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1 UNITED STATES DISTRICT COURT

1 SOUTHERN DISTRICT OF NEW YORK

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3 GASPER CELAURO, et al.,

4 Plaintiffs,

5 v. 96 CV 1262

6 CITIBANK, N.A.,

7 Defendant.

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9 New York, N.Y.

9 September 10, 2002

10 12:00 noon

11 Before:

12 HON. ROBERT W. SWEET,

13 District Judge

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2 APPEARANCES

3 MILBERG WEISS BERSHAD HYNES & LERACH

4 Attorneys for plaintiffs BY: SANFORD P. DUMAIN

5 GEORGE A. BAUER III, REGINA L. LAPOLLA

6 GREENBERG TRAURIG

7 Attorneys for plaintiffs BY: KENNETH A. LAPATINE

8 ABBEY GARDY

9 Attorneys for plaintiffs BY: JILL S. ABRAMS

10 DEBEVOISE & PLIMPTON

11 Attorneys for defendant BY: ROBERT N. SHWARTZ

12 CHRISTOPHER K. TAHBAZ, AVI WEITZMAN

13 RICHARD N. PAPPER

14 Senior Litigaton Counsel, Citibank

15 LOUIS G. ADOLFSEN, RUSSELL BEATIE

16 Attorneys for Objectors

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1 (Case called)

2 THE COURT: Good morning, good afternoon. I want to

3 thank you all for appearing at this hearing today. My initial

4 thought when I scheduled this was that I anticipated being on

5 trial and that we would do this hearing during the lunch hour.

6 As things have evolved, that is not the case. So I think we

7 can be a little bit more relaxed. What I would propose is that

8 we hear from the objectors, and then after we have done that

9 for a bit, break at 1:00 for lunch, resume at 2. If we have

10 done all the objectors, fine. If not, we will continue and

11 then hear from the proponents of the settlement, and then the

12 objectors, if there are any who wish to be heard afterwards, we

13 will do that.

14 So that's the plan. I would ask those who appear to

15 identify themselves for the record. I know some of you have

16 already given your appearances to the court reporter, but it

17 would be helpful, I think, to Martha if you would just indicate

18 who you are. I know you are the most prominent lawyers in New

19 York City, instantly recognizable by all, but notwithstanding

20 that, it might help out a little bit.

21 So I would be pleased to hear from any of the

22 objectors, and I have sense of order in that regard. Anybody

23 that wants to object to the settlement, pleased to hear them.

24 MR. BEATIE: Your Honor, to remove my anonymity,

25 Russell Beatie for some number of objectors. It is

4

1 considerably greater than the attachment to our memorandum, so

2 I speak specifically on behalf of 157 people today. At this

3 moment we received, as we have continuously now for the past

4 two weeks, a number of e-mails that we were unable to decipher

5 and include in there, and I think there are a considerable

6 number of additional people who have asked us to represent them

7 but I can't give you their names, so let's stay with 157.

8 Those people have authorized and directed me to speak

9 on their behalf in opposition to the settlement.

10 What I would like to do, your Honor, instead of

11 rehashing the brief, which I am confident the court and its

12 staff have already read, is go to a slightly different

13 approach. We should talk a little bit about the background.

14 These matters arise fundamentally out of the extraordinary

15 burst of asbestos litigation in the United States, going back,

16 in my memory and in my personal involvement in those matters,

17 at least 30 years. During the course of those litigations they

18 began as small claims. They were being routinely settled at

19 that time -- I was counsel to the Keene Corporation. They were

20 being routinely settled for 1,500 to $3,000 apiece. They began

21 ever so slowly at that time to take on a life of their own and

22 achieve much, much greater numbers, both in terms of the

23 individual amounts of compensation to claimants, and also in

24 terms of the number of claimants, which finally when I

25 represented Keene in its limited fund proceeding, the

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1 projection at that point of the main claims unasserted was

2 somewhere in the neighborhood of 400,000.

3 During the course of those litigations, the claims,

4 beginning with incidents in the 1930's, continued throughout

5 the Second World War, when asbestos was used in an

6 extraordinary quantity to make V ships and a variety of other

7 cargo carriers for the war effort. The claimants faced all

8 sorts of extraordinary hurdles in order to establish liability:

9 Statutes of limitation, insurance coverage for the companies,

10 which were buried -- at the last count there were 27

11 bankruptcies which resulted with manufacturers of asbestos.

12 The point was, the judiciary took a very constructive

13 view of the claims and worked out many novel theories that

14 assisted the claimants in establishing their claims when they

15 were unable to identify manufacturers, when they were unable to

16 identify the quantity of asbestos to which they had been

17 exposed, when one type accounted for 10 percent of their

18 exposure, and so on. Many novel decisions came down to allow

19 those claims to go forward.

20 All these creative efforts, including the

21 extraordinary development of Rule 23, made the claims on behalf

22 of the claimants possible. Rule 23, for example, I have been

23 involved in mass tort complex product liability litigation ever

24 since I was a toad, when I first got out of law school. I

25 believe at one point I was representing defendants only. I was

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1 37 and 0. Rule 23 applications in mass tort applications, for

2 reasons well known at the time, well recognized, those all went

3 in the trash heap and mass applications for resolution of

4 asbestos claims were permitted by novel decisions like the

5 Brooklyn Naval Yard case and others that allowed these cases to

6 go forward and allowed unimaginable proportions and burdens for

7 manufacturers and insurance companies.

8 What does all that background have to do with us? We

9 are now at the other end of the spectrum, your Honor, and what

10 the defendants want here is a mechanical application against

11 not the insurance companies but people who were participants in

12 insurance syndicates, who thought they were making sound

13 investments. What we think the court should do is use the same

14 imaginative, creative approach. I am not asking the court to

15 invent something new. I am asking the court to look at our

16 objection with the same attitude that the courts used over

17 years to develop the financial burdens that the asbestos

18 litigations imposed on both the manufacturers and the insurance

19 companies.

20 Over the last 10 or 15 years, these litigations

21 involving the participants and the Lloyd's syndicates, who are

22 the class of plaintiffs objecting here, or at least, we

23 represent, a substantial percentage of them, those people were

24 participants of means. They didn't get to be participants in a

25 Lloyd's syndicate because they were somebody on the street with

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1 a $40,000 income. They had an opportunity to participate

2 because they could meet substantial financial hurdles. Most of

3 them were older people. Most of them are now quite old. Many

4 are deceased. Many of the claims against their participation

5 and exposure are pending against their estates. Many

6 bankruptcies followed, unfortunately a number of suicides,

7 because the way this situation has operated now has been a very

8 mechanical application of the fiduciary duty position developed

9 over many, many, many years, decades, if not hundreds of years,

10 by a company that goes back at least 300 years and has a very

11 friendly working relationship with the British Parliament.

12 The fact of the matter is that in the latter years of

13 these people's lives, these litigations, the efforts by Lloyd's

14 to capture the losses and the syndicates from these people have

15 basically dominated their lives and turned their lives into, in

16 many cases, living hell, where they went from a comfortable

17 life to having nothing, to filing bankruptcy. I can't tell you

18 the number of e-mails I have received from people who said I

19 used to be a lawyer, I was in bankruptcy, I am now a paralegal,

20 and so on.

21 As you know from our papers and numerous other papers,

22 when a person becomes a participant in a syndicate, he signs an

23 agreement in which he commits his net worth in support of the

24 syndicate if things don't work out the way everybody hopes they

25 will or expects them to. The consequence is that these people

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1 have been exposed to litigation by Lloyd's. I am talking about

2 Lloyd's because as far as I am concerned, Lloyd's is a

3 significant participant here, whether Lloyd's is a party or

4 not, and whether or not Lloyd's should be a party I think is a

5 question the court might well consider, because I have never

6 seen a settlement in my life like this, in which a supposed

7 nonparty extracted such extraordinary consideration in the

8 settlement of a class claim against some other business entity.

9 But in any event, the point is, your Honor, that these

10 people have been exposed to the claims by Lloyd's for their

11 deficiencies. They have been pursued diligently and vigorously

12 all over the United States. I am told by some of the people

13 with whom I have had regular conversations that many of them

14 are in practical effect in hiding because Lloyd's will be able

15 to find them and go after them and take away everything they

16 have.

17 THE COURT: Excuse me, Mr. Beatie. By definition, I

18 take it, every class member has declined to participate in the

19 R and R proceeding, whatever you want to call it.

20 MR. BEATIE: Yes, sir.

21 THE COURT: So by definition, each one is someone that

22 Lloyd's feels -- well, of course we don't know, as a matter of

23 fact, whether a particular name is viewed by Lloyd's as having

24 liability or not. Of those who have not gone into the plan

25 there is no way of knowing as we sit here now that every person

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1 who has not gone into the plan is subject to a Lloyd's lawsuit,

2 because some may have not gone into the plan but there may not

3 be a liability.

4 MR. BEATIE: That may be correct, your Honor.

5 THE COURT: But we don't know.

6 MR. BEATIE: I don't know. I don't know if anybody

7 else knows. We came to this case so late. As I told you in my

8 first letter, your Honor, we came so late that I hope the court

9 will forgive me if I don't show complete familiarity with the

10 facts.

11 THE COURT: My belief is that nobody knows the answer

12 to that, but I may be wrong. We will hear from those who are

13 more involved.

14 MR. BEATIE: I believe there may be some people who

15 have been exposed to litigation who were members of R and R and

16 it turned out -- R and R doesn't mean that you pay a little

17 money and you are done, because you assumed obligations under R

18 and R that continued on, and if those became substantial and

19 you didn't pay, you were susceptible to litigation by Lloyd's.

20 THE COURT: But one presumes that litigation would not

21 be affected by this case.

22 MR. BEATIE: I don't believe so, your Honor. I

23 believe the class here is composed of the 1,700 people several

24 times reduced down to, say, 1,200 or so who were the persons

25 who did not choose to participate in the R and R. But I can't

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1 tell you that categorically.

2 The problem with the suits, your Honor, is that the

3 defenses that the individuals can mount are quite limited, and

4 their capacity to defend themselves is even -- to prosecute

5 their rights in whatever form, either as a defense or

6 offensively, are very severely limited. If they wish to assert

7 a right, for example, against Lloyd's, they must do it

8 individually. The UK does not have a class action. They have

9 what they call a group action, which is sort of the equivalent

10 of a multiplaintiff case. And they have all sorts of wonderful

11 little deterrents against litigation. The loser pays the

12 costs, which can be bankrupting in itself, and so on. The

13 result is that the participants in the syndicates face

14 litigation in the United States. They have very little way to

15 vindicate their rights as a group in a collective way, in a way

16 that they can afford, in a way that was practical for them

17 against Lloyd's, and that is why I said sometime ago and I have

18 repeated the fact that Lloyd's participates in this settlement,

19 and I believe it does participate in the form of a fortress.

20 They are essentially unassailable.

21 If we decide to go forward with the case -- that's a

22 decision I haven't made. I have scheduled interviews in the

23 UK. I will be there 10 days or more at the end of the month,

24 on a combination of business and pleasure, and after we have

25 done our investigation we will determine whether or not we will

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1 respond favorably to the requests we have received to represent

2 these people in further proceedings. We have not done a head

3 count of those people. There were some form letters that were

4 used and there were others that were free hand, offhand. We

5 think that most of the 157 who are in the notice are also

6 people who have asked us to look after them if the case goes

7 forward and further proceedings occur. That poses a number of

8 questions which are not before the court today and I mention

9 them, but I pass them and I don't think they are appropriate

10 for consideration here.

11 We made essentially three points in our memorandum.

12 The first one is that we don't think that anybody knows enough

13 to make a rational judgment about the resolution of this case,

14 period. And I don't think the court is in a position to be

15 able to say that anybody has enough information to make that

16 rational judgment with the information before it. The briefs

17 read like hornbook. They are a general statement of general

18 facts. We had some discovery, we looked at some documents. We

19 have only been able to identify one deposition, and that was a

20 confirmatory deposition. There is reference to depositions.

21 No one we have been able to communicate with has been able to

22 identify any that were taken. There are none identified in the

23 papers submitted to you so I don't know how you can determine

24 that proper discovery was taken so that an assessment of

25 liability and risks could be made. It may all be made but the

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1 showing here is totally insufficient.

2 The same is true, your Honor, on the damage side. No

3 study was commissioned. I know that for a fact because I

4 called the principal plaintiffs' counsel and asked that

5 question, and I was told that no damage study had ever been

6 commissioned by an outsider, that no damage study had ever been

7 done by their firm. As far as he knew, none of the plaintiffs'

8 counsel had ever done a damage study. I have rough and dirty

9 estimates from people who were parts of organizations, both in

10 the UK and here, about the losses, and they tell us that the

11 losses that run through the class exceed a billion dollars. I

12 can't represent to the court that that is a sound number. All

13 I can tell you is that on the basis of their 15 years of living

14 with this mess, that's what they believe the gross exposure is

15 from -- by the way, there is a communications network which is

16 bigger and better than anything -- or worse than anything I

17 have ever seen in my life with these people, so I think they

18 probably have a reasonable basis for giving a rough and dirty

19 estimate, and I believe that one billion guesstimate is

20 probably in the ballpark.

21 The consequence, your Honor, is that what you end up

22 with is a litigation that has languished for a long period of

23 time, has not been tended and has now probably been victimized

24 by the sweet little people in Washington with the pencils and

25 the green eyeshades, so it's being disposed of. But it is

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1 being disposed of at the expense of the members of the class,

2 because they are getting, on a billion dollar claim, they are

3 getting 2 cents on the dollar, and the 2 cents on the dollar

4 that they would receive, if it was subject to recapture by

5 Lloyd's on their litigations -- we have pointed this out in our

6 briefs so I will just mention it -- the pass-through gifts from

7 Lloyd's is eye wash. The certificates from Lloyd's are eye

8 wash, because they have very onerous conditions. You must

9 commit to do certain things in order to be able to use the

10 certificates. It's not as if you were being given a dollar

11 bill. That's not the way it works.

12 THE COURT: What are the conditions that you consider

13 onerous?

14 MR. BEATIE: If I understand it correctly, your Honor,

15 a person who uses certificates must commit to carry out the

16 rest of his obligations. He must pay a hundred percent of his

17 obligations, and then he can use the certificates. He can't

18 resist.

19 One of the other things that one of the class members

20 pointed out to me is that Lloyd's has been routinely settling

21 claims against names, at bigger discounts than the certificates

22 would give a person. So if he had a $20 liability and he got a

23 $3 certificate, so he only owed $17, Lloyd's has been routinely

24 offering before litigation to settle with claimants for $15 on

25 a $20 claim. So for all practical purposes, a participant here

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1 gets less than he could if he toughed it out, risked a little

2 litigation and settled.

3 THE COURT: Of course we don't know that. I am not

4 being critical, but we don't know that.

5 MR. BEATIE: I know that because more than one name

6 has explained that to me in an e-mail -- right, I don't have

7 affidavits --

8 THE COURT: As far as I am concerned, I don't know. I

9 hear the statement and I understand the concept. I don't know

10 it.

11 MR. BEATIE: If it becomes important I would be happy

12 to go back and obtain affidavits from these people to ascertain

13 facts. Actually, your Honor, I didn't come here to quibble

14 over the nitpicky terms of the certificate and we don't

15 position our brief that way either.

16 Let me tell the court what I think the most important

17 deficiency here is. I think we are in a very unusual situation

18 in which the structure of the case, because of its chronology

19 and a variety of other circumstances, is constitutionally

20 defective. I have always believed that when lawyers make

21 constitutional arguments they are desperate and they have

22 nothing else to say and they are basically assured of being

23 losers, but I think this is a real constitutional argument.

24 The notice to the class never told them what they would be

25 dealing with in the settlement. They simply didn't tell them.

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1 They didn't know that they would be giving away all their

2 offenses and defenses with Lloyd's. All these people are in a

3 position to do something in England if they wanted to. And

4 they could make any number of arguments that have been

5 effective here in the United States, for the benefit of the

6 asbestos claimants at the other end of the pipe. They would

7 receive a hostile reception in the courts in the UK, another

8 reason I think these claims should be resolved in the United

9 States. And frankly, if we proceed, we would come to you with

10 novel ideas about Lloyd's. Not so novel, but what we think

11 would be constructive new ideas.

12 The biggest difficulty, your Honor, with this entire

13 process, and the thing that kept coming over my e-mails and

14 telephone, call after call, message after message, was, when I

15 was told that I should opt out or stay in, I didn't have any

16 idea that Lloyd's would be participating in the settlement and

17 I would be doing what I am being asked to do here now, I want

18 to opt out, go to the court and tell the judge that I want to

19 opt out. My answer invariably was, way too late, the judge

20 cannot reopen that.

21 That doesn't mean that I am suggesting there is some

22 defect in what has happened up to now, I am not. I am

23 suggesting that there is a monumental defect in the settlement

24 because these people were entitled to know what they were

25 litigating in the United States, and they simply didn't know.

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1 Last point, your Honor -- and I will be done way

2 before 1:00, and anybody else can add -- we have this agreement

3 from Lloyd's, an apparent agreement from Lloyd's. One

4 signature is utterly and completely illegible on a

5 one-or-two-page document, saying pass-through and certificates

6 and we will honor the certificates. How is it enforceable? Is

7 it genuine? We don't even have an affidavit from anybody with

8 knowledge that these people are what they are supposed to be,

9 that they are authorized to sign, that they are entitled to

10 bind Lloyd's and bind Citibank. We just have a document that

11 has been given to the court. Totally deficient. If it turns

12 out that is Lloyd's signature, as far as I am concerned,

13 Lloyd's is a full-blown, full-fledged participant in the case

14 and ought to be, and then we can take some real steps to see

15 what happens.

16 On the other hand, however, I don't see how the court

17 could possibly make a judgment here with the showing that's

18 been made that all these things that have been represented to

19 the court, which may all be completely regular and have been

20 proven to the satisfaction of the court that it can approve a

21 settlement resting on these things.

22 When I said about the brief at the very beginning that

23 it reads like a hornbook, that is exactly what I mean. It is a

24 bunch of collective generalities with some cases cited. There

25 is virtually no factual information in it or the affidavits.

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1 We don't submit papers like that and we don't believe we have

2 ever seen papers like that in support of a class action

3 settlement. There has been discovery and lists of the

4 deponents, answers to interrogatories, identify the sets of

5 interrogatories and the sets of answers so the court can look

6 at that and say I have a basis for making a determination.

7 Here you have a bland statement about depositions and documents

8 and no more than that. Same thing about the pass-through. You

9 have a bland statement about here's an agreement, it has two

10 completely illegible signatures on it. I don't know how we

11 would find out who actually signed it without serving

12 interrogatories because you can't tell who it is. And I don't

13 know how we could validate who signed it and what their

14 employer was, what their authority was.

15 Therefore, your Honor, it seems to me that the right

16 thing to do is to put aside this proposed settlement, go back

17 to litigation, let us finish our investigation. If we think

18 there should be a role for the court we would come back to the

19 court promptly, middle of October at the latest, and we would

20 propose a firm program for the court. If we were to have a

21 role we would propose a firm program, which we hope would be

22 limited in time and scope and focus and achieve what is

23 necessary, and if we waste our time and energy and strike out

24 and it turns out that the claims are not sustainable -- we

25 don't believe that's the fact. We think there is a great deal

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1 of collateral evidence from the insurance report of the State

2 of New York and so on that suggests that there was a great deal

3 going on here that shouldn't, but we would have in mind that

4 the case move forward to resolution one way or another, and if

5 it turned out that the case should be settled on these terms,

6 the court would know it and so would we. Thank you.

7 THE COURT: Anyone else like to be heard in

8 opposition?

9 MR. ADOLFSEN: Lou Adolfsen, the firm of Melito &

10 Adolfsen. I represent five names who are not included in the

11 157. They are Messrs. Brown, Fuerst, Kruke, Poley, and

12 Sandersen.

13 I have a much narrower focus, and yet for my clients I

14 think equally as important, and that has to do with the scope

15 of the release. I sent a letter to your Honor by hand on

16 Friday and sent it to the plaintiffs' lawyers as well as the

17 defense lawyers, and it had to do with the scope of the

18 release. I had some informal discussions and I understand they

19 are not agreeable to what I am suggesting, so I am going to try

20 to just give you some oral argument and explain, and I can show

21 you exactly what we were asking.

22 The concern that a lot of people that I represent --

23 and I think other people who are also in this category, because

24 I looked at the objections that were attached to the papers,

25 and many, many people felt that the release was very, very

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1 broad and they were giving up things and seemed to be confused.

2 What I do for a living right now -- I have done

3 asbestos litigation, insurance coverage litigation also, but

4 one of the things I do a lot of is releases, and one of the

5 things we do when we are trying to get a broad release is, we

6 use language that is similar to the language that is in this

7 agreement here, talking about appendix 1, definition of terms

8 used in releases, and the phrase I am referring to is based on

9 "or arising out of," etc. "Arising out of," when I put that in

10 a release, I am taking everything in. That's the way I look at

11 it. Construction litigation in New York, you would look at

12 arising out of the work. Someone would say I wasn't there at

13 the site, how can I be indemnified, and it wouldn't matter if

14 you were there, that's how broad it is.

15 Then there is a carveout, and you will hear Citibank,

16 and I think the plaintiff lawyers will also support them, from

17 what I hear, it's been carved out, any pending claims are

18 released, claims that weren't made prior to certain dates.

19 When I read it as a layperson I would find it very complicated.

20 As a lawyer who is not familiar with this area but is becoming

21 somewhat familiar with it -- talking about Lloyd's and American

22 Trust -- it is very complicated. But what I am told by other

23 people that I have worked with since I have got involved, all

24 these things are related. In other words, the Equitas Trust

25 was amended to the American Trust.

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1 So when you say arising out of a matter, one can argue

2 that swoops in on a claim that you have with the Equitas Trust.

3 As I pointed out in my letter, the Equitas Trust itself is not

4 mentioned as part of the release, so consequently, one could

5 argue that Equitas is not the same -- it isn't, actually, the

6 same as the Equitas Trust. So that a claim against Citibank

7 for its involvement with the Equitas Trust as distinguished

8 from the Lloyd's American Trust might arguably be released.

9 As lawyers, we can draft something that says no, it

10 isn't, and we can also have debates among ourselves as to

11 whether it is or isn't a release, and the language says this

12 and the language says that. What we were proposing was to be

13 very explicit about that. In other words, that's what our

14 clients would feel most comfortable with, saying very

15 explicitly that certain types of claims are not released.

16 What I can show you is, we blew it up because we

17 thought there would be a lot of people here, so you can see

18 exactly what we were talking about. This was in my letter.

19 What we are asking for here, this is our paragraph A in the

20 September 6 letter that we went to your Honor.

21 "The release has no effect on any pending and future

22 claims and defenses against any party regarding the recruitment

23 and/or underwriting of Lloyd's syndicates by class members."

24 As you have heard from some of the earlier discussion

25 and as you know generally about this litigation, there are all

21

1 these claims and defenses and people are involved in litigation

2 with Lloyd's. What my clients are concerned about is not that

3 someone give us an assurance, don't worry, you can still make a

4 claim, don't worry, your defenses are not affected, we would

5 like to say it very explicitly so that later on a London court

6 won't be able to say well, there is that language that is in

7 the release and you all agreed to that and we construe that as

8 barring your claim against Equitas Trust or barring any defense

9 that you may have against us as to why you ought not to be

10 liable for these asbestos losses or any other losses we are

11 saying you have a responsibility for.

12 So that is what we want to make explicit, because that

13 "arising out of" language swoops everything in and any New York

14 lawyer will tell you that.

15 Next one -- these are easy to make and I thought it

16 would be easy to read for everybody. Next one is category B

17 and it says:

18 "The release has no effect on any pending and future

19 claims and defenses against any party arising from exposure to

20 asbestos and collusion liabilities facing Lloyd's London

21 syndicates with respect to pre-1993 syndicate losses."

22 Again I emphasize the defenses. Whether or not we

23 have a claim is another matter which people can debate, whether

24 the statute of limitations has run. There are cases in

25 California where they say the statute hasn't run on such claims

22

1 and they have been brought and there may be others in other

2 jurisdictions.

3 Here is the last one, and that is, and I will read

4 slower, No. C:

5 "The release has no effect on any past, current and

6 future claims against any party in relation to the

7 establishment, conduct, administration, operation, supervision,

8 direction, or oversight of the Equitas American Trust Fund."

9 That is what I mentioned earlier, about the "arising

10 out of" language at least theoretically could swoop the Equitas

11 Trust into the settlement involving the Lloyd's American Trust

12 because it was created through an amendment to that trust.

13 The last thing I wanted to point out that you also

14 wanted to have as part of the settlement, one thing that was

15 agreed to but again, we wanted it to be explicit because

16 another court will read this and hear what your Honor has to

17 say, and this has to do with the use of the credit notes, and

18 what it says is:

19 "The chart that I just prepared, and we would like to

20 have part of the settlement, is a provision of the settlement

21 that Lloyd's agrees that class members who have both 'R and R

22 debt,' as outlined in the settlement agreement, which has been

23 reduced to judgment, and 'R and R debt' that has not been

24 reduced to judgment, can choose whether the credit notes should

25 be applied to the judgment-debtor otherwise."

23

1 That greatly enhances the value of the notes if they

2 can be used. Our understanding was they were only going to be

3 used if they actually reduced it to judgment. Now they seem to

4 be saying for any purpose and we would like that to be an

5 explicit part of the settlement.

6 Your Honor, that is all I have right now unless you

7 have any questions.

8 THE COURT: Thank you, sir. Anyone else?

9 Yes, sir.

10 MR. COUGHLIN: Your Honor, my name is Daniel Coughlin.

11 I am a class member from Boston. I will be brief. I want to

12 make mainly one point. Let me first tell you, your Honor, that

13 I believe the settlement offer is paltry indeed. In my case,

14 my personal case, I would receive $1,801 cash and $4,536 in

15 credit notes.

16 As regards the credit notes -- which, by the way,

17 comprise something like 70 percent of the aggregate settlement

18 after you deduct the lawyers' fees --

19 THE COURT: I am sorry, I don't understand that

20 calculation.

21 MR. COUGHLIN: The credit notes on the surface

22 represent $11.5 million worth and the cash is $8.5 million. If

23 you deduct the lawyers' fees, at least the proposed lawyers'

24 fees, of $453,000, you are left with 4 million cash plus the

25 credit notes. That ratio is roughly 37. In other words, most

24

1 of the settlement offer is in credit notes.

2 THE COURT: Yes.

3 MR. COUGHLIN: I would mention on the credit notes

4 that as recently as January 2001, Lloyd's made another

5 settlement offer under which they agreed to discount the entire

6 debts to Lloyd's by 65 percent, even ranging up to 70 percent,

7 if you would sign a release. That, of course -- also, in the R

8 and R settlement in 1996, there were very large so-called debt

9 credits, same thing, credit notes, debt credits, debt

10 forgiveness, if you will, which ranged even higher, as much as

11 80 or 90 percent.

12 So the point I am making is that these credit notes

13 are really essentially nothing. They are worthless. I mean,

14 tomorrow I could negotiate a settlement with Lloyd's and

15 certainly $4,500 would be -- considering that my alleged debts

16 exceed -- they are about $750,000. This is absolutely paltry.

17 So I am suggesting to the court that this is a very small price

18 Lloyd's is paying for this release, which a lot of people find

19 objectionable.

20 THE COURT: Of course you have no idea, I assume you

21 have no idea whether your situation is typical or not.

22 MR. COUGHLIN: I have a pretty good idea. Many of us

23 have been following this for years. I think it is fairly

24 typical. In the briefs of our learned counsel, they mention a

25 number of amounts, and they are very large, meaning the

25

1 aggregate alleged debts of the members of the class from

2 Lloyd's, I think they mention as 900 members that still owe

3 Lloyd's money, and in the brief it is said that, something like

4 the debts are a factor 20 times more than the 11.5 million, I

5 believe, something like that. I didn't quite understand the

6 reference, but you are talking hundreds of millions of dollars.

7 I am not exactly sure, but it is certainly in excess of a

8 hundred million. So when you compare that with these credit

9 notes of 11.5 million, that ratio too high. It is much less

10 than that.

11 So that is really the only point that I wanted to

12 make, how paltry this settlement is, and why so many of us feel

13 strongly, if it is going to be forced on us, we would like

14 another chance to opt out, because we didn't know what we were

15 getting into in 1998. Thank you.

16 THE COURT: Thank you, Mr. Coughlin.

17 MR. STARKEY: Good morning, your Honor. My name is

18 Harry C. Starkey. I am a member of the class and I would like

19 to speak in objection to the settlement. The release to

20 Lloyd's may release substantial litigation particularly in

21 England that is ongoing now that we have worked 10 years and

22 spent $6 million of legal fees to accomplish. I would like to

23 hand up to the court for reading later a newsletter which

24 explains the recent decision, and I will leave copies with

25 counsel.

26

1 But the bottom line your Honor, your Honor, is that

2 Lloyd's has been found guilty by the appeals court in London,

3 the second highest court in the land, of making false

4 statements to the names worldwide in violation of our

5 securities laws to the investors here. In England they don't

6 have securities laws like we have here but they have

7 misrepresentation laws. But they would like to bring new

8 lawsuits to get paid on that. I read this settlement as

9 possibly limiting the ability for us to get paid under those

10 conditions.

11 There are 216 names in that case in one group and I am

12 the US representative of that group. That group is named

13 United Names Organization. They are in the process of

14 presenting their authorizations to Mr. Beatie to be represented

15 by him, and many of them have come in with objections to the

16 settlement.

17 In addition to this litigation that is going on in

18 England, there are two substantial litigations going on in the

19 US, one in Florida and one in California. They are both

20 defensive cases. I am not a lawyer so I can't be sure, but I

21 am very nervous about this release as releasing somehow or

22 affecting or detracting from our ability to defend against

23 these judgments.

24 Your Honor, I was in the securities business for 20

25 years and I wrote many disclosure documents, and we had to make

27

1 full disclosure. We could make no false and misleading

2 statements. Here Lloyd's of London comes to this hearing with

3 unclean hands. They have violated our securities law big time.

4 They have for 18 years not had audited financial results and

5 yet they claim they had rigorous audits in their brochures.

6 They lied to us. I don't think a US court can allow a

7 settlement like this to people that come with unclean hands

8 such as this. I just don't see it.

9 I will be submitting to your Honor the entire appeal

10 court ruling, 158 pages, extremely well done, well thought out,

11 very nice document, and point out to your Honor the untrue

12 statement categories.

13 The debt credits that are in the net credit notes are

14 worthless. We don't owe anything to Lloyd's of London. Why do

15 we want debt credits? We want our cash back. We put hard cash

16 into this endeavor and we got screwed. We don't care about

17 these debt credits. This is a sham. It should be thrown out.

18 So far, Mr. Beatie says there are 157 names that have

19 come in and decided to have him represent them. If we had the

20 list from Milberg and Lloyd's of the names, we would have much

21 more than that. Lloyd's and Milberg refuse to produce the

22 list. We can't contact the people to tell them what's wrong.

23 I would like your Honor to order that list up in the near

24 future so we can work on this.

25 The last point, your Honor, it is just unfair to force

28

1 names into this when they didn't know what they were getting

2 into with this settlement. In 1998, we didn't know Lloyd's was

3 part of the settlement. We were being blindsided. The

4 securities law wouldn't allow it. If this were a securities

5 litigation, and it may be, this would not be Lloyd's.

6 Thank you, your Honor.

7 THE COURT: Thank you. Anyone else like to be heard

8 in opposition to the settlement?

9 Not hearing anyone else, I think maybe the easiest

10 thing for us to do now would be to break for lunch, and we will

11 resume at 1:45. Thank you all.

12 (Luncheon recess)

13

14

15

16

17

18

19

20

21

22

23

24

25

29

1 AFTERNOON SESSION

2 1:45 p.m.

3 MR. DUMAIN: Thank you, your Honor. Good afternoon.

4 I am Sanford Dumain for Milberg Weiss, appearing on behalf of

5 the plaintiffs. Your Honor, I will be speaking generally as to

6 the criteria under Rule 23 and the case law for approval of

7 settlements, and with your Honor's permission Ken Lapatine will

8 follow me and speak more specifically with respect to points

9 made by the objectors.

10 Your Honor, we are here pursuant to Rule 23(e) and

11 pursuant to your Honor's order dated May 21, 2002, setting this

12 hearing for final approval of the settlement of this action.

13 As the court is aware and after presiding over the case for

14 several years, this is a settlement that was not easy to obtain

15 and came after hard-fought litigation and long and difficult

16 negotiations.

17 I would like to start, your Honor, by describing just

18 briefly what the nature of the claims are and what the class

19 consists of, because I think a lot of what we heard this

20 morning is based on either a misunderstanding for lack of

21 familiarity or perhaps some unjustified fears about what this

22 case is and what it is not.

23 The original complaints were filed in state court and

24 removed to this court by Citibank. The original complaints had

25 three claims under New York law, one for breach of fiduciary,

30

1 one for breach of contract, and a claim that sought an

2 accounting under New York law. Only the claim for breach of

3 fiduciary duty survived defendants' motion to dismiss. The

4 case revolved around one thing and one thing only, and that is

5 Citibank's role as the trustee of Lloyd's and the American

6 Trust Fund, principally the practice that Citibank followed of

7 following Lloyd's' directions to bar funds belonging to

8 insolvent names, the class members here, to pay obligations of

9 allegedly insolvent names. Although there were also

10 allegations in the complaint about Citibank having some

11 involvement in some sort of scheme to recruit new names to

12 spread the devastating losses that were about to occur with

13 respect to asbestos-related illnesses, the simple fact is that

14 the evidence to support that allegation was not there. When I

15 talk later about the stage of the proceedings and the amount of

16 discovery and the investigation that was done, I will explain

17 what efforts were made to find that evidence and how

18 disappointing it was that it simply doesn't seem to exist.

19 But it was never realistic, in our view, to expect

20 that this case would be able to provide compensation to the

21 names for all of their underwriting losses, and the suggestion

22 that we have had that damages could exceed a billion dollars, I

23 think, are tied to that unrealistic expectation.

24 THE COURT: As Mr. Beatie put it, one of my problems

25 is that I don't know anything -- simply put but the bottom

31

1 line -- and, says he, there is no upside against which to

2 measure this settlement, except this alleged billion. I think

3 that is true, isn't it? Is there anything on which I could

4 assume any basis on which if you were totally successful at

5 trial you could estimate the recovery of the class?

6 MR. DUMAIN: I think there is in a number of ways,

7 your Honor. The billion-dollar number clearly must relate to

8 the total universe of underwriting losses. I don't know if

9 that number is accurate or not. I suspect for the remaining

10 members of the class that it may be on the high side. But even

11 if it is not, in order to get to the point where we can say to

12 a jury --

13 THE COURT: Let me stop you right there. In other

14 words, your understanding of the so-called billion-dollar loss

15 is the total shortfall arising out of the fund over the period

16 which would be -- and what is the percentage of the class

17 relative to that number?

18 MR. DUMAIN: I would phrase it a little differently.

19 I don't think I would phrase it as a shortfall.

20 THE COURT: However you want to characterize it. You

21 said loss of, underwriting loss, however you want to

22 characterize it.

23 Excuse me. My understanding of the insurance

24 department's troubles with the entire situation were that it

25 felt that the fund was underfunded, so to speak.

32

1 MR. DUMAIN: For purposes of actuarial accounting.

2 THE COURT: Yes, that is what I am saying.

3 MR. DUMAIN: Yes.

4 THE COURT: That obviously means some kind of balance

5 against an exposure and the assets available to meet that

6 exposure.

7 MR. DUMAIN: Yes.

8 THE COURT: Is that where the billion comes from, your

9 understanding?

10 MR. DUMAIN: I think it's in part from that. It is in

11 part, I think, anecdotal, from the organization of names we

12 have heard about, saying what do you think the total losses

13 are. There was a reference this morning by one of the

14 objectors to something that Citibank put in in support of the

15 settlement, estimating that the R and R debt of class members,

16 that is, those who are left, who have not accepted R and R, was

17 20 times the credit notes being offered as part of the

18 settlement. So that is certainly a number that is far short of

19 a million dollars in terms of R and R debt of class members.

20 But the way that we look at damages, your Honor, is

21 twofold. One is, again, to focus on --

22 THE COURT: Let me just go -- I know it is not your

23 number and we can hear more about it. That the R and R claims

24 against the class members are 20 times the recovery?

25 MR. DUMAIN: Not the recovery. Twenty times the value

33

1 of the credit notes.

2 THE COURT: This is a challenge --

3 MR. DUMAIN: I guess that's in the neighborhood of two

4 hundred some odd million.

5 THE COURT: I see. Is there any other figure that we

6 know about as being the -- wait a minute. That's the R and R

7 claims against the class members. That is not dealing with the

8 class members' claims against Citibank.

9 MR. DUMAIN: I am not sure which way your Honor is

10 asking, but for sure that is true. Our view of what was

11 realistically achievable in this case was certainly far short

12 of that. We had two ways that we tried to approach a damage

13 number as we investigated this case and went through discovery.

14 One was to try to ascertain whether any losses occurred

15 directly as a result of the allegations of robbing Peter to pay

16 Paul, as it became known, borrowing from one group of claims to

17 pay another, and everything that we sought in discovery, the

18 1.8 million documents that we looked at over the years and all

19 the interviews that we did and every piece of information plus

20 confirmatory discovery afterwards, as a final doublecheck, was

21 that as far as we were able to determine, the loans actually

22 were repaid in accordance with the Lloyd's American Trust, at

23 the rate they were supposed to be repaid, which was the prime

24 interest rate plus 500 basis points.

25 So as we approached settlement negotiations, we were

34

1 faced with the dilemma that we didn't think it would be a

2 simple matter if it were at all possible to prove damages that

3 were directly relating to what this case was about, which was

4 the robbing Peter to pay Paul.

5 So as an alternative to that we started focusing on

6 having a disgorgement theory against Citibank, because

7 certainly we thought there was case law to support that. We

8 even had a motion to compel discovery that your Honor denied on

9 that ground, saying that it was premature in at that point in

10 the litigation. We had certainly vigorous disputes with

11 Citibank about the law -- they felt we were dead wrong about

12 that. But as a matter of factual discovery we certainly

13 pursued that and, again, we heard our share of anecdotal things

14 that we thought were inflated also.

15 We were told consistently by people who have been

16 actively fighting against Lloyd's for many, many years that

17 Citibank's income for managing the LATF must have been X tens

18 or hundreds of millions of dollars. In fact what discovery

19 showed, and what Mr. Shwartz put in an affidavit in support of

20 the settlement, is that during the period in question in this

21 case Citibank received $75 million in total for managing the

22 Lloyd's American Trust Fund.

23 The reason I emphasize in total, your Honor, is, that

24 is for a hundred percent of the class, as the class started,

25 with 32,000 names. After the R and R process, over 95 percent

35

1 of our original class disappeared.

2 THE COURT: The 75 is gross or net to Citibank? I

3 presume it's net -- it's profit.

4 MR. SHWARTZ: No, your Honor, it's gross. That is the

5 gross revenue the bank received over a period of I think 18

6 years for its services as trustee of the LATF.

7 THE COURT: Not the Citibank I know as a depositor.

8 MR. DUMAIN: The point there, your Honor, is, having

9 lost over 95 percent of the class, because when a name accepted

10 R and R he or she released everything, unlike the release here,

11 which we will talk about, everything that had anything to do

12 with Lloyd's, Citibank, Lloyd's' lawyers, if it had Lloyd's

13 attached to it or it smelled like Lloyd's, you released it.

14 THE COURT: Right.

15 MR. DUMAIN: So when we made the motion for class

16 certification, we realistically limited it to people who did

17 not accept R and R.

18 The percentage of the people who were left as applied

19 against that 75 million made under that damage theory the

20 damages about $3 million. And based on those damage theories,

21 which we were the ones who felt we could realistically get by a

22 motion for summary judgment, let alone present to a jury --

23 this settlement is extraordinary, in our view. That is why it

24 is a little difficult to measure the settlement as against the

25 universe imagined by the objectors, because their universe

36

1 simply was never this case.

2 The other point I wanted to make about the composition

3 of the class and how we have got to this point, we are now down

4 to, I think, about 1,400 class members. I think when R and R

5 was finally in place at the time that the class was certified,

6 we were 1,500 or more. So the class has even been dwindling as

7 each day goes forward, and I think if the case were to proceed

8 the class would continue to dwindle. Lloyd's is making

9 collection efforts. Lloyd's is forcing some people into

10 settlements that they don't want to do. Lloyd's is taking

11 steps to enforce judgments. When that happens, inevitably the

12 class is going to shrink.

13 What we are left with is a group of people who have

14 vowed, and many have made it their life's work, to fight

15 against Lloyd's. Certainly no one is more sympathetic to what

16 has happened to these people than me and my colleagues, who

17 represented the names throughout the history of this

18 litigation. We have learned a lot about their plight. We have

19 our own views about whether or not they were defrauded by

20 Lloyd's. But that is not this case.

21 I think what we have here is a group of people who by

22 their nature are fighting Lloyd's. That is what a lot of them

23 spend their day doing, is fighting Lloyd's, especially the

24 leaders of the organizations who have not only filed objections

25 but have gone out of their way to solicit objections and try to

37

1 organize objectors. I think it is not uncoincidental that that

2 is what happened here.

3 Unfortunately, what we think has happened is that very

4 legitimate fears and mistrust that has developed over the years

5 by the names with respect to Lloyd's, very legitimate fear and

6 mistrust has led to a situation where I think objectors fall

7 into one of two categories: Either they are not understanding

8 what the case is about and therefore they think much more is

9 being released than is actually being released, or they live in

10 a very real world of fearing that Lloyd's will take advantage

11 of anything to do further damage to it.

12 Here we have a settlement measured against, on the

13 disgorgement theory, $3 million that provides not only $8.5

14 million of cash but a safe passage of that cash to class

15 members, which was an extraordinary benefit that we obtained

16 and insisted on and would not have settled this case without,

17 because it would not have done much good to have a settlement

18 approved by your Honor, to have it instantaneously attached by

19 Lloyd's because so many class members had judgments against

20 them by Lloyd's, but we also have the 11.5 million in face

21 value of credit notes. The important aspect of that nominal

22 value of the credit notes is that they also have been accruing

23 interest at the same rate as R and R debt since July 1, 1999,

24 so that in fact the $11.5 million of credit notes today

25 actually have value as applied against R and R debt of

38

1 $14,375,000.

2 THE COURT: Do we know what the R and R debt of the

3 class is?

4 MR. DUMAIN: The best information is what Mr. Shwartz

5 has put in in support of the settlement. That is what I

6 mentioned before, that it is 20 times the 11.5 million, or at

7 least that amount, I think.

8 The next point about the notes that is very important

9 is that they are freely transferrable from one class member to

10 another. If you don't want to use your note, you are free to

11 sell it to any class member who wants to buy it, and in fact we

12 are highly confident that some market will buy it.

13 We put in an affidavit from a leader of the

14 association in Canada who says he very much likes the

15 settlement and very much expects to use his notes and very much

16 expects to be a buyer of notes and that many members of the

17 Canadian Names Association will be buyers of the credit notes.

18 They are stackable. If you can buy enough notes to satisfy

19 your R and R debt, you can completely wipe out your R and R

20 debt. It is good for one year, which was a hard fought amount

21 of time and we think it is reasonable.

22 There were some statements made this morning that are

23 not accurate. There are no conditions attached to using these

24 notes. If you use the notes you are not admitting that you owe

25 R and R debt. No admission at all if you use them, if you

39

1 transfer them, if you sell them. There is no admission at all

2 of anything. There are no conditions. You don't have to use

3 it for a hundred percent of your debt. You don't have to agree

4 to R and R. You don't have to do anything. If you want to

5 apply it to pay down your R and R debt, you can do that.

6 THE COURT: How do I enforce what you just said?

7 MR. DUMAIN: The court certainly has continuing

8 jurisdiction over this case, and if the consideration that was

9 promised to us as part of the settlement is not delivered, then

10 we will be back here before anybody, suggesting that something

11 will have to be done. If in fact the court determines there is

12 no enforcement mechanism, the objectors will have their way and

13 there won't be a settlement, because we won't have the

14 consideration that we bargained for. But to suggest that

15 Citibank and Debevoise Plimpton and Lloyd's' US counsel, which

16 is Sullivan & Cromwell, would somehow go down the road of

17 promising something they didn't intend to deliver, I think one

18 could say that about almost any settlement. One has to assume

19 that the consideration promised is going to be delivered.

20 THE COURT: But you would say this concern about how

21 you apply the notes is an illusory concern, that is, whether

22 you can apply it to judgment-debtor adjusted debt and so on.

23 MR. DUMAIN: I do. In fact, there was a specific

24 representation in that regard also, your Honor. Granted, it is

25 a representation that runs from Lloyd's to Citibank, but

40

1 Mr. Shwartz attached to his affidavit in support of the

2 settlement a letter to me from Debevoise, saying that they have

3 consulted with Lloyd's on this question and Lloyd's has advised

4 Debevoise that they will not impose restrictions of the type

5 described above, of class members' use of credit notes. In

6 other words, class members who have both R and R debt that has

7 been reduced to judgment and R and R debt that has not been

8 reduced to judgment will not be required by Lloyd's to apply

9 their credit notes first to any nonjudgment R and R, debt;

10 rather, the choice of whether the credit notes should be

11 applied first to one type of debt or another will be left

12 entirely to the class members.

13 This was an issue that we sought confirmation of

14 because of questions that were raised by other class members

15 who are not here objecting, who did get this question and said

16 what about that, and that was the response.

17 The final point I want to make about the credit notes

18 is just to reiterate that Lloyd's, as far as we have been able

19 to tell, has stepped up enforcement efforts and collection

20 efforts with respect to the amounts that Lloyd's claims that it

21 owes, and we have lost a significant portion of the class since

22 1995 and since 1998 when the class was certified, and we

23 continue to believe that the class will be reduced in size,

24 which is why when we started the negotiation with Citibank we

25 did explore the idea of having credit notes because it did seem

41

1 obvious to us that more and more class members would find them

2 beneficial. But at the same time we recognized that some

3 people would not want to use them, so we made them

4 transferrable.

5 I would like to speak briefly about the release. I am

6 going to just speak briefly about it unless your Honor has

7 questions, because Mr. Lapatine will speak in more detail about

8 the nature of the release and what the objections are and how

9 they are not ones that should defeat approval of the

10 settlement. I will simply say it is not a broad general

11 release of Lloyd's. It simply isn't. I don't think it is a

12 fair reading of the release. I think that it is just part of

13 perhaps genuine concern that Lloyd's will take advantage of

14 whatever Lloyd's can take advantage of, but I don't think it is

15 a legitimate reading of the release. It relates only to the

16 establishment, conduct, administration, operation, supervision,

17 direction or oversight of the Lloyd's American Trust Fund.

18 One of the carveouts is exceptionally important: Any

19 claim asserted prior to May 8, 2002, which was the date of the

20 stipulation of settlement, is not released at all, even if it

21 relates directly to the Lloyd's American Trust Fund, even if it

22 relates directly to Citibank's conduct. If it was pending on

23 May 8, 2002, it was not released.

24 So any concerns that we have heard from objectors,

25 concern about cases that they have pending in England, such as

42

1 the Jaffray case, or cases pending elsewhere, not covered by

2 the settlement one bit, and the release is clear.

3 The other major point that I wanted to make is that

4 there is also factual error with respect to the Equitas

5 American Trust Fund. That document has its own trust deed

6 creating that trust. It is not an amendment to the Lloyd's

7 American Trust deed. In fact, to quote Citibank in its

8 settlement brief, "Claims related to Equitas will not be

9 affected by the release." So I think we have concerns there

10 that are not fair relating to what the release says.

11 Finally, before I turn over to Mr. Lapatine on the

12 release question, I think it is totally appropriate, given

13 Lloyd's' participation in the settlement with respect to its

14 agreement to honor the credit notes and Citibank's very

15 understandable desire to have finality, as Mr. Shwartz has ably

16 set forth in detail in his affidavit, it is totally appropriate

17 for Lloyd's to get the limited release that is contemplated by

18 the settlement.

19 Mr. Lapatine will speak further, I think, on the

20 release question.

21 THE COURT: All right.

22 MR. DUMAIN: On the settlement itself, I would like to

23 quickly outline the factors under the Grenell case.

24 THE COURT: I have read your brief. There is nothing

25 new and exciting. No slam intended, but I think we are all

43

1 familiar with it.

2 MR. DUMAIN: Actually, I was going to speak factually

3 and not outline --

4 THE COURT: Oh, that's fine.

5 MR. DUMAIN: It is certainly understood that your

6 Honor understood Grenell. But I will go through this quickly

7 because I have covered a lot of these in response to your

8 Honor's questions.

9 The first factor, of course, is the complexity,

10 expense and duration of the litigation. I don't think there is

11 very much doubt that this was a complex, expensive and long

12 litigation and that there was a lot more to do. There were

13 millions of instructions from Lloyd's to Citibank during the

14 relevant period. Citibank certainly would have claimed at

15 trial that it would have had to analyze the operation of the

16 trust going back to 1939 when it was first established to get

17 money out of Great Britain for fear that the Germans would

18 overrun Great Britain. Another complicated factor is that most

19 if not all the class members participated in several of the

20 more than 400 underwriting syndicates. In establishing who was

21 a borrower and who was a lender under the central part of the

22 case would have been very complex, and there was certainly no

23 guarantee that that could have been done sufficiently to

24 guarantee a verdict or that the jury would have understood the

25 testimony. Certainly much discovery had transpired but there

44

1 was more to do. Appeals were an absolute certainty.

2 As your Honor may recall, your Honor certified under

3 1292(b) Citibank's motion to dismiss, which the Second Circuit

4 declined to hear, so that was certainly an item of appeal.

5 There was also without a settlement the real possibility that

6 Lloyd's would attach any proceeds of any judgment before it got

7 to class members.

8 The next Grenell factor with respect to the class. I

9 am not going to say that your Honor should consider the amount

10 of objectors is worthy of being ignored or insignificant. They

11 are not. They are in the neighborhood of 239, I think was our

12 count. But notwithstanding 239 objectors, 82 percent of the

13 class left have not objected, and the Canadians in particular

14 have lent their support to the settlement in the form of an

15 affidavit of Dr. Bagazi.

16 Of the people who originally opted out in 1998 when

17 notice of pendency was sent, 34 percent, 18 of other, have

18 requested to be let back in and the settlement does provide

19 that is permissible. We had 88 people who never opted out and

20 never had to do anything, who affirmatively said they wanted to

21 be part of the class, thinking maybe they had to do that, to

22 opt back into the class.

23 Many of the objectors, and many of the objections, as

24 I am sure your Honor has noted, are form objections that have

25 been solicited from a handful of class members and there is

45

1 certainly case law that suggests those are not entitled to the

2 weight of a separate and independent objection.

3 So we think that this factor under Grenell actually

4 heavily supports approval of the settlement.

5 With respect to the factor for the stage proceedings

6 and the amount of discovery, I have mentioned the 1.8 million

7 documents, but there are important factors about this case that

8 are unusual if not unique. We had more meetings than I can

9 count with class members who are very knowledgeable about what

10 was going on with Lloyd's. We learned more from class members

11 in this case than I have ever learned in any other case. We

12 certainly had a great deal of investigation that was not formal

13 discovery --

14 THE COURT: Correct me if I am wrong. I don't know,

15 do I, from these papers how many depositions were taken, nor do

16 I ever any characterization of the 1.8 million documents? Am I

17 right about that or am I wrong?

18 MR. DUMAIN: With respect to the number of depositions

19 I think you are right, and the answer is that the plaintiffs

20 took one deposition.

21 THE COURT: Of?

22 MR. DUMAIN: A Citibank official who was responsible

23 for running the LATF.

24 THE COURT: How about the documents? Can they be

25 characterized in any fashion?

46

1 MR. DUMAIN: They fall into a great many categories.

2 Certainly there are the policies and procedures manuals for

3 running the LATF. A great deal of them were the daily

4 instructions on transfers of money, certainly something that we

5 had to analyze and understand, very high volume of those sorts

6 of documents. Beyond that, the variety was enormous. It was a

7 very complete document production that came in many, many

8 forms, paper and microfiche that we spent time with. We had

9 microfiche blown back into paper for ease of review.

10 THE COURT: By the way, I don't know, but I presume

11 that I could find the demands. I don't have them.

12 MR. DUMAIN: The requests for production?

13 THE COURT: Yes.

14 MR. DUMAIN: I assume you do not have them.

15 MR. LAPATINE: They were subject of a motion.

16 MR. DUMAIN: My colleagues point out there was a

17 motion to compel. I am not sure if the entire set of document

18 requests were part of the motion or not.

19 MR. LAPATINE: They were.

20 MR. DUMAIN: I am told they were. So they are in fact

21 filed.

22 Another important point in terms of the investigation

23 is that my partner Mr. Lapatine and Ms. LaPolla spent a

24 considerable amount of time in London assessing the situation.

25 We had countless meetings not only with names but with names'

47

1 organizations and outside lawyers representing those

2 organizations who have done their own work over the years. We

3 had the Jaffray litigation. You heard about this appellate

4 decision. The Jaffray litigation resulted in an 18 or 19-week

5 trial in London, followed by a 635-page opinion by the trial

6 court, and then a voluminous appellate opinion basically

7 affirming that the names would not prevail on the fraud claim

8 against Lloyd's. There was some language in there about

9 whether or not Lloyd's had made a misrepresentation in

10 recruiting brochures, but I think to put it into our language,

11 the appellate court affirmed the finding that there was no

12 scienter on Lloyd's' part.

13 The simple fact is that since 1995, before this case

14 was ever brought, we heard from a number of people about

15 Citibank's supposed role in a scheme to recruit to dilute, as

16 it became known, to recruit Americans to spread out the

17 asbestos risk so that the old names in England would be

18 protected and not have the devastating losses that hit so many

19 of the new names. I can't tell you how many people we asked

20 for how we could find that evidence and how many people we

21 asked what evidence is there, and it all came back to the one

22 person who supposedly was at a meeting where someone at

23 Citibank was involved in this recruit to dilute scheme in 1997,

24 and that one person was found by the Jaffray court to have been

25 discredited in his testimony because the meeting that

48

1 supposedly took place with the Citibank official was when the

2 Citibank official was not in the United States or England or

3 wherever this meeting supposedly took place. He was someone

4 who refused to meet with us when we were in London.

5 So we were faced with a situation where certainly the

6 hottest fact we had in our complaint, we tried as hard as

7 people can try to try to find admissible evidence for it, and

8 it simply wasn't there.

9 Which is a good segue to the next Grenell factor, the

10 risk of establishing liability in damages. We are not

11 conceding that we would have lost had we tried the case and we

12 certainly had confidence in the heart of the allegations of the

13 complaint, but the defenses outlined in Citibank's brief, which

14 I don't repeat in detail, were legitimate ones that we faced.

15 We had the foreign selection clause, we had difficult issues on

16 the class certification motion that certainly would have been

17 subject to an appeal. We had the difficulty of proving the

18 recruit to dilute conspiracy. Parenthetically, there, your

19 Honor, I think even if we had had admissible evidence of that,

20 I can see a lot of difficult issues in trying to try that

21 aspect of the case on a class-wide basis, because for sure

22 Citibank would have said that its underwriting decisions would

23 have had to be examined and many class members knowingly

24 ignored risks. That certainly wouldn't be hard to do on a

25 class-wide basis.

49

1 On the robbing Peter to pay Paul claim, Citibank's

2 first and primary defense was always a difficult one, and that

3 is that they were following instructions not only from Lloyd's

4 but from class members' agents, and that Citibank was allowed

5 to do that under the terms of Lloyd's' American Trust deed.

6 So we were left with the disgorgement theory which we

7 think yields a damage maximum of $3 million. So the range of

8 reasonableness of the settlement in light of the best possible

9 recovery and in light of the litigation risks we think is

10 certainly one that merits approval.

11 The final Grenell factor is that the settlement

12 certainly was a product of protracted, long and difficult

13 arms-length negotiations by experienced counsel, and not only

14 involved us but I can also represent to the court also involved

15 me consulting with some of the outside lawyers for various

16 names and associations to make sure that we weren't doing

17 anything that in particular some of the American names would

18 find objectionable.

19 We think the settlement is a fair one of the class.

20 Mr. Lapatine will address specific responses to the

21 objections.

22 I would like to turn to the fee question at some

23 point. I can either do it now or if your Honor prefers to hear

24 the merits first, I can wait. I am certainly going to be brief

25 in any event.

50

1 THE COURT: I am pleased to hear you now.

2 MR. DUMAIN: The request for fees and expenses is $,

3 350,000 cash and 1.3 million in face value of the credit notes.

4 The one thing I would like to point out with respect to those

5 numbers is that the expenses that we requested the

6 reimbursement for is $193,000, but that is included in the

7 $4,350,000, so the actual cash component we are asking for as a

8 fee would be reduced by that amount. So that the total request

9 in value of cash and credit notes is about $5,457,000.

10 Two points I would like to make about the credit

11 notes. One is, they have no value to us unless we sell them.

12 We have no R and R debt, and that's all they can be used for.

13 I think it goes to our confidence that a market will develop

14 for these notes, and speaks volumes about where we think that

15 value will be.

16 The other point I would like to make, because there

17 have been some suggestions in the papers that the credit notes

18 really don't have any value, because this class member doesn't

19 want to use them and that class member doesn't want to use

20 them, if we are correct, that there will be enough people to

21 use these notes, then they will be used at 100 cents by class

22 members, and that, I submit to your Honor, is the relevant

23 question about the value of the settlement to the class. If a

24 certain class member wants to throw his in the garbage and not

25 sell it and not use it, that doesn't change the fact that the

51

1 notes, we believe, will be used and that since there is no

2 admission of anything by selling them, if you don't want to use

3 them, the only rational thing to do is to sell them, because

4 people will be buying them and if they are bought they will be

5 used at a hundred cents to the dollar by class members.

6 The final thing about fee, after expenses is about 27

7 percent of the value of the settlement. The multiple is less

8 than 2.1 lodestar, which we think under all the circumstances

9 is supported by the case law.

10 Thank you, your Honor.

11 THE COURT: Why do you get all the hard work?

12 MR. LAPATINE: It's my lot in life, your Honor. Good

13 afternoon. My name is Kent Lapatine, with Greenberg Traurig,

14 your Honor, and you and I met some 20 odd years ago when I

15 first tried a securities fraud case against Citibank. I

16 mention it only because having listened to the objectors this

17 morning I think I only heard the word Citibank uttered once.

18 The reason for that, or the reason I think that is significant

19 is because the objections that you have heard are based upon

20 improper assumptions or otherwise flawed arguments that ignore

21 the language of the settlement, and I think that they are based

22 upon a good-faith disappointment that this litigation was

23 unable to accomplish for them that which they have been trying

24 to accomplish in Great Britain and in the United States for the

25 last decade, and that is to recover all the underwriting losses

52

1 that they sustained as a result of having been recruited into

2 Lloyd's. That wasn't the purpose of this litigation. That

3 wasn't the gravamen of the allegations that were made against

4 Citibank. They were much more modest. I think we have to bear

5 that in mind when we look at the terms of the settlement and

6 how the settlement was crafted, because there were a good

7 number of misstatements that were made to you this morning

8 concerning what this settlement is about and what was required

9 of the names in order to obtain the benefits of the settlement.

10 I am going to try and limit myself to what was said

11 this morning as opposed to the written objections, unless the

12 court has some questions about the written objections. I think

13 we addressed each of those in our papers, as did Citibank.

14 The first objection is that the value of the

15 settlement is inadequate, and the value of the settlement --

16 Mr. Dumain has already touched on a great deal of this -- has

17 to be viewed in relation to the proximate damage that could

18 have been shown to have been sustained by the members of the

19 class had we succeeded in this lawsuit. As Mr. Dumain

20 accurately points out, despite a rather herculean effort to

21 demonstrate that Citibank did these people evil by having

22 loaned moneys when they should not have loaned moneys, we were

23 stuck at the end of the day with the unfortunate revelation

24 that in fact Citibank may have in fact breached the terms of

25 the trust agreement by doing so, but the names didn't suffer

53

1 any loss as a result of it. In fact they were paid prime plus

2 500 basis points where they did do that, and, as Mr. Dumain

3 pointed out, Citibank, I am sure, would assert that they had

4 defenses with respect to what they did because they claim that

5 as a trustee they were required to and were merely following

6 the directions that they received from Lloyd's.

7 But nonetheless we couldn't show proximate loss as a

8 result of that. We certainly couldn't show proximate loss as a

9 result of Citibank having allegedly engaged in fraud with

10 Lloyd's in recruiting these names. There just was no evidence

11 to support that proposition either in the documents we reviewed

12 or in our rather arduous investigation. I can speak to that

13 investigation because Ms. LaPolla and myself spent two weeks in

14 London, and members of the Milberg team spent time with

15 insurance regulators who were investigating this, and despite

16 the fact that we attempted mightily to trace down who in fact

17 was alleged to be a witness to these misdeeds, the only name

18 that surfaced was this fellow Bradley, who refused to meet with

19 us in London, and, as the court is now well aware as a result

20 of the affirmance by the high court in London of the Jaffray

21 decision, Mr. Bradley's testimony was found to be incredible.

22 So that by the end of the day we were stuck with the

23 unfortunate fact we were unable to show that the underwriting

24 losses that were sustained by the names as a result of having

25 underwritten policies through Lloyd's were at the hands and

54

1 feet of Citibank. That led to the disgorgement theory that

2 Citi was led, contrary to the best interests of the names, in

3 having caused accounts to be maintained on a group basis as

4 opposed to an individual basis and having loaned money to one

5 series of names as opposed to another, where the lenders were

6 not liable for the losses being sustained.

7 Under applicable New York law, the measure of damages

8 is disgorgement of the fees, and, as you have heard, the fees

9 were approximately $75 million. The members of the class we

10 were left with after R and R was approximately 4 percent of the

11 original class, and when we applied that 4 percent against the

12 $75 million there was relatively a small amount of damages that

13 were proximately related to Citibank's conduct that would have

14 been allocated to the class as a whole.

15 So in terms of the value of the settlement, the

16 dollars that they will receive that is actual cash is in fact

17 more than they would have received had we prevailed at trial.

18 On top of that, they do get the credit notes, and let

19 me speak about the credit notes. The credit notes do not have

20 nominal value because, as Mr. Dumain pointed out, the credit

21 notes, at least to the class, will be valued at a hundred cents

22 on the dollar. In other words, if all these credit notes are

23 applied against somebody's R and R debt pursuant to the terms

24 of the credit note, it will be a hundred percent of that debt.

25 So that if you, for example, were foolish enough to become a

55

1 name and acquired sufficient amount of credit notes to meet the

2 entirety of your obligation, you would get a credit on a

3 hundred cents on a dollar on each of those credit notes.

4 We have reason to believe, good reason to believe that

5 there will be marketing in these credit notes and we have

6 reason to believe based on two facts. One is, we have been

7 told, and we have submitted an affidavit by one of the Canadian

8 names, and these are people who are subject to the laws of the

9 United Kingdom, that they will in fact be acquirers of these

10 credit notes, and they have already been in communication with

11 the administrator, letting them know that as soon as these

12 credit notes become available that they want to be buyers. So

13 that we believe there will be a market as a result of the

14 representations made by the Canadian names and we also believe

15 there will be a market because nonCanadian names have also

16 already communicated with the --

17 THE COURT: Just as a mechanic, let's assume that the

18 settlement is approved and there will have to be, presumably,

19 if I understand it correctly, a formula applied to each name.

20 MR. LAPATINE: There is.

21 THE COURT: Yes. That's the formula which is laid

22 out. And you know the names, obviously. Do you know their

23 relationship to the R and R debt?

24 MR. LAPATINE: We know what their alleged debt to

25 Lloyd's under R and R is, but it is sort of irrelevant, your

56

1 Honor, only in the following respect. You heard this morning

2 one of the objectors, and I forget who, made the representation

3 to you that in order to use the credit notes a name would have

4 to meet certain conditions, and they laid out to you that one

5 of the conditions would be that the name would have to apply

6 against 100 percent of the R and R debt. That is not the case.

7 A name could apply to 1 percent or a hundred percent of the

8 debt, depending on the amount that he or she owes and the

9 amount of credit notes that have been allocated to that name

10 and the amount allocated to other names who didn't want and who

11 had no debt and wanted to get rid of the notes by assigning

12 value. So from the standpoint of creating an active market in

13 this, one need not know what that particular name's R and R

14 debt is.

15 Having said that, as Mr. Shwartz points out in his

16 affidavit, we do know that the aggregate amount of R and R debt

17 by all the class members who would be covered by this class

18 settlement is approximately 20 times the amount of these credit

19 notes.

20 What that does is create pressure on a market. In

21 other words, where there is a combination of both a large

22 amount of debt exceeding the amounts of the credit and a very,

23 very active enforcement by the credit against the debt -- and

24 we know that Lloyd's is going after these people hammer and

25 tongue and has been successful at least reducing these debts --

57

1 that there will be an impetus, as in the case of the Canadian

2 names, to get rid of this step, because, among other reasons,

3 people are trying to avoid bankruptcies.

4 THE COURT: The mechanic, how is the settlement going

5 to work? The administrator is going to determine these ratios?

6 I mean, the ratios are set.

7 MR. LAPATINE: Each name will be allocated a certain

8 dollar amount of cash and a certain amount of credit notes not

9 based upon what their debt is but based upon what their

10 underwriting risks were during the given time. In other

11 words -- and this is one of the objections that were made to

12 you in writing that the allocation formula was improper,

13 because as opposed to doing it on a per capita basis, we did it

14 on the basis of underwriting risk, because we believe it is far

15 more equitable to distribute the fruits of this settlement on

16 the basis of what one was exposed to in the marketplace as

17 opposed to just a head count.

18 So that what a name receives in the way of his

19 allocation of credit note isn't based upon what his debt is

20 versus the debt of all the names -- some of these names have no

21 debt -- but based upon the dollars that they put at risk in the

22 Lloyd's marketplace during the class period.

23 THE COURT: In other words, his share of the syndicate

24 in which -- and I take it that it is easy to determine the

25 exposure of each syndicate?

58

1 MR. LAPATINE: It is not easy, but what we have done

2 with Lloyd's' assistance through Citibank is, we have

3 established the maximum amount that each name put at risk each

4 year, because they had to -- I think it is through their

5 agents --

6 THE COURT: I see. That is something that Citibank

7 does not know.

8 MR. LAPATINE: Citibank doesn't know it on their own.

9 THE COURT: That is information that Citibank has

10 gotten from Lloyd's.

11 MR. LAPATINE: Yes.

12 THE COURT: How do we deal with that problem?

13 MR. LAPATINE: I don't know that it is a problem. Let

14 me tell you why. Each name received several months ago an

15 estimate as to what amounts they would receive under the

16 settlement, and under the terms of the settlement they were

17 given a period of time to object. In other words, we set up a

18 procedure so that if a name felt that the percentage that was

19 being allocated to them was not in accord with their own

20 records as to what their risk was during those years, they

21 could make application to have it adjusted.

22 THE COURT: If that happens, there is no way that we

23 can resolve that dispute except through this secondhand proffer

24 by Citibank.

25 MR. LAPATINE: No, I believe the settlement contains a

59

1 mechanism for resolving that dispute.

2 THE COURT: Which?

3 MR. BAUER: Good afternoon, George Bauer from Milberg

4 Weiss.

5 In the settlement stipulation provision, if the

6 settlement is finally approved, class counsel are required to

7 make a motion to approve final distribution of the credit notes

8 and cash to class members and resolve any issues that a class

9 member has raised with respect to their particular allocation.

10 The class distribution order would require a determination, if

11 there were any issues, and so far there have not been any

12 objections we have received with respect to the determination

13 of the amount --

14 THE COURT: Fair to say, though, if there are

15 objections the only information I will have to go on is the

16 information given to me by the name. I mean, I may have

17 information which Citibank says, well, we got this from those

18 fellows on the other side of the pond but that's all we can

19 tell you. Which isn't going to amount to anything.

20 MR. BAUER: We do have a database that came from the

21 other side of the pond, and we can compare it with what the

22 other side says.

23 THE COURT: But that doesn't -- all right, maybe I am

24 raising an issue that doesn't amount to anything.

25 MR. LAPATINE: And at the end of the day we may have

60

1 to do it based on what the --

2 MR. TAHBAZ: Your Honor, if I may, Christopher Tahbaz

3 of Debeboise & Plimpton for Citibank.

4 I think what will happen is that the document states

5 year by year the amount of the underwriting premium limits

6 which was at one time provided on a piece of paper to Lloyd's.

7 I believe what happens, if the name were to object to their

8 premium limit allocation, Milberg Weiss would bring it to our

9 attention and we would work with Lloyd's to resolve the

10 dispute.

11 MR. LAPATINE: Let me turn to the second issue, which

12 is, the names will not want to use the credit notes. The way

13 the settlement was structured was to recognize that there will

14 be names who will want to fight to the death with Lloyd's and

15 will not want to use the credit notes, which is why we made

16 them transferrable, because there will be names who in fact

17 want to take advantage of those benefits. As this court as

18 well as other courts have recognized, debt forgiveness is a

19 valid form of consideration.

20 THE COURT: Let me ask you -- I just want to be sure I

21 understand -- the name is subject to a proceeding of whatever

22 kind for the R and R obligation and has $100 worth of notes.

23 They can use those to satisfy the obligation, but only --

24 correct me if I am wrong -- if Lloyd's is willing to satisfy

25 the obligation.

61

1 MR. LAPATINE: You are wrong -- with all due respect.

2 THE COURT: No, that's why I am asking.

3 MR. LAPATINE: Lloyd's recognized that they will honor

4 these credit notes, which means that if a name presents these

5 credit notes to Lloyd's, they have to reduce the debt Lloyd's

6 carries on its books, dollar for dollar for the amount of the

7 credit notes.

8 THE COURT: And the name can still proceed in whatever

9 way they seek to.

10 MR. LAPATINE: Exactly. In fact, the way the

11 settlement is structured, the names do not give up their fight

12 with Lloyd's. All the name does is give up a limited claim

13 against Lloyd's with respect to the administration of the

14 Lloyd's American Trust Fund. But with respect to the

15 litigation that presently exists, they waive nothing with

16 respect to litigation in the future, they only waive those

17 claims that relate to the administration of the trust fund. To

18 the extent that they are contending, for example, that Lloyd's

19 induced them fraudulently or through negligent

20 misrepresentation to become investors through Lloyd's, they

21 give up nothing.

22 THE COURT: Looking at Mr. Adolfsen's nice things who

23 are of the size so that I can read them, you would have no

24 objection to these.

25 MR. LAPATINE: It is not for me to object or not to

62

1 object to these. We negotiated a settlement that we think

2 achieves the same result. I won't speak for Citibank, but --

3 THE COURT: OK. You have achieved a settlement that

4 you think has the same result.

5 MR. LAPATINE: Let me explain why. If you look at not

6 the language that was proposed to you but the language that is

7 actually in the settlement document, it defined settled claims.

8 That is, it says that parties will release each other only with

9 respect to settled claims. And on page 13 at paragraph PP, it

10 defined settled claims and it defines those claims as:

11 "Any and all claims, rights or causes of action or

12 liabilities of any kind whatsoever, whether based on foreign,

13 federal, state, local, statutory or common law or any other

14 law, rule or regulation, that any plaintiff or any class member

15 ever had, now has or hereafter may have against the released

16 parties, or any of them, whether or not asserted in this action

17 and whether known or unknown, based on or arising out of any

18 matter, cause, thing, act or failure to act whatsoever by any

19 of the released parties in relation to the establishment,

20 conduct, administration, operation, supervision, direction or

21 oversight of the LATF, except that this settlement shall not

22 release or charge: (i) any claim against Lloyd's by any class

23 member who has asserted such claim in any other action prior to

24 the date of this stipulation, (ii) any claim to entitlement to

25 the balance existing from time to time of any class member's

63

1 trust funds in the LATF held by Citibank after the date of this

2 stipulation, and (iii) any claim a class member may have

3 independent of the class member's status as a name and

4 beneficiary of the LATF."

5 So that what is released is those claims that were

6 litigated in this lawsuit and only those claims that were

7 litigated in this lawsuit. We haven't released for the names

8 any other claims they may have against Citibank, including the

9 recruit to dilute claims that they are so vigorously

10 prosecuting in London.

11 I would say to you there might be many ways in which

12 one could augment these releases, but that they don't need

13 augmenting. These releases are clear and unambiguous as to

14 what they are released and what is meant to be released. To

15 the extent that the names have fears that Lloyd's will somehow

16 in some other proceeding try to exploit these by using

17 interpretations of this language that is at odds with their

18 plain and concise meaning, that will be for some other court to

19 determine. But these have a plain and concise language. They

20 say exactly what is being released and no more.

21 That is why I said, in viewing the adequacy of the

22 settlement we have to remember what this lawsuit was about.

23 This lawsuit wasn't about recovering for the names all of their

24 losses through underwriting at Lloyd's, and the releases that

25 run to Citibank and to Lloyd's only relate to claims that were

64

1 at issue here, in fact, only with respect to those claims that

2 survive after Citibank made their motion to dismiss, and that

3 was a very limited claim.

4 So let me go to what I think is the last issue, which

5 is the propriety of releasing Lloyd's, because I heard it

6 framed in a number of ways, including a constitutional

7 argument, which I assume the constitutional argument was one of

8 due process, whether or not it is appropriate in a class action

9 settlement to release parties who are not defendants in a

10 lawsuit.

11 The first thing I will say is that certainly the

12 notice of the pendency of this action fairly apprised the class

13 of what was involved, and certainly apprised the class that

14 Lloyd's was central to this lawsuit. That's number one.

15 Number two, it is clear from the description of the

16 settlement that a good deal of the consideration that is

17 flowing to the names, in fact, consideration over and above

18 that which Citi would think would have owed even if it were

19 successful at trial, is derived through the lawyers.

20 Three. It is important in any litigation that in

21 order to achieve settlement, you have to give repose to the

22 parties -- it would have been impossible to settle the cases

23 without giving Lloyd's repose without the claims contained in

24 this litigation, particularly because they were going to

25 provide a good deal of the consideration that was going to flow

65

1 to the names.

2 Finally, it is not unusual to have settlements run in

3 favor of parties who were not defendants in the litigation. I

4 can't tell you how many class action settlements I have

5 reviewed, and I am sure the court has reviewed as well, where

6 the settlement not only runs to the company but to officers,

7 employees, representatives, executives. It runs to their

8 outside accounting firms. There are settlements, for example,

9 in the products liability area where the settlement not only

10 runs to the defendant who may be distributors but also to all

11 the downstream distributors, because the notion is whether or

12 not the parties were given an adequate opportunity to litigate

13 the issues and whether or not the settlement will provide

14 repose to all the parties.

15 This is such a case, your Honor. These are very

16 limited claims that are being settled. There is very little

17 danger to the class that Lloyd's could use this settlement in a

18 way so as to deprive them of unrelated claims.

19 For those reasons we would ask you, your Honor, to

20 approve the settlement.

21 THE COURT: Let me ask you. First of all, I take it,

22 though I have never run into it before, I would have the power

23 to extend the opt-out.

24 MR. LAPATINE: You would, your Honor, but we would

25 urge you not to.

66

1 THE COURT: First, I would have the power. Second, if

2 I were to exercise that power, tell me, would that

3 automatically gave give the parties and particularly Citibank,

4 I assume, the right to get out of the settlement?

5 MR. LAPATINE: There are, for lack of a better term,

6 blowout provisions in the settlement, your Honor.

7 THE COURT: How does that work?

8 MR. DUMAIN: May I, your Honor?

9 THE COURT: Sure.

10 MR. DUMAIN: The stipulation of settlement provides

11 that one of the material terms is that your Honor enter a final

12 judgment substantially in the form as is set forth in an

13 exhibit in the stipulation of settlement. I think it very

14 likely that if your Honor were to reopen the opt-out

15 opportunity, that Citibank would take the position that the

16 final order and judgment that your Honor enters was not

17 substantially in the form --

18 THE COURT: Why would it be any different?

19 MR. DUMAIN: Because it would provide further

20 opportunities for opt-outs.

21 THE COURT: Suppose I did that right now.

22 MR. DUMAIN: I am confident we wouldn't have a

23 settlement, is the bottom line.

24 THE COURT: But not on that ground.

25 MR. DUMAIN: Yes, on that ground, because Citibank

67

1 would take the position that the final judgment that they

2 bargained for was not going to be entered.

3 THE COURT: But the final judgment -- if I told you I

4 looked at it carefully you'd know I was lying, because I

5 haven't. I haven't got that far into this. But that doesn't

6 have anything -- I assume it doesn't have anything about the

7 numbers that are involved, because those numbers are constantly

8 shifting. As we speak, there are people who are making their

9 peace with Lloyd's.

10 MR. DUMAIN: But what the proposed final judgment does

11 contain is an exhibit listing 44 people who have requested

12 exclusion.

13 THE COURT: I see, OK. So if I were to open that up

14 in the interests of constitutional rectitude, Citibank, i.e.

15 Lloyd's -- excuse me -- might very well say thanks but no

16 thanks.

17 MR. DUMAIN: I unfortunately think it likely.

18 THE COURT: There is no law that I am aware of, nor

19 has any been cited to me, on this so-called constitutional

20 issue.

21 MR. LAPATINE: Our brief does address the issue of the

22 adequacy of the notice, particularly in light of the fact that

23 there is a settlement running in favor of --

24 THE COURT: Yes, yes, but what I am asking, there are

25 no authorities of which I am aware, and again, of course, I

68

1 haven't really struggled with the thing yet. But I am not

2 aware of any authorities that say either you can or cannot

3 alter the opt-out later on. Granted it may have this effect.

4 MR. LAPATINE: I believe you are correct. I don't

5 know of constitutional cases on that issue.

6 MR. TAHBAZ: Your Honor --

7 THE COURT: Peace. Sooner or later I'll have to hear

8 from Citibank, I guess.

9 Anything else, Mr. Lapatine?

10 MR. LAPATINE: That's it, your Honor.

11 THE COURT: Yes.

12 MR. DUMAIN: One housekeeping matter because I forgot

13 to do it before, and if I don't do it now I will probably

14 forget it again. May I hand up the proposed final judgment,

15 your Honor?

16 THE COURT: Sure.

17 MR. DUMAIN: I gave copies earlier for counsel for

18 Citibank and I have several copies for the folks in the jury

19 box, and if anyone wants copies later I have more copies also.

20 I also have two supplemental declarations, one of

21 George A. Bauer III regarding exclusion requests, and the other

22 is the declaration of George A. Bauer III regarding posting of

23 notice of pendency on Internet.

24 Thank you.

25 THE COURT: All right. A question has occurred to

69

1 which I know the answer. The question is whether Lloyd's is

2 here. Of course they are not.

3 MR. SHWARTZ: That is correct, your Honor.

4 THE COURT: I mean, there are people here, but Lloyd's

5 is not here.

6 Yes, pleased to hear you.

7 MR. SHWARTZ: Your Honor, for those new to the case,

8 my name is Ronald Shwartz from Debevoise & Plimpton. We

9 represent Citibank, only Citibank, with all due respect, your

10 Honor, the only defendant in the class action that has been

11 pending before your Honor for in excess of six years now. Our

12 comments will be brief because I appreciate your Honor has

13 already read all the written materials and heard from

14 distinguished counsel. So for your benefit we will be brief,

15 and also for the court reporter we will be brief, and also I

16 will try to speak slowly for the court reporter's benefit. My

17 comments are limited. There will be some general observations

18 briefly and then a few specific responses to some questions

19 that your Honor has raised, and I believe at least one of those

20 specific questions my partner Mr. Tahbaz will speak to.

21 THE COURT: Good.

22 MR. SHWARTZ: In the way of general observations, this

23 settlement is the product of a long, arduous negotiation with

24 class counsel. Your Honor got periodic reports of that that

25 barely scratch the surface of the range of issues and the

70

1 difficulties on which compromises needed to be met. And there

2 were also extended detailed discussions that we as counsel for

3 Citibank had with representatives of Lloyd's, whose assistance

4 was, as Mr. Dumain and Mr. Lapatine pointed out, essential for

5 many of the benefits that this class will receive.

6 The settlement that is before your Honor for approval

7 is the result of a series of compromises of those many

8 interrelated issues, and I think it is important to understand

9 that and keep that in mind when one gets, I am sure,

10 well-intended suggestions about how one might make an

11 adjustment here or make an adjustment there. These various

12 components were not negotiated separately as components. They

13 were part of a single, whole settlement package that Citibank

14 has agreed to.

15 I think if a definition of a good settlement is one in

16 which both parties are equally unhappy, it is certainly true

17 that there are elements in this settlement that from Citibank's

18 perspective we are unhappy with. We don't come before the

19 court and ask the court to start making adjustments on those

20 concessions that we ultimately felt we needed to make to the

21 plaintiffs' class, counsel, in order to bring the comprehensive

22 settlement to bear. But we are certainly vigorously opposed to

23 adjustments or amendments, well intended or otherwise, that

24 might suit certain members of the class but at the expense of

25 Citibank or, in some instances, perhaps at the expense of

71

1 Lloyd's, whom we don't represent but who no doubt has

2 contributed --

3 THE COURT: With respect to the opt-out problem, I

4 don't see why that really would make a difference from

5 Citibank's point of view. Let's just assume for the sake of

6 argument that half the present class -- so that we are talking

7 about roughly 1,200, and the opt-outs were roughly about 50 --

8 MR. SHWARTZ: I believe the 1998 opt-outs were in the

9 order of 62, and then the class definitions were changed

10 slightly. So some people who weren't technically in the class

11 in '98 were afforded the opportunity to opt in. For your

12 purposes, your Honor, about 18 percent of the current class

13 members have objected, and of those who opted out in 1998,

14 about a third of them have exercised the opportunity that was

15 given to them in the settlement to come back in.

16 THE COURT: Give it to me again. The total number of

17 objectors is, let's say we have 200.

18 MR. SHWARTZ: It is a little more than 200. About 18

19 percent of the current class have filed objections of one sort

20 or another.

21 THE COURT: What difference would it make if they go

22 out?

23 MR. SHWARTZ: If even one of those people were to opt

24 out and retain Mr. Beatie or anyone else and pursue its losses

25 to Citibank, that would create a major difference with

72

1 Citibank.

2 THE COURT: Mr. Beatie could presumably find out -- of

3 the 80 or a hundred already out he could find out.

4 MR. SHWARTZ: That is a risk that we evaluated and

5 took into account in negotiating this settlement. Those people

6 who opted out in 1998 have sat on their rights. There haven't

7 been any new lawsuits brought by those people to date.

8 THE COURT: This is perhaps silly. Are they

9 covered -- yes, the existence of the class action covers them,

10 so they don't have to do anything until the class action period

11 stops, right?

12 MR. SHWARTZ: I believe those people are not covered,

13 your Honor.

14 THE COURT: So they would have had to have acted.

15 MR. SHWARTZ: No, I would be glad to brief it for your

16 Honor.

17 THE COURT: No.

18 MR. SHWARTZ: For the people who are in the class

19 today, their statute of limitations is tolled. If your Honor

20 permits those people to opt out, any one of them, to then start

21 a lawsuit with Citibank the next day, we would be spending the

22 next six years litigating the issues we have been litigating

23 the last six years, and that claim on behalf of one plaintiff

24 or a class of 150 plaintiffs, the expenses of the litigation

25 are largely the same. So it would make a major difference to

73

1 Citibank if your Honor were to afford a second opt-out period.

2 In answer to the question whether your Honor would

3 have the power to do that, I would respectfully say your Honor

4 does not have the power. I believe at this stage of the

5 proceedings your Honor has the power to look at this proposed

6 settlement and reject it or accept it. There is no question of

7 your Honor's authority there.

8 THE COURT: On this ground?

9 MR. SHWARTZ: Under whatever grounds your Honor thinks

10 appropriate. There are a whole host under Grenell that you can

11 consider. If your Honor concluded the settlement was fair and

12 reasonable but you wanted to amend, there is such an amendment

13 that has been amended by the committee for a second opt-out.

14 It is not currently the law of land. I don't know whether it

15 ultimately will be approved but it is not the law of the land

16 today, your Honor.

17 THE COURT: Your view would be that I don't have the

18 authority under the rules to open up the opt-out period.

19 MR. SHWARTZ: That is correct.

20 THE COURT: As they now stand. Of course, as you say,

21 I could blow out the whole settlement on that ground, and then

22 see what happens. I mean, if I did that, I suppose it is

23 possible that the parties might say on reflection, well, fine.

24 MR. SHWARTZ: If your Honor were to conclude that the

25 settlement was not in its entirety fair, accurate and

74

1 reasonable, I don't question your Honor's authority there. I

2 submit that it would be error to conclude that this narrow

3 issue rendered the overall settlement unfair, inadequate or

4 unreasonable, which is the issue that I submit is before your

5 Honor.

6 THE COURT: But that is precisely what brother Baitie

7 spoke about.

8 MR. SHWARTZ: But on the question of your Honor's

9 authority, we don't believe your Honor has the authority to

10 create a second opt-out.

11 THE COURT: My only remedy, if I buy that argument,

12 you say, is to disapprove the settlement.

13 MR. SHWARTZ: Right, and I don't think your Honor

14 should do that, for a variety of reasons, because it doesn't

15 affect the overall adequacy of the settlement for the class as

16 a whole. And we can speak to that issue.

17 But on the narrow issue that your Honor raised, I

18 don't think your Honor has the power to create a second opt-out

19 period, and under the existing precedents, given the argument

20 being raised here with respect to a limited release in favor of

21 Lloyd's, it certainly is not extraordinary at all in the law of

22 class actions that in a lawsuit such as this, it was focused on

23 the operations of the LATF in connection with a settlement that

24 all claims arising out of the Lloyd's American Trust Fund might

25 be disposed of, regardless whether it is Citibank or the other,

75

1 who might be able to bring Citibank in.

2 THE COURT: As to Citibank's ability to -- we have no

3 appearance, obviously, from Lloyd's. We have no enforceable

4 commitment from Lloyd's, at least enforceable here. How would

5 you envisage -- I mean, if Lloyd's were here it would be all

6 very simple. If they didn't comply, etc., we all know what

7 could be done. Do you see a contempt proceeding against

8 Citibank because Lloyd's doesn't comply with the undertaking

9 they have made, which you represented that they have made to

10 you?

11 MR. SHWARTZ: It would not surprise your Honor to know

12 that my answer to your Honor's question is no.

13 THE COURT: Then I am really helpless.

14 MR. SHWARTZ: No, your Honor. The stipulation of

15 settlement contemplates that in the event that Lloyd's refuses

16 to issue the credit notes in the amount and on the terms, or

17 honor the credit notes, of the stipulation provisions, it gives

18 the class the remedy of coming back before your Honor, and the

19 settlement would be vacated and they would have all the rights

20 that they have today to continue the lawsuit. If they don't

21 receive the consideration promised in the lawsuit, they will

22 have the benefit of pursuing the litigation.

23 THE COURT: As we speak.

24 MR. SHWARTZ: As we speak. We are dealing with an

25 entirely hypothetical probability, but if Lloyd's doesn't honor

76

1 the credit notes, that would be their remedy, in that it would

2 restore them to the remedy they are currently in. The same

3 would be true with the benefits of state package, which the

4 class receives through Lloyd's' acquiescence, and there again

5 that is laid out in considerable detail in the stipulation, and

6 Lloyd's remains a creditor of approximately 900, at least with

7 regard to R and R debt, not with regard to approximately 900 of

8 the members of the class, and they have agreed, subject to your

9 Honor making certain findings which are laid out in the

10 stipulation and the final judgment, that they would not seek to

11 restrain the cash funds at any point in time until they have in

12 fact been distributed to and received by the class members.

13 THE COURT: I haven't explored the provisions that

14 closely, but I take it that then the class counsel and the

15 administrator stay on the job, so to speak, until the one-year

16 period is over.

17 MR. SHWARTZ: That is my understanding, your Honor.

18 We don't question that your Honor would retain jurisdiction of

19 in matter. There are several reasons why the credit notes

20 needed to have an expiration date, but certainly I suspect long

21 before that date but no later than that date the class would be

22 well informed on whether Lloyd's had lived up to what it has

23 agreed to do here.

24 By way of a few additional specific comments, and then

25 I will let Mr. Tahbaz speak to the constitutionality issue that

77

1 has been raised, the answer to one of your questions with

2 regard to the amount of outstanding R and R debt owed in the

3 aggregate by members of the class is part of the record. It is

4 not something that Citibank has knowledge of but it is

5 contained in the affidavit of Nicholas Demaney -- he is a

6 solicitor employed by Lloyd's. He is responsible for dealing

7 with this litigation, and in paragraph 8 of that declaration,

8 in the aggregate, substantially more than 20 times the $11.5

9 million in credit notes to be provided to the class pursuant to

10 the stipulation an agreement of settlement is owed by more than

11 900 of the class members. That is the information that we have

12 and it comes from Mr. Demaney in a sworn declaration which is

13 part of the record before your Honor.

14 I think there was a miscommunication in an earlier

15 question and answer you put to prior counsel. I don't believe

16 we know, Citibank certainly does not know what the total R and

17 R debt is of any particular individual member of the class.

18 The information that we have received from Lloyd's and has been

19 furnished is to the so-called OPL, overall premium limits,

20 which, as Mr. Lap can explain, was used to set up the ratio for

21 the allocation of the benefits of this class to the members of

22 the class.

23 THE COURT: The question of the use of the notes and

24 their ability to use them against judgment or just R and R debt

25 appears in the stipulation?

78

1 MR. SHWARTZ: Let me explain, because there is not a

2 simple answer to that question. The stipulation does provide

3 that the notes are freely transferrable and may be used by any

4 member of the class to satisfy his R and R debt and does not in

5 any way restrict the class member's decision as to which

6 portion of his or her R and R debt he wishes to satisfy by

7 tendering the credit notes.

8 There was a question that came up that was brought to

9 our attention by class counsel. I believe it came to them at

10 some point after the notice of the settlement was distributed

11 with regard to the distinction that is relevant in some

12 jurisdictions for R and R debt that may already be reduced to

13 judgment versus R and R debt that is not reduced to judgment.

14 The stipulation does not speak to that, it just vests the class

15 members with the ability to use their credit notes and any

16 credit notes they acquire from other class members to apply to

17 their R and R debt. But when this question came up, we went

18 back and spoke to Lloyd's and received -- Lloyd's' counsel, to

19 be more precise, and received some assurances which we have

20 memorialized in a letter, a letter which was addressed to Mr.

21 Dumain and is part of this record and was furnished to Lloyd's

22 to memorialize it. It just supplements the stipulation. It

23 does not restrict or create that concern that some people had.

24 But we wanted to put people's minds to rest on it, so we got

25 this letter.

79

1 THE COURT: So if Lloyd's changes its mind, it would

2 not be a violation of the stipulation -- well, maybe it might,

3 because it wouldn't be a free -- it wouldn't be an ability to

4 transfer the notes or to apply them in any way the name wanted.

5 MR. SHWARTZ: The stipulation sets forth in broad

6 proposition that the credit notes may be used by the names to

7 satisfy the R and R debt, and to the extent that Lloyd's

8 refused to honor credit notes that were properly tendered to it

9 for that purpose, they would have that argument. We didn't

10 think the letter was necessary. We thought the stipulation was

11 clear without it. The question came up and we were trying to

12 be helpful and put anxious minds to rest, so that's what we

13 did. We don't believe there is a deficiency in the

14 stipulation.

15 MR. LAPATINE: To point you to the right section, on

16 page 12 of the stipulation of the settlement at paragraph QQ,

17 there is a definition.

18 THE COURT: Thank you. Anything further?

19 MR. SHWARTZ: Your Honor asked specific questions of

20 Mr. Dumain about number of depositions and what he could tell

21 you about the 1.8 million documents and there is in the record

22 before you, in my declaration, and specifically paragraphs 3

23 through 10 of that declaration speak to the discovery in this

24 case, and it not only sets forth the fact that there was one

25 deposition taken of a Citibank representative in this case, Don

80

1 Kaufman, but in broad terms the scope of that deposition, it

2 also lays out, again in broad contours, the categories of

3 documents that were furnished, which were by and large

4 categories that were identified as priority categories by

5 plaintiffs' counsel. We tried to push those forward, and that

6 would be a significant part of the 1.8, and all that is

7 detailed in the brief.

8 THE COURT: Good.

9 MR. SHWARTZ: Mr. Tahbaz can speak to the question

10 your Honor raised --

11 THE COURT: OK.

12 MR. SHWARTZ: Unless your Honor has other questions, I

13 believe we have covered everything in our brief.

14 THE COURT: Good. Thank you.

15 MR. TAHBAZ: Thank you, your Honor. I will be brief.

16 I just wanted to address your question about the law concerning

17 the rights or the option of a second opt-out. None of the

18 objectors that we are aware of have cited case law that would

19 support the granting of a second opt-out period. There is,

20 however, established case law suggesting that there should be

21 no second opt-out period in a situation such as this where a

22 nonparty was released after the first opt-out period expired,

23 or essentially the same case where claims beyond the scope of

24 the complaint are released as part of the settlement. The

25 cases are cited in our papers and I will just give you the

81

1 names --

2 THE COURT: It's not necessary. I've got them.

3 MR. TAHBAZ: The legitimate question arises, if class

4 members don't have an opportunity to opt out once they have

5 seen the terms of the settlement, which is so often the case

6 where there is just a single notice, where is the due process

7 protection? The answer to that question is that the due

8 process protection lies with your Honor and this court. It is

9 really not a due process question. The analysis is whether the

10 court determines that the settlement is fair, reasonable and

11 adequate. That is the protection for class members, who have

12 the opportunity, as they have had am opportunity in this case,

13 to object to the terms of the settlement.

14 THE COURT: Let me just ask, are there any of the

15 objectors that would like to be heard?

16 MR. BEATIE: I have a few things to say but I will be

17 brief.

18 THE COURT: We will take a brief break.

19 (Recess)

20 THE COURT: Yes, any of the objectors who would like

21 to be heard.

22 MR. BEATIE: Please, your Honor. Your Honor, I cannot

23 speak on the basis of precise knowledge of the facts of the

24 case because obviously I don't have it, but let's talk a little

25 bit about the nature of the claims which have been lost here in

82

1 all the smoke. We don't regard the recovery of the fees paid

2 to Citibank as anything other than incidental pocket change,

3 and to suggest that the so-called $20 million settlement is to

4 settle a $3 million fees claim really doesn't make any sense at

5 all. What we see here is that a trustee fell down in the

6 space, didn't do its duty, didn't investigate when it had

7 notice or should have had notice and therefore is responsible

8 for the losses of its beneficiaries, the names, by virtue of

9 their deals with the lawyers, for which it was the trustee, the

10 trustee to keep their duties. We already know there was

11 commingling and a variety of other things.

12 I have never been a great believer of conspiracies and

13 plots on subway platforms and so on. We wouldn't even begin to

14 look for something like that. But we do think that the trustee

15 theory has many avenues -- they haven't even been described in

16 the papers to the court. The value of the claims, your Honor,

17 we didn't pluck the billion out of the air, we asked our people

18 who I came to us to ask them to represent them as objectors, to

19 give us their best calculation. They did that and they gave

20 their best calculation in writing. It includes an initial

21 deposit to the fund, includes a deposit to the syndicate, a

22 hundred thousand dollar letter of credit to the court, all

23 obligatory, and he did those on what he understood was an

24 average basis and took the number of names that he thought were

25 still players in the litigation, and he came up with a number

83

1 in the billions. Is it arithmetically precise? Absolutely

2 not. But is it a better calculation than anything you have

3 been told by anybody else here? No -- yes. Lost my head.

4 Nobody else would bother to tell you about the value and all

5 the people you asked questions didn't answer, dodged, deducted,

6 smoked, whatever.

7 There was a great deal of discussion about the notes,

8 transferrability, all that stuff. We didn't care about those

9 things. We care about the $20 million claim, which is simply

10 not reasonable under the factors in Grenell. If you combine

11 that with the evidentiary failures, that is, no reasonable

12 basis for making the determination, and giving you no

13 reasonable basis for assessing the judgments that are presented

14 to you, it is simply not a settlement that is appropriate for

15 approval by the court.

16 To extend the opt-out period, would he couldn't find a

17 case to cover the situation. We think it is unique. But we

18 certainly believe that the class has constitutional rights.

19 As far as you were told that the notice to the class

20 tells them all about Lloyd's, if you look at the first page and

21 a half of the notice to the class, class territory six, see if

22 you can find any claim in there. I sat down and read it again

23 while I was sitting here. I will withdraw everything if you

24 can find some notice to the class that they are dealing with a

25 claim against Lloyd's.

84

1 The last point, your Honor, is Lloyd's, and I would

2 like to do two things. Lloyd's is clearly a driving force in

3 this settlement, but they are not here for obvious reasons,

4 because they are afraid to come here and they don't want to be

5 here. They hate the United States, like all Europeans. They

6 hate American litigation because they can't hide in it. But

7 they can hide in the UK. No depositions, very little document

8 discovery, and your barrister does the litigation. I much

9 prefer old-fashioned trial by ambush. The federal rules took

10 that away from me when I graduated from law school, but I still

11 like to try cases and I think this will be a good case to try

12 and one that Citibank, frankly, wouldn't try.

13 Beyond all that, what is the real point about Lloyd's

14 and what is our view of Lloyd's? I told the court that we have

15 not decided whether to come in or not, so I am trying not to

16 respond to the bugle call, draw sabers and charge and get

17 myself committed when I swore I wouldn't. But let me talk a

18 little bit about what I think could happen in this case,

19 because I am astounded at some of the things I heard here.

20 Mr. Bradley, the discredited witness, called me not

21 once but twice, invited me, when I told him that I would be in

22 London for a memorial service, he invited me to his house in

23 the south of London, told me he had many important documents.

24 I asked him to send them to me. He flatly refused. He said

25 things were lost in the past, whatever, gone astray, but he

85

1 would be happy to speak to me about whatever I wanted, testify

2 if I wanted him to testify.

3 I am not worried about the fact that a witness somehow

4 had a day wrong and somehow had a guy on a plane to Hong Kong

5 when he was supposed to be in New York giving a conversation,

6 especially when the man is 80 years old. I am confident that

7 the American civil jury wouldn't have much problem with that

8 either. So if Mr. Bradley really has the information that he

9 says he does, and he sounds convincing, and is willing to give

10 it to me in a way that I can use it, and if I decide to go

11 forward and the other people who have been proposed to me as

12 candidates in interviews deliver the same things, then it seems

13 to me, your Honor, there is a good case against Citibank for

14 breach of its fiduciary duty, because it knew or had reason to

15 investigate, didn't investigate or didn't tell the names who

16 were their beneficiaries.

17 It seems to me also under the circumstances, if I

18 haven't already made this clear, your Honor, that the venue

19 defense in the contract that Lloyd's uses to stay inside its

20 fortress and be immune from everything that goes on in the ugly

21 old United States, in the colonies where we are all

22 uncivilized, it seems that they have waived that defense by

23 their participation in this settlement, and if it turns out

24 that I have the law in this case -- we have done the research

25 in this case and it is a very fuzzy question. I would be

86

1 delighted to put it to you and see how you decide it.

2 Thank you, your Honor.

3 THE COURT: Yes, sir.

4 MR. ADOLFSEN: Thank you, your Honor. I neglected to

5 mention when I spoke before that the people I represent in

6 their objections, which they made on a timely basis, had asked

7 if they did not get the type of release language which they

8 thought they needed, that they wanted a second option. I

9 wanted to make that point to your Honor and your Honor has

10 already brought the subject up. Listening to what was said, I

11 don't want to rehash what I said and I won't, but for a minute

12 I was listening to one of the attorneys, I think Mr. Lapatine,

13 saying that we are giving up nothing of the claim, and I'm

14 hearing all that and thinking it's being typed and boy that's

15 really good, and then I remember, of course, that when I was a

16 law clerk I was often told that sometimes if you dissented you

17 were stronger than the majority opinion, and I thought maybe

18 it is going to be stronger against us and I worried about that

19 too. Then I heard someone, I am not sure who, say that it is for

20 some other court to determine whether the settlement can be

21 construed as releasing other claims. Then I was fortunate

22 enough to get a copy of the judgment and I am reading the

23 judgment here, and it says in paragraph 17, on page 13, and I

24 will read it slowly this time for the court reporter:

25 "The terms of the stipulation in this final judgment

87

1 shall be forever binding on plaintiffs and all class members as

2 well as heirs, executors, administrators, successors and

3 assigns, and those terms shall have res judicata and all

4 inclusive effect in all pending claims, lawsuits, and other

5 proceedings maintained by and on behalf of any such person or

6 entities, to the extent those claims, lawsuits or other

7 proceedings involve matters that were or could have been raised

8 in this action or are otherwise encompassed by the release of

9 claims set forth in the stipulation and incorporated in this

10 final judgment."

11 Your Honor, that is far broader than even the release

12 language, which I heard is construed as a limited release and I

13 don't think it is. I think it describes very particularly this

14 action but it uses that all encompassing "arising out of"

15 language.

16 I might add, this language that I just read referred

17 to matters that were or could have been raised in this action,

18 and in paragraph 105 of the complaint there is an allegation

19 that Citibank was aware as early as late 1970's of gigantic

20 losses attributable to asbestos and pollution claims that were

21 forthcoming. It was raised in this action literally. So if I am

22 in a court somewhere else I am afraid for the people that I

23 represent that this is going to be construed against them very

24 literally, much stronger than we could have even imagined from

25 what we saw and was originally sent to us. This is a pretty

88

1 strong thing, and unless I am missing something, if I were

2 reading this and somebody were saying should I sign it, I would

3 be really nervous and I would say wait a second.

4 Your Honor, there is an individual here, because I

5 have heard about the number of people that people represent, a

6 Mr. Jack Shuttle, a representative of the American names. He

7 filed an objection and I think he wanted to make a brief

8 statement. I believe he represents 230 people in his

9 organization.

10 THE COURT: Sure.

11 MR. SHUTTLE: Thank you, your Honor. I did not come

12 here today intending to say anything, but I am chairman of the

13 American Names Association. Our general counsel is McDermott

14 Will & Emery, and based upon their counsel we support all of

15 the arguments presented to your court by Mr. Adolfsen. We

16 concur with them. We have powers of attorney, all of our

17 members.I am going to be very brief, sir. First of all, you

18 know, when I watch today, there is an underlying theme in the

19 arguments and it revolves around the word integrity. The motto

20 of Lloyd's when you translate it from Latin to English is,

21 "with utmost good faith."

22 That is what is underlying this release, sir. The

23 fear and distrust of Lloyd's is not emotional and it is not

24 based on anything but experience and a sordid track record.

25 The release is very carefully crafted, and unless I am

89

1 countermanded by the Citibank attorneys, I will suggest to you,

2 sir, that release was written in London, after hundreds of

3 hours of careful legal work. We simply do not trust that

4 release, and in your courtroom today one of the attorneys said

5 in answer to a question, that's for a future court to decide,

6 end of quote.Well, sir, we want this release so that it is what

7 it is purported to be, clean., and we won't have to spend years

8 in a New York courtroom fighting over what that release says,

9 because that is the intent, sir, behind that release.

10 The American Name Association, with their advice of

11 counsel, are very pragmatic, your Honor. We are not here today

12 to suggest to you that this settlement should be overturned in

13 any way. We are suggesting to you that the release clearly

14 state what it is supposed to say. That's all.Part and parcel

15 to that request, sir, is the Equitas issue. Equitas by the

16 Lloyd's representation over and over is not a part of Lloyd's

17 entity that releases us out as of January 1993. We are very

18 seriously concerned that in the future Lloyd's American Trust

19 Fund wording contained in this release will be determined by

20 Lloyd's, who will say no, that is the Lloyd's American Trust

21 Fund as well. So going back to good faith and integrity, all

22 we ask is that they put it in there and say nothing in this

23 release pertains to the Equitas Trust fund.

24 If we fail to achieve a clear language release that we

25 believe is an expression of good faith, then we ask for an

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1 opt-out provision, but only then.Thank you for your courtesy,

2 sir.

3 THE COURT: Anyone else?

4 Thank you all very much. There is one thing I would

5 ask whoever wants to respond on behalf of the settlement.

6 Listening to Mr. Adolfsen, it sounded to me as if that

7 provision in the final judgment was in fact considerably

8 broader than the release.

9 MR. DUMAIN: I will say something, and I don't know if

10 Citibank will have an application. I would invite Mr. Bauer to

11 say something as well, because I confess that he knows these

12 papers better than I do. I think the key to that paragraph,

13 your Honor, you have to look at the beginning where it says the

14 terms of the stipulation and this final judgment shall be

15 forever binding, etc.

16 THE COURT: Yes, but --

17 MR. DUMAIN: The terms of the stipulation include the

18 definition of what a settled claim is. I don't think this is

19 any different than anything we have said earlier today.

20 THE COURT: It doesn't refer to settled claim.

21 MR. DUMAIN: It is in the stipulation.

22 THE COURT: How about the res judicata point, anything

23 that could have been raised?

24 MR. DUMAIN: It still has to go back to settled claim.

25 There is res judicata effect for the settled claims. That's

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1 what the debate is over, is we think it is narrow and the

2 objectors seem to have some concern that it is not.

3 THE COURT: Anybody else? Yes.

4 MR. BAUER: I also direct your attention to the end of

5 the paragraph, which talks about the claims that are

6 encompassed by the release of claims set forth in the

7 stipulation. This is really repeating that -- the settled

8 claims are settled for everybody that is a class member in

9 there, heirs and descendants and assigns and whatever. The

10 settled claims are settled with respect to the class plaintiffs

11 and all their heirs, executors, administrators, etc.

12 THE COURT: Is seems silly to me but it seems to me

13 the "or" should be "and."

14 Anybody else want to be heard on this subject? OK.

15 Thank you all. I will reserve decision.

16 (Proceedings adjourned)

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