Column B lack direct
proof of the legal fees they were charged. Accordingly, the
parties have agreed that the legal fees for Class members who
submit documentation from Column B will be determined by taking
1% of the first $50,000.00 of their mortgage loans and adding it
to 0.5% of any excess amount of the loan above $50,000.00. The
resulting figure can never be less than $250.00 or more than
Class members submitting documentation from Column B who
closed their loans after September 30, 1992 will be deemed to
have paid $450.00 in legal fees. Only Class members whose
mortgage loans were secured by property located in Nassau,
Suffolk, New York, Kings, Queens, Richmond, Bronx Westchester or
Rockland counties may recover if submitting documentation from
Class members must submit all required documentation on or
before June 30, 2002 to recover a settlement award. Class
members may not recover if any required documentation is
postmarked or submitted after that date. Class members are
entitled to receive their Settlement Awards within thirty days
after the entry of a final order approving the Claims
Administrator's final report.
D. Attorneys' Fees
The Settlement contemplates that up to $5 million of the total
Settlement Fund will be paid to Class Counsel in legal fees. Up
to $600,000.00 of the total $15 million will be paid to Class
Counsel to cover reasonable out of pocket expenses it incurred
in funding the litigation. Specific attorneys' fees will be
awarded in another order.
E. Claims Administrator's Duties, Fees and Expenses
The Claims Administrator is required to file two interim
reports with Class Counsel and Defense Counsel that outline the
amount of payments made and to whom. These interim reports are
to be filed on February 15, 2002 and April 15, 2002.
The Claims Administrator must then deliver a final report to
Class Counsel and Defense Counsel after June 30, 2002. That
final report must outline all payments made to Class members and
any additional expenses the Claims Administrator expects to
incur in the final distribution of settlement awards.
The Settlement also calls for the Claims Administrator's fees
and expenses to be satisfied out of the Settlement Fund. The
Claims Administrator will submit invoices for costs directly to
the Court. Class Counsel, Defense Counsel or the Court may
object to any such invoice within ten days of its submission.
The Claims Administrator will submit invoices for fees to
Class Counsel, Defense Counsel and the Court every thirty days.
Class Counsel, Defense Counsel or the Court may object within
ten days to any such invoice.
F. Reversion Fund
The Settlement states that any monies remaining in the
Settlement Fund 120 days after the Claims Administrator pays out
the final settlement awards will revert back to the Defendants.
These reversion funds will be distributed to the Defendants pro
rata in a percentage equal to the Defendants' contributions of
G. Notice to Class Members
Notice was sent to all Class members on or before November 14,
2001 by first class mail to their last known addresses. Notice
of the Settlement was also published in both Newsday and The
Daily News for six
days over a two week period beginning on November 19, 2001.
A. Class Action Settlements
Parties may not settle class action lawsuits without court
approval. FED. R.CIV.P. 23(e). Courts may not approve class
action settlements unless the settlement is fair, adequate,
reasonable and not the product of collusion. D'Amato v.
Deutsche Bank, 236 F.3d 78, 85 (2d Cir. 2001); Joel A. v.
Giuliani, 218 F.3d 132, 138-39 (2d Cir. 2000). District Courts
determine whether a settlement is fair, adequate and reasonable
by reviewing: (1) the negotiating process that produced the
settlement; and (2) the settlement's substantive terms.
D'Amato, 236 F.3d at 85.
District Courts first review the negotiating process that
produced the settlement to ensure: (1) that the settlement was
the product of arm's length negotiations; and (2) that Class
Counsel "`possessed the experience and ability, and . . .
engaged in the discovery, necessary to effective[ly] represent
. . . the class's interests.'" Id. (quoting Weinberger v.
Kendrick, 698 F.2d 61, 74 (2d Cir. 1982)). This certifies that
the settlement is procedurally fair, adequate and reasonable.
Once the court determines that the settlement is procedurally
fair, adequate and reasonable, it then considers the
settlement's substantive fairness. Id. The factors that
determine if a settlement is substantively fair, adequate and
reasonable ("Grinnell Factors") are:
(1) the complexity, expense and likely duration of
the litigation, (2) the reaction of the class to the
settlement, (3) the stage of the proceedings and the
amount of discovery completed, (4) the risks of
establishing liability, (5) the risks of establishing
damages, (6) the risks of maintaining the class
action through the trial, (7) the ability of the
defendants to withstand a greater judgment, (8) the
range of reasonableness of the settlement fund in
light of the best possible recovery, (9) the range of
reasonableness of the settlement fund to a possible
recovery in light of all the attendant risks of
Id. (quoting County of Suffolk v. Long Island Lighting,
907 F.2d 1295, 1323-24 (2d Cir. 1990) (internal citations omitted));
see Joel A, 218 F.3d at 138-39; Detroit v. Grinnell Corp.,
495 F.2d 448, 463 (2d Cir. 1974).
If the court determines that a settlement is both procedurally
and substantively fair, it may deem the settlement to be fair,
adequate and reasonable. The court must then verify that the
settlement was not the product of collusion before it may
certify and approve the settlement. D'Amato, 236 F.3d at 85.
The Settlement is procedurally fair. First, it is the product
of arm's length negotiations. The parties conducted their first
settlement discussions on November 24, 1998. (Edwards Decl. In
Supp. Pls.' App. for Settlement ¶ 8.) They met again on December
14, 1999, October 4, 2000, December 21, 2000,*fn4 January 31,
2001*fn5 and October 18, 2001*fn6 to discuss
settlement. (Edwards Decl. In Supp. Pls.' App. for Settlement §§
12-13, 16.) They considered a range of settlement figures and
structures, utilized United States Magistrate Judge William D.
Wall to direct their negotiations, and finally agreed upon the
current terms after significant wrangling. Neither party enjoyed
a domineering negotiating position, and neither wielded unfair
influence over the other party. Accordingly, the Settlement was
freely bargained for.
Secondly, Class Counsel "`possessed the experience and
ability, and . . . engaged in the discovery, necessary to
effective[ly] represent . . . the class's interests.'"
D'Amato, 236 F.3d at 85. (quoting Weinberger v. Kendrick,
698 F.2d 61, 74 (2d Cir. 1982)). Mr. Edwards and Mr. Amrod are
skilled and seasoned attorneys, and both Hogan & Hartson and
Amrod & Van der Waag are well respected firms.
Moreover, Class Counsel conducted over fifty depositions,
handled hundreds of thousands of documents, reviewed
computerized databases containing information about the 36,000
Class members, served interrogatories and requests for
admission, and produced expert reports. (Edwards Decl. In Supp.
Pls.' App. for Settlement ¶ 4.) Class Counsel was sufficiently
educated about the strengths and weaknesses of its case to
broker a settlement.
Accordingly, because the parties engaged in arm's length
negotiations, and because Class Counsel was amply skilled and
fully informed by adequate discovery, the Settlement is
C. Substantive Fairness
The Grinnell Factors direct that the Settlement is also
substantively fair, adequate and reasonable. See D'Amato, 236
F.3d at 85.
1. Complexity, Expense and Likely Duration of the
This a complex case. The parties argued a highly contested
Motion to Dismiss and fought numerous discovery disputes that
addressed novel questions of law. Complicated damage
calculations were also made.
The case would be expensive to try. Class Counsel has already
incurred significant administrative expenses and would invite
more at trial. Moreover, the legal fees, which are already
substantial (but reasonable), would materially increase with
A trial in this case would also certainly be protracted. There
are multiple claims involved, and several witnesses would have
to be called. Based on the present duration of the litigation,
it is not unreasonable to assume that the trial would be
Accordingly, the complexity, expense and potential length of a
trial favor settlement.
2. The Reaction of the Class to the Settlement
The Class has reacted favorably to this settlement. Only two
Class members chose to object at the Fairness Hearing, and
neither objection focused on the recovery for Class members.
Moreover, to date, the Court is only aware of thirty-three Class
members who opted out of the Settlement, which is a de minimis
number. Therefore, the Class appears to approve of the
3. The Stage of the Proceedings and the Amount of Discovery
The stage of the proceedings and the amount of discovery
completed suggest that the Settlement represents an
educated evaluation of the relative strengths and weaknesses of
the parties' cases. Discovery is concluded, and the parties are
in a position to make informed settlement judgments.
Accordingly, settlement is appropriate.
4. The Risks of Establishing Liability and The Risks of
It is axiomatic that anything can happen at trial. While
Conway's liability was already established in another
proceeding, the current action is by no means an open and shut
case. Plaintiffs still must prove that they were fraudulently
deceived into paying fees they voluntarily accepted, and that
these defendants are responsible.
Moreover, Defendants have persuasively argued that the Class
members did not suffer a compensable loss because they
voluntarily chose to pay the inflated closing costs, and were
therefore not harmed. Accordingly, the Class might have trouble
proving damages at trial and is better off settling.
5. The Risks of Maintaining the Class Action Through the
The risks of maintaining the Class Action through trial also
favor settlement in this case because Defendants have appealed
the Class Certification Order. While the Court is confident that
it decided the Class Certification Motion correctly, there is no
guaranty the Second Circuit will agree. Accordingly, this factor
6. The Ability of the Defendants to Withstand a Greater
Astoria Federal, LISB's successor in interest, is a well
capitalized bank that could probably withstand a greater
judgment. However, a treble damage award on Plaintiffs' RICO
claim could be so serious that it might impair Astoria Federal's
capital ratios. Accordingly, this factor is inconclusive.
7. The Range of Reasonableness of the Settlement Fund in
Light of the Best Possible Recovery and the Attendant Risks
These two factors favor approving the Settlement. Under the
Settlement, Class members will receive 100% of the excess they
paid over the agreed upon Appropriate Closing Costs. This
recovery approximates total restitution, which is unprecedented.
The best possible recovery would permit Class members to
collect treble damages on the RICO claim and interest on their
award. While that recovery could be substantially greater than
the current one, "[t]he fact that a proposed settlement may only
amount to a fraction of the potential recovery does not, in and
of itself, mean that the proposed settlement is grossly
inadequate and should be disapproved." Detroit v. Grinnell
Corp., 495 F.2d 448, 455 (2d Cir. 1974).
Moreover, in light of the difficulty of proving a RICO claim,
a potential treble damages award is speculative. Foregoing
interest is also a reasonable compromise for the security of a
settlement. Accordingly, because the Settlement permits for
almost total recovery for the Class members, and because the
proposed recovery is attractive in light of the attendant risks
of trial, the Settlement is reasonable.
Therefore, all the Grinnell Factors, save one, favor
settlement. That one factor is merely inconclusive. Accordingly,
under the Grinnell Factors, the Settlement is substantively
fair, adequate and reasonable.
There is nothing to indicate that this settlement was reached
through collusion. See D'Amato v. Deutsche Bank, 236 F.3d 78,
85 (2d Cir. 2001); Joel A. v. Giuliani, 218 F.3d 132, 138-39
(2d Cir. 2000). The parties litigated and negotiated vigorously
as adversaries. The Settlement is the product of that process.
Accordingly, there was no collusion.
The Settlement is fair, adequate and reasonable. It is not the
product of collusion. Therefore, the Court approves the
Settlement. The Court will address the award of attorneys' fees
in a separate opinion.