The opinion of the court was delivered by: Shirley Wohl Kram, U.S.D.J.
This Opinion considers the fairness of a $100 million class action settlement (the "Settlement") reached in litigation brought pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA") by participants of AOL Time Warner, Inc.'s ("AOLTW")*fn1 401(k) defined contribution plans (the "Plans").*fn2 The Settlement follows the Court's approval of a $2.65 billion settlement reached in the primary securities class action litigation, see In re AOL Time Warner, Inc. Sec. & "ERISA" Litig., No. MDL 1500, 02 Civ. 5575(SWK), 2006 WL 903236 (S.D.N.Y. Apr. 6, 2006), and provides recovery to the Plans separate from the Plan members' recoveries under the securities settlement. Plaintiffs now move for certification of a settlement class (the "Class") and final approval of the Settlement, the notice, and the amended Plan of Allocation. For the reasons set forth below, Plaintiffs' motion is granted.
The Settlement resolves three ERISA lawsuits consolidated by the Court on March 24, 2003. In the Consolidated ERISA Complaint (the "Complaint"), Plaintiffs sought relief for losses incurred by the Plans as a result of the defendants' alleged breaches of their ERISA-mandated duties. The Complaint focuses on the Plans' allegedly imprudent investment in AOLTW stock, misrepresentations made to Plan participants, and various other breaches of fiduciary duty. The Complaint named AOLTW, several of its directors and officers, and the administrative committees of the Plans as defendants ("Defendants").
In early 2005, the Court considered Defendants' motions to dismiss, allowing the Complaint to proceed on several counts. See In re AOL Time Warner, Inc. Sec. & "ERISA" Litig., No. MDL 1500, 02 Civ. 8853(SWK), 2005 WL 563166 (S.D.N.Y. Mar. 10, 2005). Defendants filed their answer shortly thereafter. Defendants then filed motions for summary judgment and judgment on the pleadings, while Plaintiffs filed a motion for class certification. All of these motions were pending before the Court at the time the Settlement was reached.
Prior to entering into the Settlement, Plaintiffs received and reviewed millions of documents, some publicly available and others produced in discovery. In addition to reviewing documents pertinent to the conduct allegedly responsible for the declining value of AOLTW stock, Plaintiffs requested documents specific to their ERISA breach of fiduciary duty claim. Discovery also encompassed Plaintiffs' participation in numerous depositions during this period. Further, Plaintiffs consulted experts regarding the strength of their claims, the calculation of losses, and the viability of Defendants' loss causation defense.
While continuing to prepare their legal claims and defenses, the parties entered into settlement negotiations in the fall of 2005. In connection with these negotiations, the parties prepared extensive submissions for a mediation session overseen by a court-appointed special master. This first unsuccessful mediation session set the stage for another round of briefing and a second mediation session with the special master in February 2006, which resulted in the Settlement now before the Court. The Settlement provides for $100 million to be paid to the Plans and then distributed to Plan members.
The Court held a preliminary approval hearing on April 26, 2006, and preliminarily approved the Settlement on May 3, 2006. Plaintiffs caused notice to be sent to over 65,000 potential class members in the following weeks. In addition, Plaintiffs published summary notice of the Settlement in the newspaper U.S.A. Today, created a website for the Settlement, and set up a toll-free number to provide information and address questions posed by potential Class members. The notice procedures yielded two objections: one to the breadth of the Settlement release and the nature of the Class, and another to the request for attorney's fees and class representative's awards.*fn3 Both objectors attended the final approval hearing on July 19, 2006.
Finally, in accordance with Section 2.5 of the Settlement Agreement, Plaintiffs submitted the Settlement to an independent fiduciary for review. This review was carried out by a company composed of impartial, experienced ERISA lawyers. On June 29, 2006, the fiduciary issued its report, finding that "the Settlement is reasonable in light of the substantial recovery that the Plans will obtain, the risks and costs of continued litigation and the value of claims foregone." (Report of the Independent Fiduciary 2.)
A. Certification of the Settlement Class
Solely for settlement purposes, see Weinberger v. Kendrick, 698 F.2d 61, 73 (2d Cir. 1982), Plaintiffs seek certification of a class of "all current and former participants and beneficiaries of the Plans for whose individual accounts the Plans purchased and/or held interests in the AOLTW Stock Fund at any time during the period from January 27, 1999 through and including July 3, 2003" (the "Class Period"). (Pls. Mot. for Final Approval 42.) Federal Rule of Civil Procedure 23 governs class certification. A class must satisfy each of the four requirements of Rule 23(a)--numerosity, commonality, typicality, and adequacy of representation--and one or more of the subsections of Rule 23(b). As discussed below, the Class satisfies each of these prerequisites.
To qualify for certification, a class must be "so numerous that joinder of all members is impracticable." Fed. R. Civ. P. 23(a)(1). The Class here is comprised of the members of several retirement plans established for tens of thousands of AOLTW employees. Plaintiffs sent more than 65,000 notices to potential class members on the basis of records provided by AOLTW. The numerosity requirement is clearly satisfied.
Rule 23(a)(2) requires that "there are questions of law or fact common to the class." Fed. R. Civ. P. 23(a)(2). In the context of an ERISA action claiming breach of fiduciary duty, class members are related by virtue of their common membership in a retirement plan. Therefore, ERISA breach of fiduciary duty actions regularly present common questions of law and fact. See, e.g., In re Global Crossing Sec. & ERISA Litig., 225 F.R.D. 436, 452 (S.D.N.Y. 2004); Banyai v. Mazur, 205 F.R.D. 160, 163 (S.D.N.Y. 2002). This action is no different. Class members here share a number of questions of law and fact relating to the identification of fiduciaries, whether the defendants acted as fiduciaries, and the existence of ERISA violations. The Class is sufficiently common to be certified.
Under Rule 23(a)(3), the claims of class representatives must be "typical of the claims . . . of the class." Fed. R. Civ. P. 23(a)(3). This requirement is met where the proposed class representatives' claims "arise from [the] same course of conduct that gives rise to claims of the other class members, where the claims are based on the same legal theory, and where the class members have allegedly been injured by the same course of conduct as that which allegedly injured the proposed representatives." In re Oxford Health Plans, Inc., 191 F.R.D. 369, 375 (S.D.N.Y. 2000) (citing In re the Drexel Burnham Lambert Group, Inc., 960 F.2d 285, 291 (2d Cir. 1992)). Here, the class representatives' claims are typical of the Class. All representatives were employees or participants in one of the Plans during the Class Period and sustained injury from the breaches of fiduciary duty alleged in the Complaint.
The final Rule 23(a) provision requires that class representatives "fairly and adequately protect the interests of the class." Fed. R. Civ. P. 23(a)(4). Under Rule 23(a)(4), courts must consider "(i) whether the class representatives' claims conflict with those of the class and (ii) whether class counsel is qualified, experienced, and generally able to conduct the litigation." In re Global Crossing, 225 F.R.D. at 453 (citing In re Oxford, 191 F.R.D. at 376; In re the Drexel Burnham Lambert Group, 960 F.2d at 291).
Here, there are no discernible conflicts between the Class and its representatives. The representatives will recover through the Plans in the same manner as every other Class member, and must prove identical factual and legal predicates. Furthermore, Class counsel are qualified attorneys with considerable ERISA experience. Their prosecution of this lawsuit has secured the substantial Settlement now under consideration. Throughout this litigation, they have shown themselves to be capable and qualified to represent the Class.
In addition to finding that a class meets the requirements of Rule 23(a), the court must ascertain whether the class is maintainable under one or more of the Rule 23(b) criteria. Plaintiffs contend that the Class may be certified as a non-optout class under Rule 23(b)(1)(B). The Court agrees.*fn4
Rule 23(b)(1)(B) provides for class certification when: the prosecution of separate actions by or against individual members of the class would create a risk of . . . adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests . . . .
Fed. R. Civ. P. 23(b)(1)(B). A note to Rule 23 explains that Rule 23(b)(1)(B) applies "to an action which charges a breach of trust by an indenture trustee or other fiduciary similarly affecting the members of a large class of security holders or other beneficiaries, and which requires an accounting or like measures to restore the subject of the trust." Fed. R. Civ. P. 23 advisory committee's note, cited in Koch v. Dwyer, No. 98 Civ. 5519(RPP), 2001 WL 289972, at *5 (S.D.N.Y. Mar. 23, 2001). The claims underlying the Settlement are of just this sort.
As a matter of law, the relief sought by Plaintiffs is directed to the Plans, rather than to individual Plan participants. See Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 140 (1985). A breach of fiduciary duty claim brought by one member of a retirement plan necessarily affects the rights of the rest of the plan members to assert that claim, as the plan member seeks recovery on behalf of the plan as an entity. Accordingly, by the very nature of the relief sought, the prosecution of separate actions would risk prejudice to putative class members. See, e.g., In re Global Crossing, 225 F.R.D. at 453; In re Worldcom, Inc. ERISA Litig., No. 02 Civ. 4816 DLC, 2004 WL 2211664, at *3 (S.D.N.Y. Oct. 4, 2004); ...