Prudential Ins. Co. of America Sales Practices Litigation, In re

Page 283

148 F.3d 283

41 Fed.R.Serv.3d 596

In re: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA SALES PRACTICES LITIGATION Richard P. KRELL, MDL transfer, N.D. Ohio, DNJ Civil Action No. 95-6062 v. PRUDENTIAL INSURANCE COMPANY OF AMERICA Richard P. Krell, as well as Objectors Elizabeth Bajek Amanda Bajek, Helen Bartsch, Mark Ciconte, Raymond Dolce Margaret Dolice, Louise Duggan, Peter Duggan, Charles Duncan, Mary Howe, Mary Krell, William Morris, Diana Racer, Thomas Racer, Gweneth Reidel, The Estate of Carl J. Scalzo, Marie Scalzo, Terry Sligar, Alice Smith, Jerry Smith, and William Walton, Appellants at Nos. 97-5155/5156/5312. In re PRUDENTIAL INSURANCE COMPANY AMERICA SALES PRACTICE LITIGATION AGENT ACTIONS. Richard Johnson, Intervenor-Plaintiff in District Court, Richard E. Johnson, Appellant at No. 97-5217.

Nos. 97-5155, 97-5156, 97-5217 and 97-5312.

United States Court of Appeals, Third Circuit.

Argued Jan. 26, 1998.

Decided July 23, 1998.

Michael P. Malakoff (Argued), Malakoff, Doyle & Finberg, Pittsburgh, Pennsylvania, for Appellants Richard P. Krell, et al.

Lynde Selden, II, Lynde Selden Chartered, San Diego, California, for Appellant Richard E. Johnson.

Melvyn I. Weiss (Argued), Milberg, Weiss, Bershad, Hynes & Lerach, New York City, Allyn Z. Lite, Goldstein, Lite & DePalma, Newark, New Jersey, for Appellee George A. Zoller, Class Action Plaintiff Representative.

Reid L. Ashinoff (Argued), Michael H. Barr, Sonnenschein, Nath & Rosenthal, New

York City, for Appellees Prudential Insurance Company of America and Ron D. Barbaro.

Brian S. Wolfman (Argued), Alan B. Morrison, Public Citizen Litigation Group, Washington, DC, for Amicus Curiae-Appellant Public Citizen, Inc.

John J. Gibbons, Gibbons, Del Deo, Dolan, Griffinger & Vecchione, Newark, New Jersey, for Appellee Robert C. Winters.

Frederick B. Lacey, LeBoeuf, Lamb, Greene & MacRae, Newark, New Jersey, for Appellee Frances K. Beck, as Executrix of the Estate of Robert A. Beck.

Before: SCIRICA, ROTH and RENDELL, Circuit Judges.

OPINION OF THE COURT

SCIRICA, Circuit Judge.

                               TABLE OF CONTENTS
OPINION OF THE COURT ...................................................... 288
    I.  BACKGROUND AND PROCEDURAL HISTORY ................................. 290
        A.     The Multi"State Life Insurance Task Force .................. 290
        B.     The Federal Class Action ................................... 292
               1.     The Proposed Settlement ............................. 294
                      a.    The Alternative Dispute Resolution Process .... 295
                      b.    Basic Claim Relief ............................ 296
                      c.    Enhancements To the Task Force Plan ........... 296
               2.     The Fairness Hearing ................................ 298
   II.  ISSUES RAISED ON APPEAL AND STANDARD OF REVIEW .................... 299
  III.  JURISDICTION ...................................................... 299
        A.     Subject Matter Jurisdiction ................................ 299
               1.     Federal Question Jurisdiction as a Basis for
                        Supplemental Jurisdiction ......................... 300
               2.     Diversity Jurisdiction as a Basis for Supplemental
                        Jurisdiction ...................................... 303
        B.     Personal Jurisdiction ...................................... 306
        C.     Article III ................................................ 306
   IV.  CLASS CERTIFICATION ............................................... 307
        A.     Settlement"Only Class Certification ........................ 307
        B.     Class Certification under Rule 23 .......................... 308
               1.     The Rule 23(a) Criteria ............................. 309
                      a.    Numerosity .................................... 309
                      b.    Commonality ................................... 309
                      c.    Typicality .................................... 310
                      d.    Adequacy of Representation .................... 312
               2.     The Rule 23(b) Criteria ............................. 313
                      a.    Predominance .................................. 314
                      b.    Superiority ................................... 315
        C.     Conclusion ................................................. 316
    V.  THE FAIRNESS OF THE PROPOSED SETTLEMENT ........................... 316
        A.     The Girsh Factors .......................................... 318
               1.     The complexity and duration of the litigation ....... 318
               2.     The reaction of the class to the settlement ......... 318
               3.     The stage of the proceedings and amount of discovery
                        completed ......................................... 319
               4.     The risks of establishing liability and damages ..... 319
                      a.    Replacement Claims ............................ 320
               5.     The risks of maintaining the class action through
                        trial ............................................. 321
               6.     The ability of the defendants to withstand a greater
                        judgment .......................................... 321
               7.     The range of reasonableness of the settlement fund
                        in light of the best possible recovery and all the
                        attendant risks of litigation ..................... 322
        B.     Other Objections ........................................... 324
               1.     The Rules Enabling Act and the McCarran"Ferguson Act  324
               2.     Failure to Allow Discovery .......................... 324
        C.     "Other Sales Claims " ...................................... 325
               1.     The Alleged Expansion of the Class .................. 325
               2.     Adequacy of Class Notice ............................ 326
        D.     Conclusion ................................................. 328
   VI.  ATTORNEYS' FEES ................................................... 329
        A.     The Fee Agreement .......................................... 329
        B.     Fee Opinion ................................................ 330
        C.     Analysis ................................................... 333
               1.     "Clear"Sailing" Fee Agreement ....................... 334
               2.     Adverse Effect on Class Members ..................... 335
               3.     Fairness of the Award ............................... 336
                      a.    The Value of the Settlement ................... 336
                      b.    The Appropriate Percentage Recovery ........... 338
                      c.    Lodestar Calculation .......................... 340
                            i.    Multiplier .............................. 340
                            ii.   Time Records ............................ 341
        D.     Conclusion ................................................. 342
  VII.  KRELL'S MOTION TO RECUSE .......................................... 342
        A.     Procedural History ......................................... 342
        B.     Legal Standard ............................................. 343
        C.     Krell's Arguments on Appeal ................................ 343
               1.     Ex Parte Meetings ................................... 343
               2.     The Conference With State Insurance Regulators ...... 344
               3.     Rutt v. Prudential .................................. 345
 VIII.  CONCLUSION ........................................................ 346

This is an appeal from the approval of the settlement of a nationwide class action lawsuit against Prudential Life Insurance Company alleging deceptive sales practices affecting over 8 million claimants throughout the fifty states and the District of Columbia.

The class is comprised of Prudential policyholders who allegedly were the victims of fraudulent and misleading sales practices employed by Prudential's sales force. The challenged sales practices consisted primarily of churning, vanishing premiums and fraudulent investment plans, and each cause of action is based on fraud or deceptive conduct. There are no allegations of personal injury; there are no futures classes. The settlement creates an alternative dispute resolution mechanism and establishes protocols to determine the kind and amount of relief to be granted. The relief awarded includes full compensatory damages consisting of what plaintiffs thought they were purchasing from the insurance agent. There is no cap on the amount of compensatory damages for those who qualify, and although punitive damages are not included in the settlement, Prudential has agreed to pay a remediation amount in addition to the payments made through dispute resolution process.

The case involves five consolidated appeals from the judgments of the District Court for the District of New Jersey approving the settlement and awarding attorneys' fees to class counsel. Appellants, members of the certified class who object to the settlement, challenge the district court's jurisdiction, the certification of the settlement class, the fairness of the settlement itself, the award of attorneys' fees, and the district court's refusal to disqualify itself.

We hold the district court properly exercised jurisdiction. Federal subject matter jurisdiction is properly grounded on the alleged violations of the federal securities laws. Although most of the claims implicate state law, supplemental jurisdiction is proper because all of the claims arise out of a common nucleus of operative fact. The district court had...