Lazy Oil Co. v. Witco Corp.

95 F.Supp.2d 290

LAZY OIL, CO., John B. Andreassi, Thomas A. Miller Oil Co., and Wynnewood Drilling Associates, on behalf of themselves and all others similarly situated, Plaintiffs, v. WITCO CORPORATION, Pennzoil Company, and Pennzoil Products Company, Defendants.

No. CIV.A.94-110 ERIE.

United States District Court, W.D. Pennsylvania.

December 31, 1997.

COPYRIGHT MATERIAL OMITTED

Joseph E. Altomare (Argued), Titusville, PA, for Appellants.

George A. Patterson, III, Brian A. Glasser, Bowles, Rice, McDavid, Graff & Love, PLLC, Charleston, WV, for Appellees Waco Oil & Gas Co., Interstate Drilling, Inc., Alamco, Inc., R.H. Adkins Companies, Gassearch Corporation.

Arthur M. Kaplan, Fine, Kaplan & Black, Philadelphia, PA, Howard J. Sedran(Argued), Levin, Fishbein, Sedran & Berman, Philadelphia, PA, Samuel D. Heins, Daniel E. Gustafson, Heins, Mills & Olson, P.L.C., Minneapolis, MN, Roberta D.Liebenberg, Liebenberg & White, Jenkintown, PA, for Appellee Wynnewood Drilling, Plaintiff.

Ronald S. Rolfe (Argued), Cravath, Swaine & Moore, New York, N.Y., David L. McClenahan, Kirkpatrick & Lockhart, LLP, Pittsburgh, PA, for Appellee Witco-Corp. Rufus W. Oliver, III, G. Irvin Terrell (Argued), Baker & Botts, L.L.P., Houston, TX, William M. Wycoff, Thorp, Reed & Armstrong, Pittsburgh, PA, for Appellees Pennzoil Company and Pennzoil Products Company.

MEMORANDUM OPINION

McLAUGHLIN, District Judge.

Presently pending before the Court in this consolidated antitrust class action suit are several motions, including a motion by the Class to approve a proposed settlement of the lawsuit. Specifically, the Class seeks approval of the proposed settlement agreement and the proposed plan of allocation of the settlement proceeds. In addition, Class Counsel seek an award of $6.35 million in attorneys' fees and $486,165 in unreimbursed expenses. Various absent class members have objected to the proposed settlement, the proposed allocation plan, and/or Class Counsels' request for attorney fees. Certain of these objectors have further moved for the disqualification or removal of Class Counsel and the creation of a subclass consisting of independent oil producers. Objectors Lazy Oil Co., John B. Andreassi, and Thomas A. Miller Oil Co. also seek an incentive award in the event that the proposed class settlement is approved.

This Court has jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1337. The following constitute the Court's findings of fact and conclusions of law with respect to these motions.

I. FINDINGS OF FACT

A. THE BACKGROUND FACTS

1. Lazy Oil, Co., John B. Andreassi and Thomas A. Miller Oil Co. filed class action complaints on April 19, 1994, April 26, 1994 and May 17, 1994, respectively. On July 7, 1994, the Court entered an order consolidating these actions and appointing as co-lead counsel for the Plaintiffs Howard Sedran, of the Philadelphia law firm Levin, Fishbein, Sedran & Berman and Samuel Heins, of the Minneapolis law firm Heins, Mills & Olson. Howard Specter of Pittsburgh, Pennsylvania was appointed as liaison counsel for the Plaintiffs. Subsequently, on October 11, 1994, Plaintiff Wynnewood Drilling Associates (hereinafter, "Wynnewood") filed its class action complaint.

2. All of the aforementioned actions were brought on behalf of identical putative classes composed of all persons (except for Defendants and their affiliates) who had directly sold "Penn Grade crude oil"¹ to one or more of the Defendants between January 1, 1981 and the dates on which the actions were commenced. Plaintiffs alleged that Defendants—Witco Corporation (hereinafter, "Witco"), Quaker State Corporation and Quaker State Refining Corporation (collectively, "Quaker State"), Pennzoil Company and Pennzoil Products Company (collectively, "Pennzoil") —conspired among themselves and with unnamed co-conspirators to fix, lower, maintain and stabilize the price they paid to direct sellers of Penn Grade crude oil in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. The complaints sought damages and an injunction prohibiting Defendants from engaging in the alleged conspiracy.

3. On June 30, 1995, the Court entered an order permitting the consolidated action to proceed as a class action pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure on behalf of a class consisting of all "direct sellers of Penn Grade crude" to Defendants between January 1, 1981 and June 30, 1995. The Court designated Messrs. Sedran and Heins as Class Counsel.

4. Penn Grade crude oil produced in the Appalachian region of the eastern United States has qualities that make it especially useful in the production of engine lubrication oils. For many years, Penn Grade crude was considered one of the best crude oils for the production of motor oils and its qualities could not be produced synthetically. As time passed and new technology emerged, refiners throughout the country were able to use synthetic additives to make improved motor oils with qualities equivalent to those of Penn Grade crude oil. (Def.s' Expert Reports, Kalt and Lave.) By the late 1980s, three principal refiners of Penn Grade crude remained: Pennzoil, Quaker State and Witco. Recently, Witco has sold its refinery in Bradford, Pennsylvania and Quaker State has announced that it seeks to sell its Congo Refinery in Newell, West Virginia.

5. In response to Plaintiffs' allegations of price fixing, Defendants denied having engaged in any conspiracy to fix prices, denied that producers had suffered any injury, and raised several affirmative defenses. Throughout this litigation, Defendants vigorously defended the case.

6. On September 27, 1995, the Court entered an order that provided for the sending of an approved form of notice ("Notice of Class Action") to potential members of the Plaintiff class and a period of forty-seven days within which they could request exclusion from the class in accordance with procedures described in the order. Over 80,000 copies of the Notice of Class Action were sent out to potential class members on October 18, 1995. (See "Notice of Filing of Affidavit Regarding Mailing of Notice and Publication of Summary Notice," Doc. No. 93, at Ex. 1, Aff. Of Brad Heffler, CPA.) In addition, a summary notice was published in the Wall Street Journal and numerous other newspapers.

7. The names and addresses of the persons to whom notice was sent were drawn from the records of the Defendants reflecting persons to whom Defendants had made payments with respect to Penn Grade crude oil between January 1, 1981 and June 30, 1995. These persons included working interest owners and owners of royalty and overriding interests. Both the working interest and the royalty interest in a single oil well may be divided among many owners. A single individual may be assigned multiple account numbers in Defendants' payment records. This is true for several reasons. First, a single individual may own royalty, overriding royalty, or working interests in multiple oil wells, and the Defendants' records may assign a different account number to that individual for each well. Second, oil produced from a single well may be purchased by several buyers in succession over the life of the well and each time the buyer changes, the persons with economic interests in the crude oil may be given new account numbers in the purchaser's system. Separate class notices were sent to each account number. Accordingly, the actual number of potential class members was substantially less than the number of notices mailed. While the precise number is impossible to determine, the parties' best estimate put the number of potential class members (including working interest, royalty and overriding royalty interest owners) at between 20,000 and 30,000.²

8. The Court previously granted final approval of a settlement with Quaker State in the amount of $4.4 million. The Quaker State settlement was entered into on or about December 20, 1995. It did not provide for any injunctive relief against Quaker State. After notice to class members and a hearing, the Court entered an order on June 13, 1996 approving the Quaker State settlement. Thus, only Pennzoil and Witco remained in the case as Defendants.

9. In mid-January 1997, an Agreement of Settlement Between Plaintiff Class and Pennzoil Company, Pennzoil Products Company and Witco Corporation (hereafter, "the Settlement Agreement" or the "Settlement") was executed by counsel for Defendants Pennzoil and Witco and by all Plaintiffs' counsel of record on behalf of the Plaintiff Class and two of the class representatives, Wynnewood and John B. Andreassi. The other two class representatives, Lazy Oil Co. and Thomas A. Miller Oil Co., had previously announced their opposition to the Settlement Agreement. Subsequently, John B. Andreassi announced that he was withdrawing his support for the Settlement Agreement. In light of the opposition of three of the four class representatives to the Settlement Agreement, Class Counsel moved to withdraw as counsel for the objecting class representatives but to continue representing Wynnewood and the Class. The Court conducted a hearing on this motion at which the three dissenting class representatives appeared and were heard. The Court thereafter granted Class Counsels' motion by order dated February 24, 1997. The three dissident class representatives (hereinafter referred to as the "Lazy Oil Objectors") later retained new counsel, Joseph E. Altomare of Titusville, Pennsylvania and Wayne Hundertmark of Seneca, Pennsylvania, to represent them in opposing the Pennzoil/Witco Settlement and in seeking other relief.

10. The Settlement Agreement with Pennzoil and Witco resulted after 2 and½ years of hard fought litigation and a protracted period of arm's-length negotiations between experienced antitrust lawyers.

11. The parties engaged in over 27 separate negotiating sessions to arrive at the Settlement. (Trans. of Hearing on Proposed Class Settlement, Vol. I at...