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In re GSE Bonds Antitrust Litigation

United States District Court, S.D. New York

December 13, 2019



          JED S. RAKOFF, U.S.D.J.

         This putative class action alleges a conspiracy among several large banks to fix the secondary market prices of GSE bonds. Previously, the Court had preliminarily approved a settlement between plaintiffs and Deutsche Bank ("DB") and First Tennessee Bank ("FTN"). See Opinion and Order, ECF No. 298 ("DB & FTN Op."). Now, plaintiffs have moved for preliminary approval of a stipulation and settlement agreement with defendant Goldman Sachs ("GS"). See Mot. for Prelim. Approval, ECF No. 316; Burke Decl., Exh. 1, ECF No. 318 ("GS Settlement Agreement"). On December 9, 2019, the Court held a preliminary approval fairness hearing on the proposed settlement, and on December 12, 2019 the Court preliminarily approved the proposed settlement. The Court now elaborates on the reasons for this latest preliminary approval.

         I. Legal Background

         Fed. R. Civ. P. 23(e) requires judicial approval for any class action settlement. A class action settlement approval procedure typically occurs in two stages: (1) preliminary approval, where "prior to notice to the class a court makes a preliminary evaluation of fairness," and (2) final approval, where "notice of a hearing is given to the class members, [and] class members and settling parties are provided the opportunity to be heard on the question of final court approval." In re Payment Card Interchange Fee and Merchant Discount Antitrust Litig., 330 F.R.D. 11, 28 (E.D.N.Y. 2019). Even at the preliminary approval stage, the Court's role in reviewing the proposed settlement "is demanding because the adversariness of litigation is often lost after the agreement to settle." Zink v. First Niagara Bank, N.A., 155 F.Supp.3d 297, 308 (W.D.N.Y. 2016) (citation omitted).

         On December 1, 2018, new amendments to Rule 23 took effect which altered the standards that guide a court's preliminary approval analysis. Prior to these changes, Rule 23 did not specify a standard, and courts in the Second Circuit interpreted Rule 23 to only require the settlement to be "within the range of possible final approval." In re NASDAQ Market-Makers Antitrust Litig., 176 F.R.D. 99, 102 (S.D.N.Y. 1997). Under the new, more exacting standards, a district court must consider whether the court "will likely be able to: (i) approve the proposal under Rule 23(e)(2); and (ii) certify the class for purposes of judgment on the proposal." In re Payment Card., 330 F.R.D. at 28.

         II. Likelihood of Approval Under Rule 23(e)(2) and the Grinnell Factors

         To be likely to approve a proposed settlement under Rule 23(e)(2), the Court must find "that it is fair, reasonable, and adequate." The newly amended Rule 23 enumerates four factors for the Court to consider as part of this inquiry: (1) adequacy of representation, (2) existence of arm's-length negotiations, (3) adequacy of relief, and (4) equitableness of treatment of class members. Fed.R.Civ.P. 23(e)(2). Prior to the 2018 amendments, courts in the Second Circuit considered whether a settlement was "fair, reasonable, and adequate" under nine factors set out in City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974). The Advisory Committee Notes to the 2018 amendments indicate that the four new Rule 23 factors were intended to supplement rather than displace these "Grinnell" factors. See 2018 Advisory Notes to Fed.R.Civ.P. 23, Subdiv. (e)(2) ("2018 Advisory Note"). Accordingly, the Court considers both sets of factors in its analysis.

         a. Adequacy of Representation

         Rule 23(e) (2) (A) requires a Court to find that "the class representatives and class counsel have adequately represented the class" before preliminarily approving a settlement. Because counsel has not changed since the Deutsche Bank ("DB") and First Tennessee Bank ("FTN") settlements, the Court finds that Rule 23(e)(2)(A)'s adequacy of representation prong weighs in favor of preliminary approval for the reasons outlined in the DB and FTN settlement. Opinion and Order 4-5, ECF No. 298 ("DB & FTN Op.").

         b. Presence of Arm's-Length Negotiations

         Rule 23(e)(2)(B) requires procedural fairness, as evidenced by the fact that "the proposal was negotiated at arms length." If a class settlement is reached through arm's-length negotiations between experienced, capable counsel knowledgeable in complex class litigation, "the Settlement will enjoy a presumption of fairness." In re Austrian & German Bank Holocaust Litig., 80 F.Supp.2d 164, 173-74 (S.D.N.Y. 2000), aff'd sub nom., D'Amato v. Deutsche Bank, 236 F.3d 78 (2d Cir. 2001). Further, a mediator's involvement in settlement negations can help demonstrate their fairness. In re Payment Card, 330 F.R.D. at 35. Here, as before in the case of the DB and FTN settlements, DB & FTN Op. at 5, the parties engaged in mediation and the mediator's declaration confirms that the settlement agreement was "a product of extensive and informed negotiations conducted at arm's length" by "sophisticated and capable counsel." Melnick Decl. ¶ 6, ECF. 318 Exh. 2. Rule 23(e)(2)(B) thus weighs in favdr of preliminary approval.

         c. Adequacy of Relief

         Rule 23(e) (2) (C) requires examining whether relief for the class is adequate, taking into account:

(i) the costs, risks, and delay of trial and appeal; (ii) the effectiveness of any proposed method of distributing relief to the class, including the method of processing class-member claims, if required; (iii) the terms of any proposed award of attorney's fees, including timing of payment; and (iv) any agreement required to be identified under Rule 23(e)(3).

This inquiry overlaps significantly with a No. of Grinnell factors, which help guide the Court's application of Rule 23(e)(2)(C)(i). In re Payment Card, 330 F.R.D. at 36. Most of these factors weigh in ...

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