The opinion of the court was delivered by: Shirley Wohl Kram, U.S.D.J.
In an opinion rendered on October 26, 2007, the Court, inter alia, approved incentive awards of $1,000 to two of the three class representatives in the above-captioned class action litigation. The two representatives appealed to the Second Circuit for review of the Court's incentive award determination. The parties to the appeal subsequently stipulated to a remand to permit the Court to consider a proposed compromise. Class counsel have now moved the Court to approve a plan whereby class counsel will pay each appealing plaintiff $19,000--the difference between the incentive award originally sought and the one approved by the Court--in exchange for the dismissal of the appeal. For the reasons that follow, the Court grants class counsel's motion.
On September 26, 2006, the Court issued an opinion approving the settlement of litigation brought pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA") by participants in AOL Time Warner, Inc.'s ("AOLTW")*fn1 401(k) defined contribution plans (the "Settlement"). See In re AOL Time Warner ERISA Litig., 02 Cv. 8853 (SWK), 2006 WL 2789862 (S.D.N.Y. Sept. 27, 2006). Then, on October 26, 2007, the Court issued a memorandum opinion that, inter alia, granted incentive awards of $1,000 each to named plaintiffs Rita Roberts Hill ("Hill") and Barbara Grant ("Grant"), and of $500 to named plaintiff Steven Winfield ("Winfield"). See In re AOL Time Warner ERISA Litig., 02 Cv. 8853 (SWK), 2007 WL 3145111, at *4 (S.D.N.Y. Oct. 26, 2007) (the "Award Opinion"). Named plaintiffs Grant and Hill (the "Appealing Plaintiffs"),*fn2 who had sought incentive awards of $20,000 each, have appealed the Award Opinion to the Second Circuit Court of Appeals. See In re AOL Time Warner ERISA Litig., 02 Cv. 8853 (SWK), Dkt. No. 102.
Co-lead counsel for the class ("Co-Lead Counsel")--who are also representing the Appealing Plaintiffs on appeal--subsequently expressed interest in formulating a plan "to facilitate a prompt class distribution while the appeal is pending." (Co-Lead Counsel's Letter, Dec. 3, 2007.) Co-Lead Counsel asserted that distributing the Settlement proceeds to the class, while reserving $38,000 to cover the total amount sought by the Appealing Plaintiffs, would be disadvantageous to the class because "a $38,000 set-aside for the appeal would be too small to justify a second distribution and could, at most, be cy preyed for some indirect class member benefit." (Co-Lead Counsel's Letter 1, Jan. 7, 2008.) Additionally, Co-Lead Counsel represented that the cost of the appeal is likely to exceed $38,000. (Co-Lead Counsel's Letter 1, Jan. 7, 2008.) Co-Lead Counsel therefore asked the Court to issue an order authorizing a payment plan, formulated after a meeting with the Second Circuit's Staff Counsel's Office, whereby Co-Lead Counsel will pay each Appealing Plaintiff $19,000 in exchange for an agreement to dismiss the appeal (the "Payment Plan"). (See Co-Lead Counsel's Letter 1, Jan. 7, 2008.)
On January 18, 2008, the Court issued an opinion concluding that the pending appeal divested it of jurisdiction to consider the merits of the Payment Plan. See In re AOL Time Warner ERISA Litig., 02 Cv. 8853 (SWK), 2008 WL 186194 (S.D.N.Y. Jan. 18, 2008). Co-lead Counsel subsequently obtained a stipulation and order of remand to the Court "for the sole purpose of permitting the district court to rule on the request of Co-Lead Counsel to pay [the Appealing Plaintiffs] the amounts at issue on this appeal." (See In re AOL Time Warner ERISA Litig., 02 Cv. 8853 (SWK), Dkt. No. 105.) At the Court's direction, Co-Lead Counsel have filed a motion expanding upon their arguments in favor of the Payment Plan. The Court has also received and considered an objection to the Payment Plan, which was filed by four class members (the "Objectors").
A.The Payment Plan is Fair, Reasonable, and Adequate
A federal court of appeals may vest the district court with jurisdiction to consider resolutions negotiated by the parties while a case is on appeal. See, e.g., Lancaster v. Monroe County, 137 F.3d 1270, 1271 (11th Cir. 1998); Horton v. Leading Edge Mktg., Inc., 04 Cv. 212 (PSF) (CBS), 2007 WL 2472046, at *1 (D. Colo. Aug. 28, 2007); Miller v. City of Philadelphia, 00 Cv. 3263, 2002 WL 31730911, at *1 (E.D. Pa. Oct. 18, 2002). As the proposed Payment Plan has arisen within the settlement phase of class action litigation, the Court will evaluate the plan to determine whether it is "fair, reasonable, and adequate." Fed. R. Civ. P. 23(e)(1)(C).*fn3
As an initial matter, it is crucial to clarify the precise nature of the Court's decision. The procedural posture of this case, and the Second Circuit's order of remand, empower the Court to rule on the propriety of a proposed resolution of a collateral issue during the pendency of an appeal. This is not a reconsideration of the Court's prior decision on the merits. Therefore, the legal question at issue is not whether the Payment Plan is justified as an incentive award to the Appealing Plaintiffs (i.e., whether the Appealing Plaintiffs' conduct merits an award), but whether implementation of the Payment Plan would further or harm the interests of the class members. Because this decision is entirely separate from the Court's evaluation of the Named Plaintiffs' request for incentive awards, approval of the Payment Plan would have no effect on the Court's holdings in the Award Opinion. The Objectors' contention that the Court lacks power to "reverse itself," (Objection 5), is therefore inapposite.
After reviewing the record of this litigation as a whole, the terms of the Settlement, Co-Lead Counsel's arguments in favor of the Payment Plan, and the various arguments raised by the Objectors, the Court concludes that the Plan is fair, reasonable, and adequate to class members and merits approval. First, the Plan does not harm the interests of the Appealing Plaintiffs. The Plan allows them to receive $19,000 each, which, when combined with the $1,000 incentive award that each has received, leaves them with the amount of money that they sought under the terms of the Settlement Agreement. The Appealing Plaintiffs therefore face no evident pressure from their attorneys to accept a less favorable arrangement in exchange for the dismissal of their appeal.
Furthermore, the Payment Plan does not harm the interests of the class, but rather, it advances the class's interests. The Court has already concluded that the Settlement agreement reached in this case was fair, see In re AOL Time Warner ERISA Litig., 2006 WL 2789862, at *5, *5-9, and that "[a]t all times, the Named Plaintiffs . . . acted independently," In re AOL Time Warner ERISA Litig., 02 Cv. 8853 (SWK), Dkt. No. 84 ¶ 6E. The payment to the Appealing Plaintiffs at this stage of the proceedings does nothing to alter that fact. Cf. McBean v. City of New York, 233 F.R.D. 377, 391 (S.D.N.Y. 2006) (holding that grant or denial of incentive awards after settlement does not alter incentives that existed at time of settlement's negotiation). Also, should the Appealing Plaintiffs win their appeal, the resulting judgment would result in an additional deduction of up to $38,000 from the Settlement fund. (See Co-Lead Counsel's Mot. 7.) The Payment Plan eliminates this possibility and allows that money to be distributed among the entire class. Lastly, the Plan eliminates the risk of a lengthy appeal that could stretch beyond the time allotted for claims evaluation and thereby delay distribution of the Settlement proceeds.*fn4 Indeed, the Payment Plan advances both the interest in judicial economy, and the judicial policy in favor of settlement. See, e.g., In re PaineWebber Ltd. P'ships Litig., 147 F.3d 132, 138 (2d Cir. 1998); Ingram v. Coca-Cola Co., 200 F.R.D. 685, 688 (N.D. Ga. 2001). In sum, the Court finds that the proposed Payment Plan has only a small effect on the class, cf. In re Presidential Life Secs., 857 F. Supp. 331, 337 (S.D.N.Y. 1994) (reaching similar conclusion in context of incentive awards paid from plaintiffs' counsel's attorney's fees); accord In re Cendant Corp., 232 F. Supp. 2d 327, 344 (D.N.J. 2002), and any effect that will obtain is positive.
Nonetheless, the Objectors argue, in their February 13, 2008 letter to the Court (the "February 13 Letter"), that the Payment Plan violates Disciplinary Rule 3-102,*fn5 which generally prohibits the division of legal fees with a non-lawyer.*fn6
(Objectors' Letter 1, Feb. 13, 2008.) In what appears to be the only opinion addressing this rule within the context of awards to individual plaintiffs, Judge Broderick questioned Disciplinary Rule 3-102's applicability, holding only that a comparatively small incentive award paid from attorney's fees would not allow lawyers to "obtain a built-in plaintiff for any contemplated lawsuit." In re Presidential Life Sec., 857 F. Supp. at 337. Although, as discussed supra, the Payment Plan does not constitute an incentive award per se but rather a tool in the resolution of a pending appeal, the concerns identified by Judge Broderick are instructive. The Payment Plan was not a prearranged "promise" between counsel and client*fn7 but a resolution to an appeal, created in earnest to benefit both the Appealing Plaintiffs and the absent class members, fully disclosed from its inception, cf. Rodriguez v. West Pub. Corp., 05 Cv. 3222, 2007 WL 2827379, at *20 (C.D. Cal. Sept. 10, 2007) (disapproving incentive award paid from attorney's fees because, inter alia, counsel requested award pursuant to preexisting, contractual promise to client that was never disclosed to absent class members or court). Moreover, the proposed Plan arises in the ERISA context, where it is nearly impossible for a plaintiff to have or create standing in a slew of cases. (See Co-Lead Counsel's Mot. 9 (noting that, "[w]hile a 'professional' securities plaintiff can have standing in hundreds of cases simply by purchasing a single share of stock," the "conditions precedent to becoming a 401(k) plan participant" preclude ...