United States District Court, S.D. New York
March 1, 2004.
CEASAR DAHINGO, On Behalf of Himself and All Others Similarly Situated, Plaintiffs, -against- ROYAL CARIBBEAN CRUISES, LTD., et al., Defendants
The opinion of the court was delivered by: JAMES FRANCIS, Magistrate Judge
MEMORANDUM OPINION AND ORDER
The plaintiffs in this class action are some 29,700 claimants who
were employed on cruise ships operated by Royal Caribbean Cruise, Ltd.
("Royal Caribbean") and its affiliates, including Celebrity Cruise Lines
("Celebrity"). The plaintiffs alleged that they were denied overtime pay
to which they were entitled under collective bargaining agreements
entered into between the companies and two international labor unions.
During the course of litigation, the parties entered into negotiations
that ultimately led to a settlement agreement that was approved by the
Court. As will be described in detail below, the agreement established a
procedure by which class members would file claims in order to receive
payment in specified amounts out of funds provided by the defendants.
Counsel for the plaintiff class now seek an order requiring payment of
claims that either were filed after the deadline set forth in the
settlement agreement or were not signed by the claimant. This motion
presents important issues concerning
the role of a court in implementing the settlement of a class
On October 22, 2002, the parties entered into the Settlement Agreement
designed to conclude this litigation. (Pl. Exh. 2 (the "Settlement
Agreement")).*fn1 On November 5, 2002, the Honorable Kimba M. Wood,
U.S.D.J., issued an order preliminarily approving the settlement. (Pl.
Exh. 1 (the "Preliminary Approval Order")). In that order, she certified
a settlement class consisting of workers employed in the bar, restaurant,
galley, and housekeeping departments of the defendants' vessels. For
persons employed on Royal Caribbean cruise ships, the class period ran
from December 1, 1996 to August 31, 2002. For workers on vessels operated
by Celebrity, which had been acquired by Royal Caribbean, the class
period was September 1, 1999 to August 31, 2002. (Preliminary Approval
Order, ¶ 2; Pl. Exh. 3, Affirmation of Paul T. Hofmann dated Dec. 5,
2003 ("Hofmann Aff."), ¶ 3). Pursuant to the Preliminary Approval
Order, notice of the proposed settlement was sent to all class members on
November 25, 2002, together with Proof of Claim and Release forms that
claimants were required to complete and return in order to receive
payment under the settlement. (Preliminary Approval Order ¶ 8;
Hofmann Aff., ¶ 4; Notice of Pendency and Proposed Settlement of
Class Action, attached to Settlement Agreement). On February 28, 2003,
a settlement hearing, Judge Wood issued a Final Order and Judgment
Approving Class Action Settlement and Dismissing Claims. (Pl. Exh. 11
(the "Final Order")).
Pursuant to the terms of the Settlement Agreement, the defendants
created a settlement fund of $18.4 million. This was the maximum amount
that the defendants agreed to pay to satisfy all of their obligations
arising out of the litigation. (Settlement Agreement, ¶ 1.22). From
this fund, Judge Wood approved an award to class counsel of attorneys'
fees of $6,133,333.00 and expenses of $144, 210.18. (Final Order, ¶
13). She also authorized an incentive award of $3,000.00 to the named
plaintiff, Caesar Dahingo. (Final Order, ¶ 14). After deduction of
these amounts as well as expenses incurred in administering the class
claims, the residual was designated the Net Settlement Fund from which
the unnamed class members were to be paid. (Settlement Agreement ¶
The class members were entitled to a payment based on a formula that
took into account when and on which vessels they had worked, the length
of their employment, and whether they held positions in which they
received tips. Employees who worked on Royal Caribbean vessels from
December 1, 1996 to December 31, 1999, or on Celebrity vessels from
September 1, 1999 to December 31, 1999 would be entitled to $40 per month
worked in tipping positions or $50 per month in non-tipping positions.
Persons employed on either line from January 1, 2000 to August 31, 2002
would receive $15 per month in tipping jobs or $20 per month in
non-tipping jobs. Awards
were to be pro-rated whenever the employee worked part of a month.
(Settlement Agreement, ¶ 2.08(a), (b)).
To the extent that the total of the claims exceeded the Net Settlement
Fund, the amounts paid to class members would be reduced proportionally.
(Settlement Agreement, ¶ 2.05(a)). On the other hand, if the Net
Settlement Fund were larger than necessary to pay the claims, any excess
would revert to the defendants. (Settlement Agreement, ¶ 2.05(a)).
The firm of Gilardi & Co., LLC ("Gilardi" or the "Claims
Administrator") was retained by Royal Caribbean's counsel to act as
Claims Administrator pursuant to the Settlement Agreement. (Preliminary
Approval Order, ¶ 7; Settlement Agreement, ¶ 1.01). The claims
procedure provided that "[t]he Proof of Claim and Release shall be
submitted such that the Claims Administrator shall receive it within 120
days of the date on which the Class Notice is mailed to the Settlement
Class." (Settlement Agreement, ¶ 2.06(a)). Based on the date that
class notice was sent out, the bar date was March 27, 2003. (Proof of
Claim and Release ("Proof of Claim"), Pl. Exh. 10). The Settlement
Agreement stated that "[a]ny Class Member who fails to submit his or her
Proof of Claim and Release [by the bar date] shall be forever barred from
receiving any payments pursuant to this Agreement." (Settlement
Agreement, ¶ 2.06(b)). Similarly, the Proof of Claim and Release
warned that "THIS FORM MUST BE RECEIVED BY THE CLAIMS ADMINISTRATOR ON OR
BEFORE MARCH 27, 2003. IF THIS FORM IS NOT RECEIVED ON OR BEFORE THAT
DATE, THEN YOU WILL NOT RECEIVE A DISTRIBUTION."
(Proof of Claim, Section III). The procedures further provided
that "[t]he Claims Administrator shall reject each Proof of Claim and
Release that is from someone who is not a member of the Class, is
unsigned, or is untimely." (Settlement Agreement, ¶ 2.06(c)). Again,
the Proof of Claim alerted claimants that they must submit their
"completed and signed" forms by the bar date. (Proof of Claim,
Once the deadline had passed, Gilardi was to make its determinations
and provide a report of the results to counsel for the parties within 30
days. (Settlement Agreement, ¶ 2.06(d)). Counsel, as well as the
individual class members, were provided the opportunity to object to
Gilardi's decisions. (Settlement Agreement, ¶ 2.06(d), (f), (g)). The
parties agreed that I would be the arbiter of any such objections and
that my determinations would be final and conclusive. (Settlement
Agreement ¶ 2.06(f), (g), (h)).*fn2
As it turned out, Gilardi approved some 5,166 claims for employees of
Royal Caribbean, and paid out an average of $1,022.00 to these workers.
It also approved 1,320 claims from Celebrity employees, with the mean
award being $279.00. The total amount paid to claimants was
$5,652,640.21, and the average award for all claimants was $871.00. (Pl.
Exhs. 4, 12 at ¶ 2). Payment was made on approved claims on November
4, 2003. (Pl. Exh. 7). Gilardi rejected claims filed by claimants who
either did not work during the class period or did not work in a position
covered by the settlement. More important for present purposes, Gilardi
also rejected any claims filed after March 27, 2003, and any claims that
were not signed. (Pl. Exhs. 5, 9, 12 at ¶ 3).
Approximately 343 claimants filed their claims late. (Hofmann Aff.,
¶ 6; Pl. Exh. 6). Most of these were received by Gilardi within a
week or so after the bar date, and virtually all were received by July
31, 2003. (Pl. Exhs. 6, 8). Indeed, 162 of these claims were postmarked
on or before March 27, 2003, but received thereafter. (Pl. Exh. 19). For
example Mircea Hie and Laura Bogdan, who are married, each signed their
claim forms on March 21, 2003. The forms were postmarked in Miami on
March 24, but not date stamped in Gilardi's offices until March 28.
(Affirmation of Mircea Hie dated Dec. 3, 2003, Pl. Exh. 25; Affirmation
of Laura Bogdan dated Dec. 3, 2003, Pl. Exh. 26). Daniel Singh received
notice of the requirement to file a proof of claim on March 20,
2003, while he was working aboard a Royal Caribbean vessel. He
completed the form on March 26 and posted it March 28. It was received by
Gilardi on April 3. (Pl. Exhs. 17, 18). Gilardi rejected each of these
claims as untimely.
Some 351 claimants submitted timely proof of claim forms but failed to
sign them. (Pl. Exhs. 5, 13). Gilardi did not notify these claimants that
their claims were incomplete, nor did it advise class counsel of the
identity of these claimants until after the deadline had passed. (Hofmann
Aff. ¶¶ 11, 14). Several claimants have explained their failure to
sign the form. Raymond Franklyn indicated that it was an oversight on his
part, and he noted that Gilardi had never contacted him to correct it.
(Certification of Raymond Franklyn dated Nov. 26, 2003, Pl. Exh. 9).
John V. Welton, Bernardo Wilson, Winston Anthony Jones, and Abdurrezzak
Eren all pointed out that the front of the proof of claim form does not
direct the claimant to turn the form over and sign it on the reverse side
where the signature line appears. They also indicated that although they
had included their addresses and telephone numbers on the form, Gilardi
never contacted them to correct the deficiency. (Certification of John V.
Welton dated Dec. 3, 2003, Pl. Exh. 21; Certification of Bernardo Wilson
dated Dec. 3, 2003, Pl. Exh. 22; Certification of Winston Anthony Jones
dated Dec. 3, 2003, Pl. Exh. 23; Certification of Abdurrezzak Eren dated
Dec. 2, 2003, Pl. Exh. 24). In addition, Gilardi rejected 17 claims
because they were signed not by the claimants but by an attorney who
avers that he had power of attorney to execute the
forms on behalf of his clients. (Affirmation of Elias B. Rudnikas
(undated), Pl. Exh. 15).
Class counsel now move for an order permitting the claimants who filed
untimely claims to participate in the settlement, requiring Gilardi to
give the claimants who failed to sign their proof of claim forms an
opportunity to do so, and to deem as properly signed those forms signed
by the attorney for his clients. The defendants oppose each aspect of the
A. Legal Principles
___ At first blush, the law with respect to a court's authority to
dictate the scope of relief available in a class settlement appears
ambiguous. Some courts take a strict contract approach and refuse to
grant relief that deviates from the agreement of the parties. See,
e.g., ML-Lee Acquisition Fund II, L.P. v. Lee, Nos.
Civ.A.94-722-JJF, Civ.A.95-724-JJF, Civ.A.92-60-JJF, 1999 WL 184135, at
*2 (D. Del. March 23, 1999); Yanda v. Vanguard Meter Service,
No. 92 Civ. 2827, 1995 WL 358663, at *3 (S.D.N.Y. June 14, 1995). Others
appear to apply equitable principles to expand the relief available to
class members beyond that explicitly provided for in the settlement
agreement. See, e.g., Zients v. LaMorte, 459 F.2d 628, 630 (2d
Cir. 1972); In re Crazy Eddie Securities Litigation,
906 F. Supp. 840, 843-44 (E.D.N.Y. 1995). This apparent tension can be
reconciled, however, by analyzing the circumstances under which courts
follow one path or the other.
In general, "[s]ettlement agreements are contracts and must
therefore be construed according to general principles of contract
law." Torres v. Walker, 356 F.3d 238, 245 (2d Cir. 2004)
(quoting Red Ball Interior Demolition Corp. v. Palmadessa,
173 F.3d 481, 484 (2d Cir. 1999)); see also Collins v.
Harrison-Bode, 303 F.3d 429, 433 (2d Cir. 2002). This applies to
class settlements as well as to the resolution of litigation between
individual parties. See Holocaust Victim Assets Litigation,
256 F. Supp.2d 150, 152 (E.D.N.Y. 2003); Eardman v. Bethlehem Steel
Corp., No. 84-CV-0274E(H), 1994 WL 721386, at *4 (W.D.N.Y. Dec. 29,
1994). A settlement agreement "represents a compromise between parties
who have waived their right to litigation and, in the interest of
avoiding the risk and expense of suit, having `give[n] up something they
might have won had they proceeded with the litigation.'" Bercrer v.
Heckler, 771 F.2d 1556, 1568 (2d Cir. 1985) (alterations in
original) (quoting United States v. Armour & Co.,
402 U.S. 673, 681-82 (1971)). Accordingly, "[t]he court is not entitled
to expand or contract the agreement of the parties as set forth in the
consent decree." Id. (citing Artvale, Inc. v. Rugby Fabrics
Corp., 303 F.2d 283, 284 (2d Cir. 1962) (per curiam)). This
principle is strictly followed in class actions where the relief
requested would exceed that which the parties had bargained for. As a
result, courts will not permit late-filed claims where the consequence is
to increase the obligation of the defendant. See Grace v. City of
Detroit, 145 F.R.D. 413, 417 (E.D. Mich. 1992), For example, in
ML-Lee, the court declined to extend the period during which
class members would be entitled to payment for options
that they tendered to the defendants. The court reasoned that even
though the defendants had agreed to pay up to $14 million under the
settlement agreement, any amounts not claimed would revert to them.
Therefore, extension of the agreed upon deadline would be a material
change in the agreement detrimental to the defendants. 1999 WL 184135,
Conversely, where a change in the allocation of a settlement fund
affects only the distribution among class members and not the obligations
of the defendant, courts will exercise their equitable powers. In
Zients, for example, the court permitted late claims because
"allowing these five claims would result in only a minuscule reduction in
recovery by timely plaintiffs." 459 F.2d at 630. Similarly, in In re
"Agent Orange" Product Liability Litigation, 689 F. Supp. 1250,
1261-63 (E.D.N.Y. 1988), the court not only allowed late claims but also
permitted class members who had previously opted-out to make claims on
the settlement fund. Since the settlement agreement had established a
fixed or closed-end fund, there could be no prejudice to the defendants,
and the plaintiffs who had filed timely claims had no justifiable
expectation in any particular pay-out. Id. at 1263. In
Orthopedic Bone Screw Products Liability Litigation, 246 F.3d 315
(3d Cir. 2001), the court allowed a late claim where all class members
were asserting claims on a "finite pool of assets." Id. at 321.
The court reasoned:
[W]e find it appropriate to consider the effect of
[the late claimants'] inclusion on those whom it
might prejudice namely those members of
the settlement class who filed their registrations
by the . . . deadline. It
cannot be maintained that timely registrants are
more deserving of remedy, for purposes of equity,
than tardy registrants with similar claims,
presuming the failure to register on time was
Id. at 324.
There are also cases where courts will modify a term of a settlement
agreement even where the consequence is to increase the liability of the
defendants. Those cases, however, involve terms of the agreement
generally a time bar which were established in the first instance
by the court and were not subject to negotiation between the parties. In
Crazy Eddie, for example, the court noted that "since the
deadline for filing proofs of claim was first set by [the court]. . .
the instant motion is essentially a request for an enlargement of time
with respect to a court ordered deadline." 906 F. Supp. at 844.
Accordingly, it found that the deadline was not "an integral part of the
bargain" and could be extended in light of equitable considerations.
Id. at 844-45. Similarly, in In re Cendant Corp. Prides
Litigation, 233 F.3d 188, 193 (3d Cir. 2000), the court permitted
the extension of the deadline for filing claims against a settlement fund
because the defendant would not be prejudiced "since the deadline date
was not agreed upon by the parties nor set by them." See also In re
Cendant Corp. Prides Litigation, 311 F.3d 298, 301 (3d Cir. 2002)
(referencing earlier finding of absence of prejudice); In re Cendant
Corp. Prides Litigation, 235 F.3d 176, 184 & n.11 (3d Cir.
In sum, because class settlements are contracts, courts do not
generally have the authority to modify them on the basis of
equitable principles alone. Courts do have the equitable power to
allocate the proceeds of a settlement fund among class members insofar as
it does not alter the liability of the defendant. And, they can modify
terms of a settlement agreement that were not the product of negotiation
and compromise by the parties.
Nevertheless, class counsel argue that courts may exercise broader
powers of equity with respect to class settlements and should follow the
standards set forth in Pioneer Investment Services Co. v. Brunswick
Associates L.P., 507 U.S. 380 (1993). In that case, the United
States Supreme Court considered the standard for permitting a creditor to
file a late claim in a bankruptcy proceeding. Id. at 382. The
relevant Bankruptcy Rule allowed for late filings where the original
deadline had been missed as the result of "excusable neglect."
Id. at 382 n.2; Fed.R. Bankr. 9006(b)(1). The Court held
that a determination of excusable neglect is an equitable analysis
requiring consideration of "all relevant circumstances surrounding the
party's omission." Id. at 395. These factors include (1) the
danger of prejudice to the adversary, (2) the length of the delay and its
potential impact on judicial proceedings, (3) the reason for the delay
and whether it was within the reasonable control of the party seeking
relief, and (4) whether the party seeking relief acted in good faith.
On its face, Pioneer is of little relevance here, since it
concerned the construction of a term contained in the Federal Rules of
Bankruptcy, not principles for implementing settlement agreements.
Nonetheless, as class counsel point out, courts have
regularly imported the Pioneer standard into
determinations of whether requirements for claiming against a settlement
fund should be eased. See Cendant, 311 F.3d at 300;
Orthopedic Bone Screw Products, 246 F.3d at 321-22; Crazy
Eddie, 906 F. Supp. at 843-44. Those courts, however, had already
made a determination that equitable factors were appropriately considered
in those cases. Either because the terms at issue had not been bargained
for or because the dispute did not implicate the ultimate obligations of
the defendant, it was necessary to go beyond simple contract principles.
In those circumstances, Pioneer provides guidance in
determining the equities. But where the analysis is moored in contract
principles, Pioneer does not apply.
B. Late-Filed Claims
Application of these principles to the late-filed claims in this case
is straightforward. First, although the defendants committed to payment
of up to $18.4 million into the settlement fund, they are entitled to
receive back any excess that is not paid out for claims, attorneys' fees
and costs, or administrative expenses. By agreement of the parties,
$5,794,016.40 has already been returned to the defendants, and another
$375,585.99 has been set aside in escrow for rejected claims. (Pl. Exh.
12, ¶¶ 7, 8). Since the Net Settlement Fund far exceeds the amount of
the claims paid, allowance of late-filed claims would be a cost to the
defendants.*fn3 Second, the bar date in this case was agreed upon by
the parties, not selected by the Court. Moreover, it was
specifically the subject of negotiation and compromise by counsel.
(Letter of Aurora Cassirer dated July 8, 2002, attached as Exh. D to
Royal Caribbean's Opposition to Plaintiffs' Counsel's Motion Regarding
Untimely and Unsigned Claims ("Def. Memo."), at 2, ¶ 5; Letter of
Sanford L. Borer dated July 11, 2002, attached as Exh. E to Def. Memo.,
at 2, ¶ 9; Letter of Paul T. Hofmann dated July 17, 2002, attached as
Exh. F to Def. Memo., at 4, ¶ 2.06(ii)). Therefore, there is no
justification for going beyond contract principles in determining whether
late claims should be accepted here. And, "[i]t is an elementary
principle of contract law that when parties bargain for a
mutually-accepted date, that date has a special legal significance to the
agreement." In re New England Mutual Life Insurance Co. Sales
Practices Litigation, 204 F.R.D. 6, 13 (D. Mass. 2001).
It is no doubt true, as class counsel argue, that many of the claimants
may have missed the time bar through no fault of their own. Some may not
have received notice of the settlement until the deadline was upon them.
Others may have had difficulty locating postal facilities or may have
underestimated the time it would take for mail to be delivered. However,
class counsel were well aware of such hazards during negotiations and
were presumably satisfied that the deadline ultimately agreed upon took
reasonable account of these concerns. The application to allow late-filed
C. Unsigned Claims
The analysis with respect to unsigned claims is more subtle. As with
the late-filed claims, there is no basis for invoking general principles
of equity. Nonetheless the Settlement Agreement, by its terms, is
governed by New York law (Settlement Agreement, ¶ 5.05), and under
that law "[i]mplicit in all contracts is a covenant of good faith and
fair dealing in the course of contract performance." Banco Espirito
Santo de Investimento, S.A. v. Citibank, N.A., No. 03 Civ. 1537,
2003 WL 23018888, at *5 (S.D.N.Y. Dec. 22, 2003) (quoting Dalton v.
Educational Testing Service, 87 N.Y.2d 384, 389, 639 N.Y.S.2d 977,
979 (1995)); see also Ari & Co. v. Regent International
Corp., 273 F. Supp.2d 518, 521 (S.D.N.Y. 2003). "Good faith
performance or enforcement of a contract emphasizes faithfulness to an
agreed common purpose and consistency with the justified expectations of
the other party. . . . " Restatement (Second) of Contracts § 205,
cmt. a (1981).
In this case, Gilardi was retained by and acted as agent for the
defendants and therefore had an obligation to perform under the
Settlement Agreement. That does not mean that Gilardi was required merely
to refrain from violating or evading its contractual responsibilities.
Rather, "bad faith . . . may consist of inaction;" it can be inferred
from a "lack of diligence." Restatement (Second) of Contracts § 205,
cmt. d (1981).
That was the case here. Gilardi was obligated to reject any
claims that were not signed. That is entirely rational. The parties
did not intend that payments be made out of the settlement fund unless
assured that the recipient was truly the employee he or she purported to
be, as evidenced by a signature under penalty of perjury. However, when
unsigned forms initially arrived, the Claims Administrator could not, in
good faith, remain inert. Particularly because the signature line was on
the back of the form, it was inevitable that some claimants, many of whom
apparently do not speak English as a first language, would overlook it.
Gilardi was therefore obligated to take reasonable steps to give these
claimants the opportunity to correct the deficiency in their claims. In
light of the fact that the forms included the claimant's address and
telephone number, the cost and difficulty of contacting them would have
been minimal. In order to fulfill the purposes of the Settlement
Agreement, then, claimants who submitted unsigned forms must be given the
chance to cure the defect.*fn4
Within 30 days of the date of this Memorandum Opinion and Order,
Gilardi shall mail a notice to all claimants who submitted timely but
unsigned claims advising them of the need to resubmit a signed form in
order to qualify for payment. A copy of the claimant's original claim
shall be enclosed so that the claimant
can sign and return that form. Resubmitted forms shall be
considered timely if received by Gilardi within 60 days of the date
notice is sent, and the notice shall alert claimants to this deadline.
Counsel may, with the Court's approval, agree to alteration of these
___ For the reasons set forth above, the application to allow
late-filed claims is denied. The application for an order providing
claimants who submitted timely but unsigned claims the opportunity to
submit signed claim forms is granted, and the Claims Administrator shall
implement the procedures outlined above.