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IN RE WORLDCOM INC.

November 22, 2005.

IN RE WORLDCOM, INC. ERISA LITIGATION This Document Relates to: ALL ACTIONS.


The opinion of the court was delivered by: DENISE COTE, District Judge

OPINION & ORDER

This Opinion considers the petition of the named plaintiffs in the WorldCom ERISA Litigation (the "ERISA Plaintiffs") for approval of settlements with defendants Merrill Lynch Trust Co. FSB ("Merrill Lynch") and Scott Sullivan ("Sullivan") in this class action brought on behalf of employees of WorldCom, Inc. ("WorldCom") who had invested retirement funds in WorldCom stock through a WorldCom 401 (k) plan ("Plan"). The Opinion also considers the adequacy of a $450,000 payment on a promissory note issued by defendant Bernard J. Ebbers ("Ebbers") pursuant to his 2004 settlement with the ERISA Plaintiffs. That settlement was approved, together with settlements with WorldCom itself,*fn1 several former WorldCom directors and employees, and four insurance companies who had issued fiduciary liability insurance policies to WorldCom (collectively, the "2004 Settlements"), on October 18, 2004.*fn2 In re WorldCom. Inc. ERISA Litig., No. 02 Civ. 4816 (DLC), 2004 WL 2338151, at *11 (S.D.N.Y. 2004) ("2004 Settlement Opinion"). Finally, this Opinion determines whether to award the remainder of the attorneys' fees requested by Lead Counsel at the time of the 2004 Settlements. For the reasons stated below, the settlements are approved, and the remainder of the attorneys' fees and costs are awarded.

  Background

  The history of the WorldCom ERISA Litigation through October 18, 2004, was described in the 2004 Settlement Opinion. See WorldCom, 2004 WL 2338151, at *1-*2. That description is incorporated by reference here.

  Following WorldCom's financial collapse, the ERISA Litigation was brought on behalf of participants in the Plan and certain predecessor plans of companies that merged with WorldCom for whose accounts the plans held shares of WorldCom stock at any time from "no later than" September 14, 1998 to the present.*fn3 Lead Plaintiffs Steven Vivien, Gail M. Grenier, and John T. Alexander; Lead Counsel, Keller Rohrback L.L.P.; and several additional Appointed Counsel*fn4 were selected in an Order of November 18, 2002. On December 20, plaintiffs filed the Consolidated Class Action Complaint, and later an Amended Class Action Complaint ("Complaint"). An Opinion of June 17, 2003, granted in part a number of motions to dismiss. In re WorldCom, Inc. ERISA Litig., 263 F. Supp. 2d 745, 772 (S.D.N.Y. 2003). On July 25 and September 12, 2003, plaintiffs filed a second and then a third amended consolidated class action complaint, which added additional defendants and reasserted claims against certain previously dismissed defendants. Fact discovery in the ERISA Litigation was coordinated with that in the WorldCom Securities Litigation. Document discovery was substantially completed in the fall of 2003. Fact discovery in the ERISA Litigation closed on July 23, 2004. The ERISA class was certified under Rule 23 (b) (1) (B), Fed.R.Civ.P., on October 4, 2004. In re WorldCom, Inc. ERISA Litigation, No. 02 Civ. 4816 (DLC), 2004 WL 2211664 (S.D.N.Y. Oct. 4, 2004). On June 30, 2004, the ERISA Plaintiffs and all of the defendants except Merrill Lynch and Sullivan, as well as the issuers of certain WorldCom insurance policies, executed a Settlement Agreement that, inter alia, established a settlement fund of $47.15 million and contained a bar order preventing the Non-Settling Defendants from bringing claims for contribution and indemnification against the Settling Defendants while providing the Non-Settling Defendants a right to a reduction in the amount of any judgment entered against them. A fairness hearing was held on October 15, 2004. An October 13, 2004 Opinion approved the judgment reduction formulae and bar order, see In re WorldCom, Inc. ERISA Litig., 339 F. Supp. 2d 561, 572 (S.D.N.Y. 2004), and the 2004 Settlement Opinion approved the settlements, see WorldCom, 2004 WL 2338151, at *11.

  The Merrill Lynch Settlement

  An Opinion of February 1, 2005 granted Merrill Lynch's motion for summary judgment on all claims and denied partial summary judgment for the ERISA Plaintiffs as moot. In re WorldCom, Inc. ERISA Litig., 354 F. Supp. 2d 423, 451 (S.D.N.Y. 2005) ("Summary Judgment Opinion"). Merrill Lynch had functioned as the trustee for the Plan, which was funded by payroll contributions from employees and matching cash contributions from WorldCom. Id. at 428. The ERISA Plaintiffs alleged that, pursuant to the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001 et seq. ("ERISA"), Merrill Lynch should be liable for its failure to refuse to invest employee funds in WorldCom stock. WorldCom was the Plan's sponsor, administrator, and investment fiduciary. Id. The Summary Judgment Opinion found that Merrill Lynch was a directed trustee pursuant to ERISA § 403 (a), 29 U.S.C. § 1103 (a), and hence had a limited scope of responsibilities under ERISA. It stated that
[w]hen a directed trustee receives a direction to invest plan assets in the securities of a company, or when plan assets are already invested in such securities, a directed trustee has a fiduciary duty of inquiry under ERISA when it knows or should know of reliable public information that calls into serious question the company's short-term viability as a going concern.
WorldCom, 354 F. Supp. 2d at 449. The Summary Judgment Opinion found, however, that "plaintiffs ha[d] not shown that there [were] questions of fact as to whether reliable public information existed that called into serious question the short-term viability of WorldCom as a going concern." Id. Merrill Lynch was thus released from the action.

  The ERISA Plaintiffs appealed the decision granting summary judgment for Merrill Lynch to the U.S. Court of Appeals for the Second Circuit. Merrill Lynch had its own appeal pending before the Second Circuit, challenging this Court's approval of the judgment reduction formulae imposed pursuant to the 2004 Settlements. The judgment reduction formulae are described in WorldCom, 339 F. Supp. 2d at 564-66.

  Before either appeal was argued, the ERISA Plaintiffs reached a settlement with Merrill Lynch. That settlement is governed by a Stipulation and Agreement of July 5, 2005. Pursuant to the settlement, Merrill Lynch will forgo payment, up to a maximum of $200,000, for the services it has performed for the Plan in connection with the 2004 Settlements and the Securities Litigation settlements. After the ERISA Plaintiffs settled with Merrill Lynch, the Second Circuit stayed both appeals, and the case was remanded to this Court for consideration of the proposed settlement.

  The Ebbers Payment

  In Spring 2004, the Lead Plaintiff in the WorldCom Securities Litigation reached a number of settlements with the defendants in that action. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), ___ F. Supp. 2d ___, 2005 WL 2293190, at *5-*13 (S.D.N.Y. Sept. 21, 2005). ERISA Lead Counsel participated in the settlement negotiations between Lead Counsel in the Securities Litigation and Ebbers, as it was clear that Ebbers had limited assets to be divided among the parties claiming against him.*fn5

  Ebbers had settled with the ERISA Plaintiffs in 2004 and had contributed a cash payment of $400,000 at that time, but still owed on an unsecured promissory note (the "Note"). Under the terms of the Note, Ebbers was to make payments equal to 1% of any payments he made to satisfy his indebtedness to MCI. The total amount Ebbers was to pay to the ERISA class was at least $450,000, and up to $4 million.

  The ERISA Plaintiffs reached an agreement with Ebbers pursuant to which they would accept a payment of $450,000 in satisfaction of the Note (the "Ebbers Payment"). That agreement is embodied in a Note Satisfaction Agreement of July 11, 2005. At the same time, Ebbers settled with Securities Litigation class for an amount that is expected to total $23.6 to $33.6 million after the sale of certain assets, and with MCI. Pursuant to these settlements and the Ebbers Payment, Ebbers forfeited substantially all of his assets, with the exception of some funds that were earmarked to pay his attorneys. See WorldCom, 2005 WL 2293190, at *12. The Ebbers Payment is to be distributed according to the Plan of Allocation approved for the 2004 Settlements. The Sullivan Settlement

  ERISA Lead Counsel also participated in the settlement negotiations between Lead Counsel in the Securities Litigation and Sullivan.*fn6 Pursuant to their settlement agreement with Sullivan, embodied in a Stipulation and Agreement of Settlement dated July 28, 2005, the ERISA Plaintiffs are to receive 10% of an amount that includes the proceeds of the sale of Sullivan's house in Florida, net of certain fees and expenses, and 10% of the balance of Sullivan's MCI 401(k) plan (the "Sullivan Settlement"). It is estimated that these payments will total approximately $485,000. Pursuant to the Securities Litigation and ERISA Litigation settlements, Sullivan forfeited substantially all of his ...


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