The opinion of the court was delivered by: Dora L. Irizarry, U. S. District Judge
Both parties in the instant Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001, et seq., matter object to U.S. Magistrate Judge Arelene R. Lindsay's Report & Recommendation ("R&R"), dated May 18, 2005, which found an enforceable settlement agreement ("Settlement Agreement") and required compliance with the provisions of Fed. R. Civ. P. 23.1 ("Rule 23.1") by directing, inter alia, that absent plan participants be notified of the Settlement Agreement.
After consideration of the entire record and a de novo review of the R & R, see Fed. R. Civ. P. 72(b); see also 28 U.S.C. § 636(b)(1), this court adopts the R & R to the extent that it finds Rule 23.1 applicable to the ERISA § 502(a)(2) claims. However, as a result of a hearing held on January 5, 2006, this court finds that there is no enforceable Settlement Agreement.*fn1
After several aborted attempts to reach a settlement in this protracted litigation, the parties reached a Settlement Agreement before M.J. Lindsay on January 21, 2005. The material terms of the Settlement Agreement were placed on the record and defendants agreed to calculate and disburse the value of plaintiffs' account balances in the Sol Spitz Co. Inc. Retirement Trust and Sol Spitz Co. Inc. Profit Sharing Plan (collectively "Pension Plans") using agreed upon dates. Soon after reaching this Settlement Agreement, defendants sought to rescind it, and plaintiffs cross-moved to enforce it. By Order dated April 20, 2005, this court referred the issue of the Settlement Agreement's enforceability to M.J. Lindsay.
In her R & R, Judge Lindsay found, in relevant part, that since the unqualified material terms of the Settlement Agreement were placed on the record by defendants at the settlement conference of January 21, 2005 ("Settlement Conference"), the parties had entered into a binding Settlement Agreement. Judge Lindsay determined that defendants' alleged grounds for rescission, namely, impossibility of performance and mutual mistake, failed for reasons she specified in the R & R. Further, M.J. Lindsay noted that neither party objected at the Settlement Conference when she announced that the case had been settled.
In addition to finding that defendants were bound by the Settlement Agreement reached at the Settlement Conference, M.J. Lindsay also found that, because plaintiffs asserted ERISA §§ 502(a)(2) and 502 (a)(3) claims in the complaint, plaintiffs were required to comply with Rule 23.1. Specifically, M.J. Lindsay directed plaintiffs to notify absent plan participants of the Settlement Agreement, since the Settlement Agreement would likely affect the absent plan participants' ability to recover.
Defendants timely objected to M.J. Lindsay's R & R on the ground that defendants had conditioned the Settlement Agreement on their actuary's approval. Lacking such approval, defendants had not agreed to agree. Defendants also objected to M.J. Lindsay's finding that the facts as alleged failed to satisfy the standards for voiding an agreement based on impossibility of performance and mutual mistake.
Plaintiffs objected, in relevant part, to that portion of the R & R that found their ERISA claims subject to Rule 23.1.
Before determining whether to adopt the R & R, and, as a consequence, the Settlement Agreement, this court scheduled an evidentiary hearing for January 5, 2006 to assess the fairness, adequacy, and reasonableness of the disputed Settlement Agreement in light of plaintiffs' derivative claims.*fn3 See Rule 23.1; MANUAL FOR COMPLEX LITIGATION § 21.61 (4th ed. 2004).
At the hearing, despite this court's order, dated August 8, 2005, that the hearing was for, inter alia, the purpose of determining the fairness and adequacy of the Settlement Agreement, defendants proposed an entirely different settlement offer. This offer was rejected. (Tr. at 12-13.)*fn4
All but one of the plaintiffs appeared at the hearing.*fn5 As the hearing developed, it quickly became apparent that plaintiffs's counsel, Robert Moore, Esq., had misconstrued the purpose of the hearing as well.*fn6 Plaintiffs were, therefore, not prepared to testify regarding Pension Plan details such as employment periods and the amount and duration of their contributions. Neither Mr. Moore nor Ms. Quesada, plaintiffs' attorney of record, had understood nor conveyed to plaintiffs that, under Rule 23.1, the non-suing plan participants could opt-in or opt-out of the Settlement Agreement thus diminishing the amount that each of the named plaintiffs would recover. (Tr. at 35, 37-38.) After explaining the effects that a non-suing plan participant's opting in would have on the Rule 23.1 Settlement Agreement, the court granted a brief recess to allow the parties to consider the Settlement Agreement further. (Tr. at 43-47, 51.) After the recess, plaintiffs indicated that they did not seek to enforce the Settlement Agreement on these terms. Plaintiffs also expressed concerns about the diminished available funds in the Pension Plans-funds that were unaccounted for and, they believe, improperly diverted. (Tr. at 47, 63.) Most importantly, Mr. Moore conceded, on more than one occasion, that enforcement of the settlement plan would harm the non-suing plan participants. (Tr. at 22, 23.)*fn7
At the end of the hearing, this court adopted the R & R to the extent that it found Rule 23.1 applicable to the ERISA § 502(a)(2) claims, but did not approve the Settlement Agreement. This decision ...