United States District Court, S.D. New York
June 7, 2005.
HENRY SPANN, CAROL MUNLEY, and CATHERINE CHIAPPAROLI, on behalf of themselves and all others similarly situated, Plaintiffs,
AOL TIME WARNER, INC., WARNER BROS. RECORDS, WARNER BROS. COMMUNICATIONS, INC., the TWI/MUSIC PENSION PLAN, the TWI PLAN ADMINISTRATIVE COMMITTEE, WARNER-ELEKTRA-ATLANTIC CORP. ("WEA CORP."), the TIME WARNER EXCESS PENSION PLAN, the TIME WARNER EXCESS PENSION PLAN ADMINISTRATIVE COMMITTEE, SPECIALTY RECORDS, INC., WEA MANUFACTURING INC., a Delaware corporation, and any successor thereto, the WEA MANUFACTURING PENSION PLAN, the WEA MANUFACTURING PENSION PLAN ADMINISTRATIVE COMMITTEE, ATLANTIC RECORDING CORPORATION, the ATLANTIC RECORDING CORPORATION PENSION PLAN, the ADMINISTRATIVE COMMITTEE OF THE PLAN for the ATLANTIC RECORDING CORPORATION PENSION PLAN, TIME WARNER ENTERTAINMENT COMPANY, L.P., the TIME WARNER PENSION PLAN ADMINISTRATIVE COMMITTEE, WARNER PUBLISHING, INC., the WARNER PUBLISHING PENSION PLAN, the WARNER PUBLISHING PENSION PLAN ADMINISTRATIVE COMMITTEE, and DOES 1-10, Defendants.
The opinion of the court was delivered by: DENISE COTE, District Judge
OPINION AND ORDER
The plaintiffs in this class action brought claims pursuant to
the Employee Retirement Income Security Act (ERISA),
29 U.S.C. § 1001, et seq., against AOL Time Warner, Inc. and related
companies ("AOL TW"), as well as six pension plans ("Plans") and their
administrative committees. Having reached a preliminary settlement and
distributed notice of such settlement to putative class members, the
plaintiffs and defendants jointly seek final approval of their settlement
agreement. Following a final settlement fairness hearing on April 8, 2005,
and having reviewed supplemental submissions of June 3, the class action
settlement is approved. BACKGROUND
Summary of Plaintiffs' Claims
Plaintiffs claim that the defendants violated ERISA Sections
404 and 502, 29 U.S.C. §§ 1104, 1132,*fn1 by failing to
annualize their partial years of compensation when calculating
their pension benefits using the Plans' definition of "Average
Compensation," thereby underpaying them.*fn2 Typical Plan
language describes a participant's average compensation as his
"average annual Compensation for the five consecutive calendar
years in which he receives Compensation which results in the
highest average." The Plans provide that
[f]or any period that is less than a full calendar
year, a Participant's compensation shall be
determined by multiplying the Compensation actually
received by the Participant for such period by a
fraction, the numerator of which is twelve and the
denominator of which is the number of months (with
any fraction of a month counted as a full month for
this purpose) in such period for which Compensation
was actually received.
A central dispute between the plaintiffs and defendants was
whether, according to the Plans, such annualization was required
only where an employee has participated in a plan for less than a full calendar year in total. The defendants contended that the
committees charged with administering the Plans had for decades
consistently interpreted the Plans' annualization provisions to
require annualization only in such circumstances.
Two of the named plaintiffs, Henry Spann ("Spann") and Carole
Munley ("Munley"), requested and received lump sum pension
payments when they concluded their employment with AOL TW. Spann
and Munley both signed a standard release required of all
employees electing to receive a lump sum pension distribution
("Release"), which stated "I understand that when I endorse the
check I receive for the amount of my payment, I will be releasing
the Plan, the Committee, the Trustees and my Employer from any
liability in connection with my participation in the Plan." Spann
claims that his lump sum payment was underpaid by approximately
$19,300, while Munley claims that her lump sum payment was
underpaid by approximately $1,100.
The other named plaintiff, Catherine Chiapparoli
("Chiapparoli"), elected to receive her pension funds as an
annuity, rather than in a lump sum. Consequently, she did not
sign a Release. Chiapparoli claims that her annuity pension
payments are underpaid by $88 per year.
The language of the Plans has subsequently been revised in an
effort to avoid the alleged ambiguities that led to this lawsuit.
The parties anticipate that as a result of the revisions, this
"problem" will not recur. The revisions confirm the defendants'
long-standing interpretations of the Plans' language.
On April 8, 2002, the plaintiffs filed a class action in the
Central District of California that was transferred to this
District on October 8. Apart from the topic of damages, discovery
was completed on October 31, 2003. The plaintiffs' first motion
for class certification was denied. See Spann v. AOL Time
Warner, Inc., 219 F.R.D. 307, 324 (S.D.N.Y. 2003). Following
negotiations, the plaintiffs and defendants arrived at a
stipulated settlement agreement on July 2, 2004 that was
subsequently amended in December (as amended, "Settlement
Agreement") and jointly proposed that a class be certified for
the purpose of settlement only. A preliminary approval hearing
was held on August 19, 2004. An Order of December 21, 2004
preliminarily approved the Settlement Agreement, approved the
proposed form of class notice ("Class Notice"), and certified a
class for settlement purposes only pursuant to Rule 23(b)(1),
Fed.R.Civ.P. A settlement fairness hearing was held on April
8, 2005. For reasons described below, a second fairness hearing
was scheduled for June 9, 2005.
Class Definition and Composition
The definition of the class certified for the purposes of
settlement recognized two subclasses, one for those who received
lump-sum distributions, and one for those who received an annuity. The definition is as follows:
Each and every participant in one or more of the
Plans whose pension benefit under one or more of the
Plans was or will be calculated based upon one or
more periods of Benefit Service that concluded during
the Class Period, and each of the spouses, designated
beneficiaries, executors, successors, alternative
payees under a qualified domestic relations order,
representatives or heirs of said participants. The
proposed settlement class is divided into two
subclasses, each of which includes at least one
Subclass One consists of those Class Members who
received a lump-sum distribution of pension
benefits from one or more of the Plans that was
calculated based upon a period of Benefit Service
that concluded during the Class Period. Named
plaintiffs Henry Spann and Carol Munley received
their pension benefits as lumpsum distributions.
Subclass Two consists of those Class Members who (a)
received or who are receiving a pension benefit in
the form of an annuity from one or more Plans that
was calculated based upon a period of Benefit Service
that concluded during the Class Period; or (b) have a
vested right to receive a pension benefit in the form
of an annuity from one or more of the Plans at some
date in the future that was calculated based upon a
period of Benefit Service that concluded during the
Class Period. Named Plaintiff Catherine Chiapparoli
receives her pension benefit monthly in the form of
(Emphasis supplied.) The Class Period is from January 1, 1989
through December 31, 1999.
At the August 19, 2004 preliminary approval hearing, counsel
proposed a settlement amount of $2.9 million, with at most
one-third, or approximately $1 million, being allocated to
attorney's fees, $10,000 for each of the three named plaintiffs
as incentive awards, post-approval administration fees of
$300,000, and attorney's costs and expenses of approximately $250,000, leaving
at least approximately $1.3 million to be distributed to the
Class. At the preliminary approval stage, the Class was divided
into the same two subclasses as now, although at the preliminary
approval hearing, defense counsel estimated that the total class
size was approximately 7,000, with 6,000 in Subclass One, and
only 1,000 in Subclass Two.
Defense counsel estimated that if the plaintiffs all prevailed
to the maximum extent on all of their claims, the total recovery
for the class would be approximately $12 million plus interest,
and that $10 million of this figure would be attributable to
Subclass One, and $2 million would be attributable to Subclass
Two. Plaintiffs' counsel proposed that the Settlement Fund of
approximately $1,300,000 be divided equally between the two
subclasses. This would represent a recovery of approximately 6.5%
of the Subclass One claim and approximately 30% of the Subclass
Summary of Settlement Terms and Applications
After the preliminary approval hearing, the initial estimates
about the size of the Class and the subclasses were adjusted, as
were the estimated total recoveries for each subclass and the
Class as a whole. Following these adjustments, the estimated size
of the Class was 10,000 individuals, with 5,500 in Subclass One,
and 4,500 in Subclass Two. It is estimated that if the plaintiffs
all prevailed to the maximum extent on all of their claims, the total recovery for the class
would be approximately $16 million plus interest, with $7.8
million plus interest for Subclass One, and $8.2 million plus
interest for Subclass Two.
The Settlement Agreement provides that the defendants will
create a $2.9 million fund ("Settlement Fund") to be distributed
as described below. Up to $300,000 shall be paid to the
Settlement Administrator to cover administration expenses
connected with implementing the Settlement Agreement, including
the process of calculating individualized damage awards for each
class member.*fn3 It appears that approximately $60,000 of
the $300,000 will remain available for distribution to class
The Settlement Agreement also provides for an allocation of
fees to Class Counsel. These fees shall not exceed 33.33% of the
total amount recovered for the Class, plus actual expenses and
costs incurred. Class Counsel has applied for $966,666.66 in
fees, constituting 33 1/3% of the total amount of the Class
recovery, plus costs and expenses in the amount of $175,485.28.
On April 27, 2005, plaintiffs' counsel applied for $2,934.78 in
supplemental costs including the costs associated with preparing
for, and traveling to, the April 8 fairness hearing.
The Settlement Agreement provides that in addition to their
recovery as class members, the three named plaintiffs shall
receive incentive awards no greater than $10,000 each. The named plaintiffs have applied for incentive awards of $10,000 each. All
three named plaintiffs are elderly, were intimately involved in
the litigation, were deposed, and participated in the settlement
It is proposed that one quarter (25%) of the net recovery be
distributed to Subclass One members, and three quarters (75%) to
Subclass Two members. This percentage was adjusted from the 50-50
division advocated at the preliminary approval hearing to account
for shifts in the percentage of Class members belonging to the
two subclasses.*fn4 Based on the percentages of recovery
assigned to each subclass, Subclass One would receive a total of
$350,000 and Subclass Two would receive a total of $1,050,000.
This would represent a total recovery of 4.5% of the estimated
$7.8 million total damages for Subclass One plaintiffs, and would
represent a total recovery of 12.8% of the estimated $8.2 million
total damages for Subclass Two plaintiffs. Notice to the Class
The Class Notice contained boldfaced, capital letter warnings
that any Class member wishing to object to the terms of the
settlement or to appear at the final settlement fairness hearing
must file a notice of intent to object or appear postmarked no
later than February 25, 2005. Among other things, the Class
Notice included a summary of the Settlement Agreement, including
the $2.9 million Settlement Fund, administrative expenses of up
to $300,000, Class Counsel fees of up to 33.33% of the total
amount recovered plus actual expenses and costs, incentive awards
of $10,000 for each named plaintiff, the 25/75 split method of
allocating the remainder of the Settlement Fund among the two
subclasses, the value of the anticipated recoveries of both
subclasses if they were to prevail on all of their claims, and a
boldfaced and capitalized statement indicating that the
settlement, if approved, would release all Class members' claims
against the defendants that arise out of or are related to the
claims in this lawsuit.
The Class Notice was mailed on January 7, 2005 to the 10,058
class members initially identified by AOL TW.*fn5 From this
mailing, 305 Class Notices were returned to the Settlement
Administrator with forwarding addresses, and 2,816 Class Notices
were returned as undeliverable. The Settlement Administrator
mailed the former 305 Class Notices to the forwarding addresses, and obtained from various sources new addresses for 2,474 of the
2,816 returned as undeliverable. This wave of mailings yielded 92
Class Notices returned with forwarding addresses, and 282 Class
Notices returned as undeliverable. The former 92 Class Notices
were then mailed to the forwarding addresses. Consequently, 9,435
Class Notices have been mailed successfully to class members'
current addresses, yielding a success rate of almost 94% of the
class members initially identified.
The Settlement Administrator also established a toll-free
telephone hotline that provided information concerning the rights
of Class members, notice of the fairness hearing, information
about the settlement website discussed below, and an opportunity
to request a copy of the Class Notice. This hotline was
operational from January 6 to March 9, 2005, during which time it
received 471 telephone calls, including 79 requests for Class
Notices that the Settlement Administrator filled.
The Settlement Administrator additionally designed and launched
an informational website located at www.spann settlement.com,
which allowed visitors to view the Class Notice, the Settlement
Agreement, the Amendment to the Settlement Agreement, the Opinion
of December 24, 2003, the Order of December 21, 2004, the
Complaint, and information about the fairness hearing. The
website included contact information for the Settlement
Administrator through its mailing address and toll-free telephone
number, and allowed visitors to request that a Class Notice be
mailed to them. The website became operational on January 6, 2005. Since that date, it has received 773 "hits"
and 78 requests for Class Notices that the Settlement
Newly Discovered Pensioners
In reviewing files in this action, and after the initial
mailing of the Class Notice, the defendants discovered forty-two
additional individuals who were eligible for, but were not
receiving, pensions. Of these, thirty-five were covered by the
Class definition. Each of these individuals was advised how to
file claims for their pension funds and, where appropriate, how
to participate in the class action. The thirty-five were given
until May 12, 2005 to object to this settlement or to request an
opportunity to appear at a second fairness hearing. The second
hearing was scheduled to be held only in the event any objections
or requests to be heard were received.
The Reaction of the Class to the Class Notice
No objections to the proposed class settlement have been filed.
No class member has requested to appear and be heard at the
scheduled settlement fairness hearings. DISCUSSION
Judicial Approval of Class Action Settlements Under Rule
Rule 23(e), Fed.R.Civ.P. mandates court approval of any
settlement or dismissal of a class action. The standard to be
applied in determining whether to approve a class action
settlement is well established: the district court must
"carefully scrutinize the settlement to ensure its fairness,
adequacy and reasonableness, and that it was not a product of
collusion." D'Amato v. Deutsche Bank, 236 F.3d 78, 85 (2d Cir.
2001) (citation omitted); see also Wal-Mart Stores, Inc. v.
Visa U.S.A. Inc., 396 F.3d 96, 116 (2d Cir. 2005); Joel A. v.
Giuliani, 218 F.3d 132, 138 (2d Cir. 2000). In so doing, the
court must "eschew any rubber stamp approval" yet simultaneously
"stop short of the detailed and thorough investigation that it
would undertake if it were actually trying the case." City of
Detroit v. Grinnell Corp., 495 F.2d 448, 462 (2d Cir. 1974). A
proffered settlement that is "in large part negotiated prior to
certification of the class," as occurred in this case, "is
subject to a higher degree of scrutiny than is usual in assessing
a settlement's fairness." County of Suffolk v. Long Island
Lighting Co., 907 F.2d 1295, 1323 (2d Cir. 1990).
"A court determines a settlement's fairness by looking at both
the settlement's terms and the negotiating process leading to
settlement." Wal-Mart, 396 F.3d at 116. The court should analyze the negotiating process in light of "the experience of
counsel, the vigor with which the case was prosecuted, and the
coercion or collusion that may have marred the negotiations
themselves." Malchman v. Davis, 706 F.2d 426, 433 (2d Cir.
1983) (citation omitted). A court must ensure that the settlement
resulted from "arm's-length negotiations" and that plaintiffs'
counsel engaged in the discovery "necessary to effective
representation of the class's interests." D'Amato,
236 F.3d at 85.
In evaluating the substantive fairness of a settlement, a
district court must consider factors enumerated initially in
(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, [and] (9) the
range of reasonableness of the settlement fund to a
possible recovery in light of all the attendant risks
Wal-Mart, 396 F.3d at 117 (citation omitted).
Finally, public policy favors settlement, especially in the
case of class actions. Id. at 116. "There are weighty
justifications, such as the reduction of litigation and related
expenses, for the general policy favoring the settlement of litigation." Weinberger v. Kendrick, 698 F.2d 61, 73 (2d Cir.
Rule 23(e) Approval of This Settlement
The plaintiffs and defendants have been able to evaluate their
litigation risks accurately, as discovery had been substantially
completed at the time a settlement agreement was negotiated. The
defendants had produced 45,000 pages of documents, and the
plaintiffs had taken seven depositions.
The litigation and settlement negotiations have been conducted
at arm's-length. The parties engaged in settlement conferences
during discovery in April and July 2003 before Magistrate Judge
Kevin Fox to no avail. Following discovery and the denial of the
class certification motion, the parties resumed settlement
conferences in April and May 2004 before Magistrate Judge Henry
Pitman. These latter conferences generated the Settlement
The total Settlement Fund value of $2.9 million, as compared to
the plaintiffs' best case scenario litigation payoff of
approximately $16 million, is fair given the substantial
likelihood that class members would receive no payments at all
absent this settlement. First, the fact that the committees
charged with administering the Plans had, for decades,
interpreted the Plans' annualization provisions to be used only where an employee had participated in a plan for less than a full
calendar year, together with the deference normally accorded such
interpretations, creates a strong likelihood that the plaintiffs'
claims are meritless. Second, the Opinion of December 24, 2003
denied class certification because the named plaintiffs did not
meet the typicality or adequacy requirements of Rule 23(a),
Fed.R.Civ.P., see Spann, 219 F.R.D. at 320, 321, and the class
did not meet the similar treatment requirement of Rule
23(b)(1)(A), Fed.R.Civ.P., see id. at 322, and the
predominance and superiority requirements of Rule 23(b)(3),
Fed.R.Civ.P., see id. at 323, 324. In the absence of
certification, and given the small incremental amount owed to
individual Plan participants, counsel for both the plaintiffs and
defendants agree that it is highly unlikely that any attorney
would bring a claim on behalf of an individual Plan participant
or that any Plan participant would have pursued this litigation.
These two factors substantially discount the value of each Class
The imbalance in the division of the award between the two
subclasses would ordinarily require the appointment of separate
counsel to represent the separate and conflicting interests of
the two subclasses. Given the modest recovery by the Class,
however, any appointment of additional counsel would necessarily
reduce by a material amount the already modest awards to Class
members. As a consequence, the Court has focused with particular care on the division and is satisfied that it is equitable. The
value of Subclass One members' claims is discounted significantly
relative to the value of Subclass Two members' claims because
Subclass One members were required to execute the Releases. The
Releases present a substantial bar to recovery for each
individual Subclass One member, meriting the 25/75 Settlement
Fund split among the two subclasses where approximately 55% of
the Class members are Subclass Two members. Also, the Class
Notice clearly indicated the method of allocating the Settlement
Fund and the rationale for such allocation, and no class member
objected to the allocation. In sum, after careful consideration
of all the Grinell factors that are of greatest significance to
this litigation, it is appropriate to approve this settlement
even though it provides only a modest recovery to the class, and
favors one subclass over another.
Attorney's Fees and Costs
It is well established that where an attorney creates a common
fund from which members of a class are compensated for a common
injury, the attorneys who created the fund are entitled to "a
reasonable fee set by the court to be taken from the fund."
Goldberger v. Integrated Resources, Inc., 209 F.3d 43, 47 (2d
Cir. 2000) (citing Boeing Co. v. Van Gemert, 444 U.S. 472, 478
(1980)). Determination of "reasonableness" is within the discretion of the district court. Goldberger, 209 F.3d at 47.
There are two methods by which the district court may calculate
reasonable attorney's fees in a class action, the lodestar or
percentage method. See Wal-Mart, 396 F.3d at 121. Under
either method, attention should be paid to the following factors:
"(1) the time and labor expended by counsel; (2) the magnitude
and complexities of the litigation; (3) the risk of the
litigation; (4) the quality of representation; (5) the requested
fee in relation to the settlement; and (6) public policy
considerations." Goldberger, 209 F.3d at 50 (citation omitted).
See also Wal-Mart, 396 F.3d at 121.
Using the lodestar method, the court "scrutinizes the fee
petition to ascertain the number of hours reasonably billed to
the class and then multiplies that figure by an appropriate
hourly rate." Goldberger, 209 F.3d at 47. The final step is to
consider whether an enhancement of the lodestar is warranted.
Id. See also Savoie v. Merchants Bank, 166 F.3d 456, 460
(2d Cir. 1999) (applying the lodestar steps).
The second method is the much simpler percentage method, by
which the fee award is simply "some percentage of the fund
created for the benefit of the class." Savoie, 166 F.3d at 460.
This method has been found to be a solution to some problems
raised by the lodestar method. First, it "relieves the court of
the cumbersome, enervating, and often surrealistic process of evaluating fee petitions." Id. at 461 n. 4 (citation omitted).
Second, it decreases plaintiff lawyers' incentive to "run up the
number of billable hours" for which they would be compensated by
the lodestar method. Id. at 460-61. See also Wal-Mart,
396 F.3d at 121. And finally, it decreases the incentive to delay
settlement because the fee for the plaintiffs' attorneys does not
increase with delay. Savoie, 166 F.3d at 461.
Class Counsel represents that its attorneys and paralegals
billed 3,936.65 hours totaling $1,300,785.00 in fees from May 11,
2001 through March 15, 2005.*fn6 The billing rates of these
professionals are reasonable for the localities and experience of
the attorneys, and type of work performed. A cursory review of
billing records reveals that the bulk of the work was performed
by two partners, Ronald S. Kravitz ("Kravitz") and Kim Zeldin
("Zeldin"), and two associates, Robert A. Binion ("Binion") and
Jeffrey C. Engerman ("J. Engerman"), all of the Los Angeles law
firm Liner Yankelevitz Sunshine & Regenstreif LLP ("Liner Firm").
They were assisted by local counsel and Allen C. Engerman ("A.
Engerman") of the Chicago law firm Law Offices of Allen C.
Engerman, P.C.A. Engerman functioned as the "elder statesman" of
the plaintiffs' team, and was a source of frequent advice
regarding litigation strategy. The billing records for all counsel had detailed, contemporaneous descriptions of their work.
There is no need to scrutinize the billing records of plaintiffs'
counsel for unnecessarily duplicative or inefficient work, since
plaintiffs' counsel's lodestar amount exceeds by several thousand
dollars the amount of fees requested as part of the Settlement
Agreement. Given the high risk that the defendants would prevail
with a complete defense on the issue of the interpretation of the
Plan language, as well as the reasonable amount of time and labor
expended by plaintiffs' counsel, a fee award of one-third of the
settlement, or $966,666.66, is appropriate. A review of the
itemized cost and expense reports provided by plaintiffs' counsel
also indicates that these costs are well-documented and were
reasonably incurred; an award of $178,420.06 in costs and
expenses is appropriate.*fn7
In reaching this conclusion, it is necessary to consider
carefully whether an award of fees of this magnitude is justified
given the limited recovery by individual class members. In posing
this question, one is essentially asking whether use of the class
action device was justified at all given that an interpretation
of an ERISA plan by a court as a result of litigation brought by
just one plan participant will ordinarily benefit all participants since plan administrators must apply
each plan provision in the same way to all participants.
For the reasons already discussed above, however, it is highly
unlikely that any attorney would have brought this litigation on
behalf of a single Class member, and therefore, without resort to
the class action device, it is unlikely that these Class members
would have ever received any additional payment. Even more
significantly, as a result of this litigation, approximately
forty-two Plan participants who were eligible to receive pensions
were identified and will now be in a position to receive pension
benefits for the first time. Finally, the attorneys have bestowed
a benefit on the Plans by removing an arguable ambiguity from the
governing documents.*fn8 Therefore, an award to counsel of
this magnitude is entitled to approval.
An incentive award may be given to compensate named plaintiffs
for efforts expended "for the benefit of the lawsuit."
Dornberger v. Metropolitan Life Ins. Co., 203 F.R.D. 118, 125
(S.D.N.Y. 2001) (citation omitted). An incentive award of $10,000 for each named plaintiff is appropriate.
The settlement is approved. The proposed Settlement Fund of
$2.9 million shall be established. From this Settlement Fund,
Class Counsel is awarded $966,666.66 in fees and $178,420.06 in
costs and expenses and each named plaintiff is awarded an
incentive award of $10,000. An allowance of up to $300,000 of the
Settlement Fund shall be set aside to reimburse the Settlement
Administrator for administrative expenses associated with
calculating and distributing awards to Class members. The
remainder of the Settlement Fund shall be distributed by the
Settlement Administrator pursuant to the terms of the Settlement