The opinion of the court was delivered by: Sidney H. Stein, U.S. District Judge.
This class action litigation arises from the allegedly improper dissolution of the ILGWU Death Benefit Fund -- a benefit fund of the International Ladies' Garment Workers' Union ("ILGWU" or "the Union") -- the simultaneous transfer of $77.5 million in actuarial surplus from the Death Benefit Fund to an ILGWU escrow account, and, approximately one year later, the transfer of $12.5 million from that escrow account to a newly formed not-for-profit corporation, the 21st Century ILGWU Heritage Fund ("Heritage Fund"). Class Counsel, on behalf of the plaintiff Class, and defendants Jay Mazur, Ronald Alman, Edgar Romney, the Union,*fn1 and the ILGWU Death Benefit Fund (together, the "Settling Defendants") have moved jointly pursuant to Fed. R. Civ. P. 23(e) for final approval of the partial settlement of this class action on the terms set forth in the Settlement Agreement executed by the parties on September 26, 2003, as amended on January 12, 2004 (the "Settlement Agreement").
By Orders dated September 7, 2004 and September 12, 2005, this Court granted its preliminary approval of the Settlement Agreement and scheduled a hearing for December 14, 2005 on whether the terms of the Settlement Agreement were fair, reasonable, and adequate and directed Class Counsel to provide notice to the Class. In October 2005, 97,443 members of the Class -- including 26,950 then current active participants -- were sent notice by first-class mail (or by notice provided to their employer) of the terms of the proposed Settlement Agreement and the date and purpose of the fairness hearing. (Affidavit of Michael Hirsch dated Dec. 7, 2005, at ¶¶ 3,8 attached to Class Counsel's and Settling Defendants' Joint Memorandum of Law In Support of Motion For Final Approval of Partial Settlement ("Joint Mem.").)*fn2 Notice was also provided by newspaper publication. As of November 25, 2005, ten objections were filed by members of the Class. At the fairness hearing on December 14, 2005, testimony was taken and the Court heard legal argument. The Court also received several additional written objections from members of the Class after the fairness hearing was concluded.
As explained below, the Court has examined the substantive fairness of the proposed settlement and the procedural integrity of its negotiation. Based on, among other factors, the substantial risks faced by plaintiffs to prevailing in this litigation and the potential for additional expense and delay, the Court concludes that the compromise embodied by the proposed settlement is fair, reasonable, and adequate. Accordingly the partial settlement of this action is approved pursuant to Fed. R. Civ. P. 23(e).
The following facts, which were also set forth in this Court's August 30, 2005 decision granting in part and denying in part plaintiffs' motion for summary judgment against the Heritage Fund, are taken from the parties' agreed upon Joint Statement of Undisputed Facts ("J. Stat.").
Plaintiff Edward Banyai is a retired employee of defendant Union and a participant in the Death Benefit Fund. (J. Stat. ¶¶ 6-8.) Plaintiff Judith Zinn is the wife of Harris Zinn, who is also a retired employee of the Union. (Id. ¶¶ 9-10.) Harris Zinn designated Judith Zinn as his beneficiary and as such she is entitled to receive any monies paid out of the Death Benefit Fund upon Harris Zinn's death. (Id. ¶ 9.) Banyai and Judith Zinn are the named representatives of the plaintiff Class who commenced this litigation, although they oppose approval of the settlement, as described below.
Defendants Ronald Alman, Jay Mazur, and Edgar Romney are trustees of the Death Benefit Fund, members of the Union's Death Benefit Committee, members of the Union's General Executive Board, and "fiduciaries" with respect to the Death Benefit Fund within the meaning of ERISA. (Id. ¶¶ 11-13.) Together, these defendants had "authority and control over the investment and disbursement" of the Death Benefit Fund. (Id.) In addition, these defendants all were members of the Heritage Fund's board of directors. (Id.) Mazur also was President of both the Union and the Heritage Fund, as well as the chairman of the Heritage Fund's board of directors; Romney also was Vice President of the Heritage Fund. (Id. ¶ 11, 13.)
ILGWU was a collective bargaining organization representing garment workers, and was governed by its General Executive Board. (Id. ¶ 2.) The Heritage Fund is a notfor-profit corporation organized in December of 1997 pursuant to the laws of Delaware. (Id. ¶ 17.) Finally, the Death Benefit Fund is a fund that provides death benefits to members and retired members of ILGWU, and is a "welfare plan" within the meaning of ERISA. (Id. ¶ 1.)
B. The Documents that Governed the Death Benefit Fund
In 1953, the Union merged two pre-existing funds to form the Death Benefit Fund that is the subject of this litigation. (Id. ¶ 29.) Article 13 of the Union's constitution governed the Death Benefit Fund and set forth several noteworthy provisions. (Id.) First, that the Death Benefit Fund was funded through a combination of contributions from the union members personally, assessments imposed upon the member by his local union, the local union itself, or other benefit funds established by the union members' employers. (Id.) Second, that no "funds or property of the [Union] shall be liable" for the payment of benefits. (Id.) Third, that "[n]o withdrawals shall be made from [the Death Benefit] Fund except for the payment of death benefits and the cost of administering the same." (Id.) Last, that the Union's General Executive Board had the power to "adopt and amend from time to time rules and regulations for the administration of the [Death Benefit] Fund, not inconsistent with the provisions" set forth above, and that any amendments thus made would be "incorporated in and a part of" the Union constitution. (Id.)
In 1965 the Union constitution underwent significant amendment. Article 13's provisions governing the Death Benefit Fund were removed and amended, and became the initial Rules and Regulations of the Death Benefit Fund (the "Rules"). (Id. ¶¶ 33, 38). In addition, two important provisions were added to Article 29 of the Union constitution. First, section two of Article 29 provided that, "All moneys received by the [Union] . . . as contributions to a fund for the benefit of workers . shall be kept in a bank account separately maintained under the name of such fund. The monies in such account shall be used only for the specific purposes of such fund . . . and shall not be used for any other purpose." (Id. ¶ 38.) Second, section five set forth that, "The death benefit fund, as heretofore established and supplemented and as consolidated in 1953, is continued as a single and irrevocable trust fund to be administered by the [General Executive Board] and its designees in accordance with the fund's rules and regulations." (Id.) The Rules of the Death Benefit Fund contained a provision substantially similar to section five of Article 29 that referred to the Death Benefit Fund as an "irrevocable trust." (Id. ¶ 46.)
The Rules also set forth, as had former Article 13 of the Union constitution, that no "funds or property of the [Union] shall be liable" for the payment of benefits and "[n]o withdrawals shall be made from [the Death Benefit] Fund except for the payment of death benefits and the cost of administering the same." (Id.) The Rules further set forth that the Death Benefit Fund would be funded through contributions from other benefit funds established by union members' employers, the general revenues of local unions, or assessments levied by local unions upon their members. (Id. ¶¶ 46, 51.) Last, the Rules provided that the General Executive Board was "authorized and empowered to adopt and amend from time to time rules and regulations for the administration of the Fund." (Id. ¶ 46.) However, in order to amend the Union constitution, "a majority vote of the delegates . . . at any triennial convention" of the Union was required. (Id. ¶ 45.)
In 1976, the Union's General Executive Board amended the Rules to add provisions concerning the termination of the Death Benefit Fund. (Id. ¶ 52.) Specifically, the amendments provided that, "This Plan shall cease and terminate . . . in the event of termination by action of the General Executive Board." (Id.) Moreover, the amended Rules set forth that in the event of termination, the committee administering the Death Benefit Fund shall "apply the Plan's assets to pay any and all obligations of the Plan and distribute and apply any remaining surplus as will, in [its] opinion, best effectuate the purposes of the Plan and the requirements of law." (Id.) The amended Rules also provided that,
No part of the principal or income [of the Plan] shall be used for, or diverted to, purposes other than the exclusive benefit of active and retired participants under the Plan . . . before the satisfaction of all liabilities for benefits under the Plan. No . . . participant . . . shall have any interest in or right to any part of the earnings of the Trust . . . or any part of the assets thereof, except to the extent expressly provided in this Plan. (Id. ¶ 53.)
Last, the amended Rules set forth that upon approval of the General Executive Board, the Death Benefit Committee could amend the Rules. (Id. ¶ 60.)
Notwithstanding the addition of the termination provision, the 1976 amendments left intact the provision of the Rules describing the Death Benefit Fund as an "irrevocable trust." (Id. ¶ 48). Similarly, the Summary Annual Reports of the Death Benefit Fund published in February and November of 1977 and December of the following year provided that the Death Benefit Fund was "a single and irrevocable trust established under" Article 29 of the Union constitution. (Id. ¶ 50.) In all material aspects, the Union constitution and the Rules remained as set forth above for twenty one years -- until 1997, when the Rules were again amended in advance of the transaction that gave rise to this litigation.
C. The 1997 Amendments, the Dissolution of the Death Benefit Fund, and the Transfer of Money to the Heritage Fund
In February of 1997, the Rules were amended to eliminate any reference to the Death Benefit Fund as an "irrevocable trust." (Id. ¶ 59.) In June the Death Benefit Committee passed a resolution setting forth that it had determined that a benefit increase would be in the best interests of the Death Benefit Fund's participants but that the General Executive Board had "indicated that it would approve a benefit increase only if the Fund is terminated and its remaining surplus is used . . . . to further other interests of the participants and beneficiaries of the Plan." (Id. ¶ 61.)
Accordingly, the Death Benefit Committee proposed an amendment that provided that in the event of termination, the Death Benefit Committee shall "apply any remaining surplus . . . to promote the charitable interests and other labor related endeavors of the [Union] . . . [and] for any other purpose deemed appropriate or desirable by the [General Executive Board] in its sole and absolute discretion." (Id.) Six days later the General Executive Board adopted that amendment. At this time, the Death Benefit Fund had an actuarial surplus of approximately $77.5 million.*fn3 (Id. ¶ 66.)
In December 1997 the Heritage Fund was formed as a not-for-profit corporation. That same month the General Executive Board passed a resolution providing for both the termination of the Death Benefit Fund at the end of December and the near-simultaneous creation of a new Death Benefit Fund on January 1, 1998 to absorb all of the terminated fund's liabilities. ...