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  ) O P I N I O N
______________________________________ )____________________________________

A P P E A R A N C E S:

Plaintiffs' Lead Counsel:

One Pennsylvania Plaza
New York, NY 10019-0165
Of Counsel

885 Third Avenue
New York, NY 10022
Of Counsel

Attorneys for Plaintiffs:

212 East 39th Street
New York, NY 10016
Of Counsel

Attorneys for Plaintiff Objectors:

521 Fifth Avenue
New York, NY 10175
Of Counsel




(Opinion page 2)

Attorneys for Defendant

Citibank, N.A.:
919 Third Avenue
New York, NY 10022
Of Counsel


(Opinion page 3)

Sweet, D.J.,

The Plaintiffs, representing the class of members of Lloyd's of London ("Lloyd's"), commonly known as "Names" and the defendant Citibank, N.A. ("Citibank"), have moved pursuant to Rule 23(e), Fed. R. Civ. P., for final approval of the proposed settlement of this class action. For the reasons set forth below, the motions are granted, and the settlement is approved.

Prior Proceedings

Three actions were initiated against Citibank in the Supreme Court of the State of New York, County of New York in the period from December 1995 through February 9, 1996 and consolidated by virtue of a stipulation and scheduling order of January 23, 1996. The consolidated actions were removed to this Court on February 21, 1996. A fourth action filed in this Court was later similarly consolidated.

As set forth in the complaints, the Plaintiffs and the Class alleged that Citibank breached its duties and responsibilities as the trustee of the trust fund of each plaintiff. It was alleged, inter alia, that Citibank engaged in a pattern of transferring money from the trust funds maintained by solvent Names to trust funds of insolvent Names in order to meet the latters' obligations, that Citibank engaged in unauthorized commingling of the funds in different trust funds, and that Citibank failed to maintain appropriate and necessary records with respect to each trust fund.

Specific allegations of improper activities included:

improper loans and overdrafts; improper transfers of money; failure to establish and properly maintain bank accounts; improper investment of account funds; breaches of fiduciary duty; failure to render reports and accountings of bank accounts at Citibank; and violations of regulations issued by the Comptroller of the Currency that specifically govern banks.

Based on these alleged breaches and wrongful conduct, the Plaintiffs sought an accounting by Citibank as to each trust fund, recovery of any damages suffered as a result of Citibank's breaches of its fiduciary and contractual duties, and an injunction enjoining Citibank from continuing to commit any breaches of the fiduciary and contractual duties owed to the Plaintiffs and members of the Plaintiff Class.

A motion to remand the action was denied by opinion of June 7, 1996. In re Lloyd's American Trust Fund Litig., 928 F. Supp. 333 (S.D.N.Y. 1996). Citibank moved to dismiss the complaint on various grounds, including (1) that the case should be litigated in


(Opinion page 4)

England, (2) that Lloyd's Members' Agents and Managing Agents were necessary and indispensable parties, (3) that Plaintiffs' claim for breach of contract failed to state a cause of action, and (4) that Plaintiffs' claim for an accounting was legally deficient. The motion was granted in part and denied by order of January 24, 1997. In re Lloyd's American Trust Fund Litig., 954 F. Supp. 656 (S.D.N.Y. 1997) ("Lloyd's I"). On March 5, 1997, Plaintiffs filed a consolidated amended complaint (the "Complaint") on behalf of a putative class of all Names of Lloyd's who underwrote American Business and who had been damaged by Citibank's alleged breach of fiduciary duties as trustee of the Lloyd's American Trust Funds ("LATF"). Plaintiff claimed that each such Name had money held in trust by Citibank and was a beneficiary of the LATF, and alleged that Citibank breached fiduciary duties to the Names by, among other things, failing (1) to provide information, or account, to the Names; (2) to make various disclosures to the Names; (3) to preserve the assets in the LATF; and (4) to police the activities of Lloyd's. The Complaint sought compensatory and punitive damages, injunctive and declaratory relief, and costs and attorneys' fees.

Citibank by answer filed April 7, 1997 denied liability and asserted a number of affirmative defenses contending that it acted in accordance with the express terms of the Lloyds' American Trust Deed ("LATD"), the instrument governing the LATF, complied with all directions it received from Lloyd's (as it was required to do), did not breach any duties owed to any Name, and that no Name suffered any damages by virtue of "Inter-Name loans" or indeed any Citibank conduct.

On February 6, 1998, the Plaintiffs' motion to certify the Class was granted pursuant to Federal Rule of Civil Procedure 23(b)(3). See In re Lloyds' American Trust Fund Lit., 1998 WL 50211 (S.D.N.Y. Feb. 6, 1998) ("Lloyd's II"), at *8-16, discussing the high likelihood that any judgment entered in this action would have res judicata effect barring relitigation in foreign jurisdictions. See id. at *16.

On May 8, 1998, Plaintiffs applied to the Court for an order authorizing the form and content of the "Notice of Pendency" to be provided to the Class. Plaintiffs attached the form of notice to be mailed to individual class members, asserting that it would "fairly and accurately inform members of the class that this action is pending and . . . provide sufficient information for the class members to make an informed decision under Rule 23." The Notice of Pendency informed class members of the case, the allegations, the need to request exclusion on or before October 1, 1998, and the consequences of remaining in the class. Plaintiffs' counsel informed the Court of their intention to "give notice by individually mailing notice to class members through the aegis of Lloyd's counsel in England," and also to directly "mail the notice 


(Opinion page 5)

to individuals that they . . . identified as possible class members." On May 29, 1998, the dissemination of the Notice of Pendency as proposed by Plaintiffs was approved, including notice given by Lloyd's counsel in Great Britain. After the Notice of Pendency was mailed to 1,749 members of the class and 64 individuals submitted requests for exclusion from the Class.

Discovery was undertaken as directed in Lloyd's II, 1998 WL 50211, at *17-20, and Citibank produced for inspection approximately 1.8 million pages of documents, and prioritized its production in response to substantive requests made by Plaintiffs' counsel so that approximately 450,000 pages of documents that Plaintiffs deemed most critical to their case were produced on an expedited basis.

Citibank also produced information and supporting documentation to Plaintiffs concerning the amounts of fees paid to Citibank for its services as the LATF trustee. In addition, on December 7, 2000, Plaintiffs deposed Peter von Kaufmann, the Citibank officer with responsibility for overseeing the bank's work as LATF trustee, concerning a variety of topics, including (1) Citibank's lack of any knowledge about anticipated losses from asbestos and environmental claims and efforts by Lloyd's to recruit new Names to help bear those anticipated losses; (2) why no Name was harmed as a result of "inter-Name lending"; (3) the compensation Citibank received for serving as trustee of the LATF; (4) the function and operation of the LATF, including the manner in which Citibank received and implemented instructions from Lloyd's; and (5) how Citibank handled "negative balances" in LATF accounts.

From September 9, 1998 through February 2001, six pretrial conferences were held in connection with the negotiations between the parties seeking to reach a settlement of this case. Initial exploratory discussions concerning theories of liability and measures of damages were followed by substantive negotiations of a comprehensive settlement, and then by detailed drafting of the terms of a settlement, including ten separate exhibits. The process was complicated and time-consuming, in part because of the necessity to include the non-party Lloyd's.

As of May 8, 2002, the parties executed a stipulation of settlement with its attached exhibits (the "Stipulation"). On May 21, 2002, an Order for Notice and Hearing on Proposed Class Action Settlement (the "Preliminary Order") was entered preliminarily approving the proposed settlement set forth in the Stipulation. The Preliminary Order also authorized Plaintiffs' counsel to retain Gilardi & Co. ("Gilardi") to administer the settlement in accordance with the Stipulation's terms. The Preliminary Order modified the previously certified Class to include, for settlement purposes only, all non-accepting


(Opinion page 6)

Names, regardless of their affiliation with Citibank[ftnote 1], with two exceptions: (1) Names who unconditionally released Citibank -- other than through R&R -- prior to May 8, 2002, and (2) Names who requested exclusion from the previously certified Class in 1998 and who do not ask to rejoin the Class for settlement purposes in accordance with the Settlement's "Opt-In" procedures, which were set forth in the Preliminary Order.

A Notice of Pendency and Proposed Settlement of Class Action, Fairness Hearing and Right to Appeal (the "Settlement Notice") and an individualized Statement of Estimated Settlement Distribution, providing each Class Member with his or her Overall Premium Limits and estimated share of the settlement proceeds, were ordered mailed to each reasonably identifiable Class Member at his or her last known address, and the Settlement Notice was ordered posted on Plaintiffs' counsel's website, each within 15 days of entry of the Preliminary Order. A shorter "Publication Notice," also substantially in the form approved by the Court, was ordered to be published in The Wall Street Journal (United States edition) and The Financial Times (United Kingdom edition) within 10 days after mailing of the Settlement Notice.

The non-accepting Names who had opted out of the Class in 1998 had an opportunity to rejoin the Class for purposes of participating in the Settlement by submitting an "Opt-In Request Form" within 45 days of the date on which the Settlement Notice was mailed. The Court also required Class Members to file and serve any objections to the proposed settlement and notices of appearance no later than August 12, 2002. Of the approximately 1,350 remaining members of the Class[ftnote 2], 239, representing less than 18 percent, filed objections on one or more grounds to the proposed settlement. [ftnote 3]

Of the 53 Names who opted out of the Class after receiving the 1998 Notice of Pendency and who are still eligible for Class membership, 18 have now asked to rejoin the Class after 


1 The previously certified Class excluded Citibank officers and directors.

2 The number of Class members remaining in the Class today is lower than the number of Class members in 1998 for two reasons. First, as noted above, some Class members requested exclusion in 1998 after receiving the Notice of Pendency. Second, since 1998, certain former Class members entered into individual settlement agreements with Lloyd's in which they released claims against Citibank, among others.

3 This includes all objections that appear to have been filed in the days after the August 12 deadline, as well as three objections filed by individuals who are not Class members. 


(Opinion page 7)

receiving notice of the terms of the proposed settlement. Also, 88 individuals who were already Class Members submitted "opt-in" requests to Gilardi after receiving notice of the proposed settlement.

The hearing on the proposed settlement occurred on September 11, 2002 at which time the motions were considered fully submitted.

The Relationship of the Parties

Lloyd's is a unique and complex insurance market that has been operating in London for more than 300 years. In 1971, the Society and Corporation of Lloyd's (the "Corporation") was established by an Act of the British Parliament. The Council of Lloyd's (the "Council") is the governing body of Lloyd's, regulating activity in the Lloyd's market through the promulgation of by-laws.

Lloyd's is not itself an insurer, but a market for insurance. It is the individual underwriting members of Lloyd's, the Names, and, since 1994, a limited number of corporate members, who are the insurers and who underwrite insurance through groups called syndicates.

In 1995, nearly 15,000 individual Names from more than fifty countries were actively engaged in underwriting at Lloyd's. Of those active Names, approximately 85 percent were British subjects; 5 percent were American citizens on whose behalf this class action has been brought.

The syndicates through which Names underwrite insurance are managed by underwriting agents known as managing agents, to which the Names in the syndicate each delegate the authority to select risks, set premium rates, hold premiums and pay claims on their behalf. Names, in consultation with their representative at Lloyd's, who is known as a members' agent, select the syndicates in which they are to participate in any particular underwriting year of account. Names generally underwrite through more than one syndicate in order to diversify their risk by spreading their underwriting across different types of insurance, different syndicate managers and different currencies. Because of this diversification, most U.S. Names underwrite a substantial amount of non-U.S. business in U.S. dollars, as well as non-U.S. currency; correspondingly, non-U.S. Names underwrite a substantial amount of insurance written in U.S. dollars.

To become a member of Lloyd's, the individual Name must sign a series of standard agreements, which specify the rights and duties, and the responsibilities and liabilities, of the Name, the managing agents, the members' agents and the entire Society of Lloyd's. See generally, Roby v. Corporation of Lloyd's, 996 F.2d


(Opinion page 8)

1353, 1357-59 (2d Cir. 1993). Every Name is required to travel to London to sign these agreements. See id. at 1363; Roby v. Corporation of Lloyd's, 796 F. Supp. 103, 106 (S.D.N.Y. 1992), aff'd, 996 F.2d 1353 (2d Cir. 1993). One key agreement is the General Undertaking. Each of the Plaintiffs has signed the General Undertaking, as well as other operative documents relating to their membership at Lloyd's.

The members' agent is the Name's advisor and administrator of the Name's Lloyd's affairs. It is the members' agent who assists the Name in selecting the syndicates the Name will join, and who helps keep the Name informed of all material developments. Pursuant to the Agency Agreements Bylaw, the Name and his or her members' agent are required to execute a members' agent's agreement.

The managing agent's agreement provides that the managing agent has fiduciary responsibilities to the Name and is responsible for the actual underwriting of risk for the Names on that agent's syndicate. The managing agent is given broad authority "to exercise on [the Name's] behalf such powers as are necessary or expedient for the provision by the Agent of the services and the performance by the Agent of the duties set out in this Agreement."

Pursuant to the U.K. Insurance Companies Act of 1982, all premiums relating to a Name's underwriting must be placed into a trust fund established in accordance with the provisions of a trust deed approved by the U.K. Secretary of State for Trade and Industry. Accordingly, all premiums paid by policyholders are deposited in one of three types of Lloyd's trust funds, depending on the currency in which the premiums are paid. Lloyd's American Trust Funds (and the related American Trust Fund relating to long term business) receive all premiums payable in American dollars. Lloyd's Canadian Trust Funds receive all premiums payable in Canadian dollars. All other premiums received are held in Lloyd's Premiums Trust Funds.

The LATF was created in August 1939, through an initial deposit with the City Bank Farmers Trust Company to protect policyholders in the United States from the consequences of German attacks on England. The New York Department of Insurance regulations that govern the LATF state that: "the trust fund is for the exclusive protection of all direct policyholders and beneficiaries of direct policies covering property or risks located within the United States." N.Y. Comp. Codes R. & Regs. tit. 11. vol. A, 27.13(h)(1) (1995). The reinsurance regulations covering the LATF require the maintenance of a "trust fund . . . for the protection of the United States ceding insurers and United States beneficiaries under reinsurance policies." N.Y. Comp. Codes R. & Regs. tit. 11, vol. B, 125.4(d)(1)(iv) (1995). The trust fund constitutes a vehicle to segregate certain funds to insulate them from other funds held by the Names as insurers. Citibank and its


(Opinion page 9)

corporate predecessors have been the trustees of the LATF funds since its inception. As of January 31, 1996, Citibank held approximately $12.3 billion in LATF assets. The rest of these trust funds are located within the County and State of New York.

Article Eighth of the LATD provides that the LATF is to be managed and invested by Citibank "at the direction of the Agent" and that the LATF of a given name "may be commingled with the [LATF] of any of the other Names."

Article Eleventh provides that the American Trustee will provide an accounting to the Agent and "shall not be required to account to any person other than the Agent."

The LATD specified that New York law shall govern the rights of the parties with respect to the LATF. When a Name underwrote "American Business," the profits he would eventually receive from premium payments were deposited into a trust fund for that Name to pay any claims arising under the American Business, with the remainder, after operating expenses, to be paid to the Name.

The American Trust Funds are administered through combined portfolios referred to by Lloyd's as "Group Accounts," each of which is comprised of the U.S. dollar premiums of a number of individual Names and is established by the managing agent of one or more of the syndicates in which those Names participate. Group Accounts may be comprised of all the Names participating in just one syndicate, just some of the Names participating in a syndicate, or may be comprised of Names from several different syndicates. The day-to-day administration of the LATF and LATF-LTB is handled both by a department of Lloyd's and an administrative unit within Citibank.

When an underwriting liability is incurred, the first resort is to the funds in each member Name's trust funds to pay the liabilities. If any Name does not have sufficient funds in his trust fund to meet that proportion of the claims of the policyholders for which the name is responsible, cash calls will be issued requiring the Name to make payments to meet his liabilities. If the Name fails to pay the cash calls, the sums required may be taken from the Name's "deposit" which Lloyd's holds. If the funds in the Name's deposit are exhausted and the Name does not respond to cash calls, the Managing Agent may ask Lloyd's itself for money to cover the defaulting Name's liability through a draw down on Lloyd's Central Fund.

According to the Plaintiffs, when Names do not have sufficient monies in their trust fund accounts to meet their liabilities, Citibank takes assets from other Names' trust accounts to pay claims attributable to other trust accounts with


(Opinion page 10)

insufficient funds. In other words, pending payment of cash calls, or a draw down on the defaulting Name's deposit, or an application for cash from the Central Fund to cover the defaulter's liability, sums from the trust funds of other Names are used to pay claims for which those funds have no liability ("Inter-Name Lending").

According to the Plaintiffs, Lloyd's used the American Trust Funds to satisfy its statutory duties as an accredited reinsurer and excess insurer under New York insurance law. On or about May 11, 1995, the New York State Department of Insurance completed an examination of Lloyd's to determine whether Lloyd's was in compliance with Insurance Department regulations.

As noted in the report to the New York State Superintendent of Insurance:

The examination review of various records maintained by Citibank and Lloyd's indicates that there is not any record of the individual Names' total assets held in LATF accounts. As noted previously each Name at Lloyd's underwrites in association with other Names but each Name is underwriting for his own sole separate account. Therefore, each Name's assets in LATF is for the purpose of meeting that Name's liabilities and not liabilities of other Names. Lloyd's managing agents keep track of the amount of funds held in LATF for each syndicate under their control and also maintain records of Names comprising each syndicate. However, each Name is usually represented on several syndicates which are under the control of various managing agents. The amount of each Name's United States dollar liabilities and funds in LATF, by syndicate and managing agent, is not accumulated centrally. Further, managing agents control a Name's funds in LATF by means of group accounts. Such accounts may consist of several syndicates or Names within several syndicates grouped together for investment purposes. In order to determine each Name's assets in LATF, it would be necessary to compile a listing from each managing agent of all syndicates under the managing agent's control; such a listing would have to show a breakdown by policy year down to the Name's level. It appears that an LATF allocation by name is not maintained by the trustee or centrally by Lloyd's.

Report on Examination of Lloyd's, London as of December 31, 1993, prepared by the New York State Department of Insurance on May 11, 1995 at 11-12 (hereinafter, "Ins. Dep't Report").


(Opinion page 11)

The New York State Department of Insurance determined that the reserves established for American Business as reported in Lloyd's 1993 Trusteed Surplus Statements were "seriously deficient" and had net deficiencies of more than $7.7 billion, or more than $18 billion before reinsurance recoveries at the end of 1993. As a result of the examination finding that Lloyd's was not maintaining its statutorily required minimum surplus, Lloyd's and the New York Department of Insurance entered into an agreement dated May 24, 1995.

Prior to this action being commenced, Lloyd's had been exploring and forming a plan of action to reinsure outstanding liabilities which threatened the solvency of many Lloyd's insurance syndicates. This plan, denominated Reconstruction and Renewal ("R&R") would act as a "firebreak" of Names' underwriting liabilities for all periods prior to 1993. After this action was filed, Lloyd's instituted R&R. Pursuant to the R&R plan, the Names who accepted R&R received "settlement credits" and were assessed an "Equitas Premium" which was essentially the premium amount Lloyd's believed to be necessary to reinsure the Names' liabilities for prior underwriting periods. Names who accepted R&R gave general releases to Lloyd's, Citibank and others. R&R was well accepted and over 95 percent of the Names who were putative class members in this action accepted R&R, released Citibank, and were foreclosed from being Class Members.


(Opinion page 12)

As a result of R&R, the LATF no longer functioned as it did during the Class Period. Equitas has its own trust fund, the Equitas American Trust Fund. To ensure the success of R&R and the solvency of Lloyd's syndicates and the Lloyd's market, an act of Parliament deemed nonaccepting Names to be bound by the plan for R&R at least to the extent that they are liable to pay the Equitas Premium. Lloyd's has obtained judgments against several Names who have not paid the Equitas Premium, and has begun to enforce those judgments. Names have been put into bankruptcy through these judgment collection efforts. The objectors maintain there have been over 400 such bankruptcies.

The Settlement

The parties entered into the Stipulation dated May 8, 2002 which provides that, in exchange for settling and releasing all claims "in relation to the establishment, conduct, administration, operation, supervision, direction or oversight of the LATF," the Class will receive $8,500,000 (the "Cash Settlement Fund") and $11,500,000 in "Credit Notes" which will be used by Class Members to reduce R&R debt that they owe, or are claimed to owe to Lloyd's, consisting of the (i) Equitas Premium amount and (ii) other amounts the Name was alleged to owe connected with his or her underwriting. The Stipulation thus creates a total benefit


(Opinion page 13)

to the Class in excess of $20,000,000 (the "Settlement Consideration"), including interest on the credit notes which was $2,875,000 as of June 30, 2002.

As required by the Stipulation, Citibank has already paid the $8.5 million into an interest-bearing escrow on behalf of the Class. This amount and any interest (collectively, the "Cash Settlement Fund") will be used first to pay taxes on the fund, the costs of notice and administration of the settlement, and such fees and expenses as the Court may award to Plaintiffs' counsel. The remaining amount will be distributed to Class Members.

The Stipulation provides that Lloyd's will provide "safe passage" for the Cash Settlement Fund until it is distributed to Class Members. The Stipulation and the proposed Final Judgment contemplate certain findings to facilitate "safe passage." These findings will ensure that the settlement proceeds payable to Class Members will be deemed only as monies payable in settlement of a breach of fiduciary duty claim, and that they will not be deemed "moneys payable . . . in connection with the American business" for purposes of Sections 3(a) & (B) of the LATD, or monies payable in connection with underwriting at Lloyd's for purposes of Section 2.1 of the Lloyd's Premiums Trust Deed.

The $11.5 million in credit notes will be honored by Lloyd's towards payment of the R&R debt owed by any Class Members.


(Opinion page 14)

Payment of R&R debt with credit notes will avoid any interest owing or charged by Lloyd's on that R&R debt discharged with such credit notes from July 1, 1999 until the time of presentment. Credit notes, which will expire one year after the Court orders their distribution, will be freely transferable among members of the Class. Thus, a Class Member may use or sell the distributed credit notes. Class Members may accumulate other Class Members' credit notes to pay their R&R debt. To facilitate such transfers of credit notes among Class Members, the Claims Administrator, Gilardi, will maintain lists where persons interested in buying and selling credit notes may post those interests. Gilardi will serve as a clearinghouse for transfers of the credit notes, and Class Members will be able to obtain lists of interested sellers or purchasers at any time upon request. Plaintiffs' counsel may apply to the Court for a portion of the $11.5 million in credit notes as part of their fee. The remainder will be distributed to Class Members.[ftnote 4]

Within thirty days after the Settlement is final and no longer subject to appeal, Plaintiffs' counsel will move the Court for a Class distribution order that, among other things, authorizes distribution of the cash settlement fund and the credit notes to Class Members. Distribution of benefits to the Class will commence


4 To the extent the credit notes might be deemed "securities," their registration would not be required pursuant to section 3(a)(10) of the Securities Act of 1933, as amended, by virtue of the Court's approval of the Settlement. Id. 5(b). See 15 U.S.C. 77c(a)(10).


(Opinion page 15)

after the Court enters the class distribution order, all taxes and administration costs have been paid, and any remaining disputes relating to the Settlement have been resolved. The cash settlement fund and the credit notes will be distributed to Class Members on a pro rata basis, according to the proportion each Class Member's aggregate overall premium limits from 1979 through 1996 bears to the total of all overall premium limits for all Class Members during that period. Based on each Name's demonstrated means, Lloyd's calculated overall premium limits for each Name that effectively set a maximum amount of insurance that could be underwritten on the Name's behalf each year. For purposes of the Settlement, Citibank obtained each Class Member's overall premium limits from Lloyd's.

The Stipulation provides that unclaimed portions of the Settlement proceeds do not revert to Citibank. One year after the initial distribution of cash payments, and after reasonable efforts by Gilardi to have Class Members cash their checks, any balance remaining in the cash settlement fund will be redistributed to Class Members who have cashed their checks. If any funds remain after an additional six months, the balance of the cash settlement fund will be contributed to a non-profit organization designated by, but not affiliated with, Plaintiffs' counsel. Six months after the initial distribution of credit notes, and after reasonable efforts by Gilardi to locate better addresses for Class Members,


(Opinion page 16)

Gilardi may sell to other Class Members any credit notes returned as undeliverable. The proceeds of these sales will eventually be added to the cash settlement fund for redistribution. Upon approval, the action against Citibank will be dismissed with prejudice. In addition, the Stipulation provides that Class Members will release any settled claims against Citibank and Lloyd's as well as related persons and entities in any forum worldwide. The Stipulation limits "Settled Claims" to those relating "to the establishment, conduct, administration, operation, supervision, direction or oversight of the LATF . . ." The Stipulation's release specifically excludes from the definition of settled claims, inter alia, "any claim against Lloyd's by any Class Member who has asserted such claim in any other action prior to the date of this Stipulation [i.e., May 8, 2002]."

Accordingly, the Stipulation provides that implementation of the proposed settlement and its benefits to the Class, depend on preservation of the terms of the release. Stipulation E ("Defendant's willingness to enter into this Stipulation is premised on this Settlement precluding any further litigation of Settled Claims . . . by Class Members -- American or foreign -- against Citibank, Lloyd's or any other Released Party . . . in any forum world-wide") (granting Citibank termination rights if Final Judgment is refused or modified in any material respect.)


(Opinion page 17)

Lloyd's has also agreed in similar fashion that it will not seek to attach or otherwise restrain the distribution of that cash to the Class Members thus granting "safe passage" for the cash.

The Hearing

Citibank and the Plaintiffs appeared in support of the Stipulation. Objections were filed by 239 Names who are members of the Class, both by letter, form objection and appearance by counsel.

Three principal objections were made, the first being the release to non-party Lloyd's which was alleged to violate due process, given the initial notice and the inability to opt out upon learning of the release to Lloyd's.

A second related concern was whether or not the release to Lloyd's was appropriately limited. A third objection was based upon the absence of adequate discovery, and the consequent inability of Class Members to review such discovery. A number of other objections were advanced.

The Standard for Approval

Rule 23(e) of the Federal Rules of Civil Procedure  


(Opinion page 18)

provides that "[a] class action shall not be dismissed or compromised without the approval of the court." Fed. R. Civ. P. 23(e). This Court stated the standards for approval of a class action settlement under Rule 23(e), most recently in In re Blech Secs. Litig.:

The decision to grant or deny such approval lies within the discretion of the trial court, and this discretion should be exercised in light of the general judicial policy favoring settlement.

It is well-established that courts' principal responsibility in approving class action settlements is to ensure that such settlements are fair, adequate, and reasonable.

This determination involves consideration of two types of evidence. The Court's primary concern is with the substantive terms of the settlement compared to the likely result of a trial, and to that end the trial judge must apprise himself of all the facts necessary for an intelligent and objective opinion of the probabilities of ultimate success should be claim[s] be litigated.

The Second Circuit has indicated nine factors to consider in determining the fairness of a proposed settlement:

(1) the complexity, expense and likely duration of the litigation, (2) the reaction of the class to the settlement, (3) the stage of the proceedings and the amount of discovery completed, (4) the risks of establishing liability, (5) the risks of establishing damages, (6) the risks of maintaining the class action through the trial, (7) the ability of the defendants to withstand a greater judgment, (8) the range of reasonableness of the settlement fund in the light of the best possible recovery, (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation.

The Court's second concern is with the negotiating process by which the settlement was reached, which must be examined in light of the experience of counsel, the  


(Opinion page 19)

vigor with which the case was prosecuted, and the coercion or collusion that may have marred the negotiations themselves. The Court has a fiduciary duty to ensure that the integrity of the arm's length negotiation process is preserved, however, a strong initial presumption of fairness attaches to the proposed settlement, and great weight is accorded to the recommendations of counsel, who are most closely acquainted with the facts of the underlying litigation.

2000 WL 661860, at *3-4 (S.D.N.Y. May 19, 2000) (internal quotation marks and citations omitted); accord, Adair v. Bristol Tech. Sys. Inc., No. 97 Civ. 5874, 1999 WL 1037878, at *1-2 (S.D.N.Y. Nov. 16, 1999); In re Nasdaq Market-Makers Antitrust Litig., 187 F.R.D. 465, 473-74 (S.D.N.Y. 1998).

The nine-factor test for evaluating fairness described in In re Blech -- and previously applied by this Court in Adair and In re Nasdaq -- was adopted by the Second Circuit in City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974) (overruling on other grounds recognized by Chambless v. Masters Mates & Pilots Pension Plan, 845 F.2d 1053 (2d Cir. 1989). That test will be applied here.


(Opinion page 20)

Due Process Has Not Been Denied by the Release of Lloyd's

Because Citibank administered the LATF at the direction of Lloyd's, any claims involving the LATF asserted against Lloyd's implicates Lloyd's directions to Citibank and Citibank's implementation of those directions. Many Class Members have objected to the limited release of Lloyd's on the ground that Lloyd's is not a party to this action. However, class action settlements have in the past released claims against non-parties where, as here, the claims against the non-party being released were based on the same underlying factual predicate as the claims asserted against parties to the action being settled. See, e.g., Class Plaintiffs v. City of Seattle, 955 F.2d 1268, 1287-89 (9th Cir. 1992); In re Y&A Group Secs. Litig., 38 F.3d 380, 384 (8th Cir. 1994); In re Orthopedic Bone Screw Prods. Liab. Litig., 176 F.R.D. 158, 165 n.4, 181 (E.D.Pa. 1997); see also 3 Herbert A. Newberg & Alba Conte, Newberg on Class Actions 12.16, at 12-50 (3d ed. 1992) ("A settlement may . . . seek to discharge parties who have not been served with process and are therefore not before the court."); In re Holocaust Victim Assets Litig., 105 F. Supp.2d 139, 143, 160 (E.D.N.Y. 2000) (approving class settlement with broad releases of claims against non-parties.)[ftnote 5]


5 An objection has been made on the grounds that the release of Lloyd's is inconsistent with this Court's previous ruling that Lloyd's was not an indispensable party. The standard for determining when a class action settlement may release a non-party is completely unrelated to the standard for establishing that a party is "indispensable." See Lloyd's I, 954 F. Supp. at 675.  


(Opinion page 21)

Courts have permitted class action settlements to release unasserted claims that could, if asserted later, have the effect of reopening litigation that was intended to be settled. See, e.g., TKB Partners, Ltd. v. Western Union Corp., 675 F.2d 456, 460 (2d Cir. 1982) (settlement may release unasserted claims "in order to achieve a comprehensive settlement that would prevent relitigation of settled questions at the core of a class action"); accord Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 376-79 (1996); In re Nasdaq Market-Makers Antitrust Litigation, 187 F.R.D. at 482. Such releases have been approved in class action settlements even where exclusive jurisdiction over the claims released lies with another court. See, e.g., TBK Partners, 675 F.2d at 460 (rejecting plaintiffs' contention that a federal court could not approve a settlement barring claims over which a state court had exclusive jurisdiction); Matsushita, 516 U.S. at 376-79 (holding that Delaware state court could properly release claims subject to exclusive federal jurisdiction).

Further, courts recognize that it is appropriate for a class action settlement to include a limited release of a nonparty, such as Lloyd's, where that non-party has contributed substantially to making the settlement possible.

The release of Lloyd's is entirely necessary to ensure finality for Citibank, is clearly appropriate in light of Lloyd's contributions to the settlement, and unremarkable under the  


(Opinion page 22)

applicable legal precedents.

Several Class Members additionally object to the release in favor of Lloyd's on the ground that such a possibility was not expressly disclosed in the Notice of Pendency. The Notice of Pendency indicated that the relationship with Lloyd's would be highly relevant to this lawsuit and repeatedly references Lloyd's connection to the events at issue in this action.

Due process requires only that Class Members have notice of the proposed settlement and an opportunity to be heard at a fairness hearing. If the proposed settlement is fair, adequate and reasonable, due process does not afford Class Members a second opportunity to opt out. See In re Brand Name Prescription Drugs Antitrust Litig., No. 94 C 897, 1996 WL 167347, at *4 (N.D.Ill. Apr. 4, 1996); Officers for Justice v. Civil Serv. Comm'n of the City and County of San Francisco, 688 F.2d 615, 635 (9th Cir. 1982); see also Class Plaintiffs, 955 F.2d at 1289 (affirming district court's approval of settlement that released non-party against whom class members had pending litigation, where class members had no opportunity to opt out of settlement). "Moreover, to hold that due process requires a second opportunity to opt out after the terms of the settlement have been disclosed to the class would impede the settlement process so favored in the law." Officers for Justice, 688 F.2d at 634. Indeed, as the hearing established, the integrity of the Class as constituted was an  


(Opinion page 23)

essential element to the Settlement.

With respect to the notice of Pendency in a class action, all that the due process clause requires is a procedure that "fairly insures the protection of the interests of absent parties who are to be bound by [the judgment]." Hansberry v. Lee, 311 U.S. 32, 42 (1940). See In re Gypsum Antitrust Cases, 565 F.2d 1123, 1125 (9th Cir. 1977) ("The purpose of this notice requirement is . . . to present a fair recital of the subject matter of the suit and to inform all class members of their opportunity to be heard") (citations omitted). As such, "[a] class certification notice should advise the class members of their rights and obligations if they elect to remain class members." McCarthy v. Paine Webber Group, Inc., 164 F.R.D. 309, 312 (D. Conn. 1995).

The Notice of Pendency explicitly set forth whose rights might be affected by this action (i.e., all former and current underwriting members of Lloyd's who underwrote American Business and who did not accept Lloyd's R&R proposal); what this case was about (i.e., Citibank's breach of its fiduciary duties to the Names as trustee of the Lloyd's American Trust Fund); and the relief being sought (i.e., the fees paid to Citibank to act as a trustee of the Lloyd's American Trust Fund). The notice explained that this action was based upon insurance underwriting performed by Plaintiffs through Lloyd's and thereby the Class Members were put on notice that their legal rights and obligations relating to the  


(Opinion page 24)

LATF might be affected.

Here, as stated above, the claims being released against Lloyd's are solely claims arising from "the establishment, conduct, administration, operation, supervision, direction of oversight of the L[loyd's] A[merican] T[rust] F[und]" -- claims at the core of this action, and that were originally set forth in the complaint. In class actions asserting securities fraud which have settled, the liability insurer and auditor normally receive releases of claims brought against the defendant even though they may not have been parties to the lawsuit. Similarly, in products liability class actions, non-parties to the lawsuit (the downstream seller, the distributor, etc.) may be released in the settlement. This practice is commonplace and rarely challenged.

For example, in Class Plaintiffs, 955 F.2d at 1289, the Ninth Circuit approved a class action settlement that released claims against Washington State, a third party to the action that had contributed $10 million to the settlement fund. Although the plaintiffs' complaint in Class Plaintiffs did not allege claims against Washington State, the Ninth Circuit found that "Fed. R. Civ. P. 23 does not require that class members be given an opportunity to opt out of a proposed settlement when the settlement includes claims not originally set forth in the class complaint." Id. at 1289; see also In re Holocaust Victim Assets Litig., 105 F. Supp.2d at 141-43 (class settlement approved which contained broad  


(Opinion page 25)

releases of claims against non-parties); cf. In re Cons. Pinnacle W. Sec. Litig., 51 F.3d 194, 197 (9th Cir. 1995) (affirming approval of settlement bar order that precluded claims by nonsettling defendants against non-party that was a "critical participant and contributor to the overall settlement").

Here, as detailed above, Lloyd's alleged liability is directly connected with the alleged liability of Citibank. Moreover, as Lloyd's is contractually bound to indemnify Citibank for liabilities relating to the LATF, and Lloyd's has agreed to accept and honor credit notes in excess of $11,500,000 as part of the settlement, it is entirely appropriate to release Lloyd's pursuant to the terms of the Settlement, from the narrow category of claims arising from "the establishment, conduct, administration, operation, supervision, direction or oversight of the LATF."

The Release of Lloyd's Is Appropriately Limited

Most of the Names who have objected to the release to Lloyd's have done so because of concern that the release to Lloyd's releases all claims against Lloyd's and forecloses all litigation, claims and defenses against Lloyd's, including pending litigation.

First, the release relates only to claims "in relation to the establishment, conduct, administration, operation, supervision, direction of oversight of the LATF." Second, even if a claim relates to "the establishment, conduct, administration, operation,  


(Opinion page 26)

supervision, direction of oversight of the LATF," if it has been raised in any other litigation pending as of May 8, 2002, it is not released even if it is an identical claim.

None of the class members' ongoing litigations against Lloyd's will be affected by the release contained in the proposed settlement. The release will not affect any claims that may be pending or reinstated in the Jaffray litigation in the United Kingdom, or the action commenced against Lloyd's by some class members in the United Kingdom for access to the Names' books and records. All such claims were commenced prior to the date of the Stipulation and are thus explicitly excluded from the scope of the release.

Any claims that class members may have, now or in the future, relating to Equitas will not be affected by the release because such claims do not relate to "the establishment, conduct, administration, operation, supervision, direction or oversight of the LATF."

The European Commission's ongoing proceeding against the British Government relating to its regulation of Lloyd's will not be affected by the release because that proceeding is not against Lloyd's.

Similarly, the argument of some objectors -- that the Class, by definition, consists of Names who, by virtue of their rejection of R&R, have already declined to execute releases in favor of Lloyd's -- misconstrues the limited scope of the release. The release of Lloyd's effectuated by this settlement relates to a narrowly defined subject matter, while the releases obtained by Lloyd's in connection with R&R were general in scope. See Lloyd's II, 1998 WL 50211, at *4.  


(Opinion page 27)

Indeed, the Stipulation's release of Lloyd's will mostly preclude claims that are already time-barred. Any Class Member's yet-to-be-filed claims against Lloyd's relating to the LATF are almost certainly time-barred under the law of the United Kingdom. Each Class Member has signed numerous agreements with Lloyd's that vest exclusive jurisdiction for disputes with Lloyd's in the courts of England. See Lloyd's I, 954 F. Supp. at 669 & n.3. The United Kingdom's Limitation Act, 1980, applicable in such courts, bars causes of action in tort and contract that are not brought within six years of accrual.

Similarly, any claims would be time-barred in the four jurisdictions with the largest populations of American class members. California: Cal. Civ. Proc. Code 338(d) (West 1992) (three-year limitation period for fraud); id. 337(a) (four-year limitation period for contract actions); id. 338(d), 339(1), 343 (two, three, or four-year limitation period for breach of fiduciary duty, depending on whether breach amounts to actual fraud); Florida: Fla. Stat. Ann. 91.55(3)(j) (West 2002) (four-year limitation period for fraud); id. 95.11(2)(b) (five-year limitation period for contract actions); Behar v. Sunbank/Miami, N.A., 591 So.2d 969, 970 (1991) (applying four-year limitation period in 95.11(3) to breach of fiduciary duty claim); New York: N.Y.C.P.L.R. 213(8) (six-year limitations period for fraud); id. 213(2) (six-year limitation period for contract actions; Frank


(Opinion page 28)

Mgmt., Inc. v. Weber, 549 N.Y.S.2d 317, 318-320 (1989) (six-year limitations period for fiduciary duty actions with genesis in contractual relationship); cf. Salzman v. Prudential Sec., Inc., No. 91 Civ. 4253, 1994 WL 191855 (S.D.N.Y. May 16, 1994) (broker's fiduciary duty to client governed by three-year limitation period of CPLR 214(4); Texas: Tex. Civ. Prac. & Rem. Code Ann. 16.004(4) (West 2001) (four-year limitation period for fraud); id. 16.004(5) (four-year limitation period for breach of fiduciary duty); id. 16.01 (four-year residual period for actions for which there is no express limitation period); see Heron Fin. Corp. v. United States Testing Co., 926 S.W.2d 329, 331 (1996) (applying 16.051's four-year residual period to claims based on contract). Class Members unquestionably have for more than six years had sufficient information to assert any claim against Lloyd's relating to the LATF.[ftnote 6] As a result, Class Members are likely giving up nothing of value by virtue of this aspect of the release.

Discovery Has Been Adequate

Formal discovery is not required, so long as Plaintiffs'


6 See, e.g., Meg Fletcher, "Lloyd's To Bolster Trusts For U.S. Policyholders," Business Insurance, May 29, 1995, at 1 (discussing the New York State Insurance Department's Report on the LATF); "Citibank Sued By U.S.-Based Investors In Lloyd's Of London," Bloomberg News, Jan. 5, 1996; Lloyd's I, 954 F. Supp. at 660 (noting that the first action against Citibank based on the LATF was filed on December 29, 1995).  


(Opinion page 29)

counsel possesses information sufficient to consider fully the strengths and weaknesses of their claims, and thus the relative benefits of litigation and settlement. See D'Amato v. Deutsche Bank, 236 F.3d 78, 87 (2d Cir. 2001); see also Maley v. Del Global Technologies Corp., 186 F. Supp.2d 358, 364 (S.D.N.Y. 2002) (due to confirmatory discovery involving "tens of thousands of pages of documents," "Plaintiffs' Counsel possessed a record sufficient to permit evaluation of the merits of Plaintiffs' claims, the strengths of the defenses asserted by Defendants, and the value of Plaintiffs' causes of action for purposes of settlement"); In re American Bank Note Holographics, Inc. Sec. Litig., 127 F. Supp.2d 418, 425-26 (S.D.N.Y. 2001) (to approve a settlement, "the Court need not find that the parties have engaged in extensive discovery").

Before the parties' settlement negotiations began in earnest, Plaintiffs had gained valuable knowledge concerning Plaintiffs' claims in the course of addressing Citibank's motion to dismiss and Plaintiffs' motion for class certification. Further, pursuant to Plaintiffs' formal discovery requests, Citibank had produced to Plaintiffs approximately 1.8 million pages of documents. Further, Plaintiffs' examination of the facts related to their claims did not cease when settlement discussions began, and Plaintiffs' counsel continued to conduct discovery to confirm that any settlement they negotiated would serve the interests of the Class. And, finally, during the course of settlement  


(Opinion page 30)

negotiations, the parties also had the benefit of indirect discovery through proceedings in England against Lloyd's. For instance, the Honorable Justice Cresswell of the High Court of Justice of England and Wales issued a 635-page decision in the Jaffray litigation in November 2000 dismissing sample Names' claims for deceit and fraudulent misrepresentation after a trial spanning 19 weeks. The Society of Lloyd's v. Jaffray, 2000 WL 1629463 (Q.B. Nov. 3, 2000). Knowledge of the outcome in Jaffray and other cases further informed the conduct of the settlement negotiations in this case.

Given the stage of this case and the extensive discovery conducted, almost all of it when the case was in an adversarial posture, Plaintiffs' counsel is well-positioned to assess the fairness of the proposed settlement. Thus, this factor also supports approval. See, e.g., In re Sumitomo Copper Litig., 189 F.R.D. 274, 281-82 (S.D.N.Y. 1999) (stage of proceedings "strongly" favored approval of settlements reached after "[p]laintiffs had conducted extensive discovery, investigation and analyses, and the proceedings were in the advanced stage of pointing or preparing for trial"); In re Painewebber Ltd. Partnerships Litig., 171 F.R.D. 104, 126 (S.D.N.Y. 1997) (stage of proceedings and discovery supported settlement where "extensive discovery took place prior to the commencement of settlement negotiations" and "a comprehensive evaluation of the facts and merits" had been performed prior to executing the settlement agreement).  


(Opinion page 31) - [sic: blank page in Opinion as received]


(Opinion page 32)

The Remaining Objections Do Not Require Disapproval

Approximately 200 Names have sent in letters or forms objecting to the terms of the Settlement. Certain groups of people have made concerted efforts to have other Class Members lodge objections. There are essentially six standardized objections and twenty-three seemingly independent objections.

A number of Class Members have objected to credit notes being provided as part of the proposed settlement, asserting, among other things, that the credit notes will have little or no value and that the proposed settlement should be approved only if the entire amount of the settlement is paid in cash.

The courts often approve class action settlements that employ debt forgiveness and other non-cash benefits as all or part of the settlement consideration. See, e.g., Cullen v. Whitman Medical Corp., 197 F.R.D. 136, 143 (E.D.Pa. 2000) (approving settlement providing cash, forgiveness of indebtedness of class members to defendants and other non-monetary relief); Follansbee v. Discover Fin. Serv., Ltd., No. 99 C 3827, 2000 WL 804690, at *5 (N.D. Ill. June 21, 2000) (approving settlement providing cash and credits usable by some class members to pay down debt to defendant); Pigford v. Glickman, 185 F.R.D. 82, 109 (D. D.C. 1999) (approving settlement providing cash and forgiveness of debt owned by some class members), aff'd, 206 F.3d 1212 (D.C. Cir. 2000); see


(Opinion page 33)

also State of New York v. Nintendo of America, Inc., 775 F. Supp. 676, 681 (S.D.N.Y. 1991) (approving settlement involving distribution to class members of coupons for discount on defendant's products); In re American Bank Note, 127 F. Supp.2d at 421 (approving settlement providing combination of cash, stock, warrants and reorganization certificates); In re Brown Co. Sec. Litig., 355 F. Supp. 574, 589-90 (S.D.N.Y. 1973) (approving settlement to be paid solely in the form of warrants).

Several Names have asserted that the credit notes will have no value to those class members who for various reasons either do not need or will not use credit notes to reduce their own R&R debt. However, the credit notes of such Names can be disposed of in the secondary market in which all class members may realize value from them. See Nintendo, 775 F. Supp. at 681 (free transferability of coupons would increase their value and might render them "cash equivalents"); Shaw v. Toshiba American Info. Sys., Inc., 91 F. Supp.2d 942, 960-61 (E.D. Tex. 2000) (holding that transferable discount coupons, which were redeemable for one year to purchase defendant's products and which could be aggregated, constituted a significant benefit for all class members and were a "model" for the design of non-cash class action settlements); In re Cuisinart Food Processor Antitrust Litig., M.D.L. 447, 1983 WL 153, at *4 (D. Conn. Oct. 24, 1983) ("fact that the coupons are transferable enhances their economic value"); cf. In re General Motors Corp. Pickup Truck Fuel Tank Prods. Liability


(Opinion page 34)

Litig., 55 F.3d 768, 809 (3d Cir. 1995) (disapproving proposed settlement with significant limitations on transferability of discount certificates).

The claims administrator will maintain lists for Class Members to post their interest in transferring or obtaining credit notes. Class Members may obtain information from Gilardi about interested sellers or purchasers at any time upon request. See In re Montgomery County Real Estate Antitrust Litig., 83 F.R.D. 305, 318 (D. Md. 1979) (noting that class administrator's establishment of a clearinghouse to connect potential buyers and sellers would facilitate transfer of certificates); cf. In re General Motors, 55 F.3d at 809 (disapproving proposed settlement lacking mechanisms to facilitate transfer of certificates).

The credit notes are valid for a reasonable length of time -- one year from entry of the Class Distribution Order. Stipulation 13(b). The one-year period affords Class Members ample time to decide whether to apply the credit notes directly to reduce their own R&R debt or to sell their credit notes to another Class Member.[ftnote 7] See Shaw, 91 F. Supp.2d at 960-61 (one-year discount coupons were a "model" for non-cash class action settlement benefit).


 7 The Credit Notes' one-year period of validity does not begin until after entry of the Class Distribution Order, which can only occur after the Final Judgment is entered and all appeals are exhausted.  


(Opinion page 35)

Although some objectors claim they owe no R&R debt to Lloyd's, in fact over 900 class members, approximately two-thirds of the Class, currently do owe R&R debt to Lloyd's, and the total debt to Lloyds' is far greater than the available supply of $11.5 million of credit notes.

In addition, payment of R&R debt with credit notes also provides complete forgiveness of all interest on that R&R debt from July 1, 1999, through the date the credit notes are tendered to Lloyd's .

The use of credit notes does not constitute an admission that a Name owes R&R debt. Indeed, the Stipulation explicitly provides that use of the credit notes does not constitute an admission of liability to Lloyd's. Stipulation 5(c). In addition, the Stipulation nowhere provides that credit notes must be applied against 100% of R&R debt. Class Members are free to negotiate with Lloyd's, using the credit notes as they would cash, to compromise their disputed R&R debt with Lloyd's.

Several Class Members have objected that they never received the Notice of Pendency and thus were never advised of their right to opt out of the Class. However, the mailing of the Notice of Pendency fully satisfied the requirements of the Federal Rules of Civil Procedure and due process. Pursuant to this Court's May 29, 1998 order, Lloyd's, at the request of Plaintiffs' counsel,


(Opinion page 36)

mailed the Notice of Pendency on July 22, 1998 to all Class Members -- that is, to all Names who had not settled with Lloyd's through R&R and who had not otherwise entered into a settlement with Lloyd's releasing Citibank. Lloyd's mailed the Notice of Pendency to the last known address reflected in its records for each Class Member. Such a mailing clearly met the requirements of Rule 23, which provides that, in a Rule 23(b)(3) class action such as this one, "the court shall direct to the members of the class the best notice practicable under the circumstances, including individual notice to al members who can be identified through reasonable effort." Fed. R. Civ. P. 23(c)(2). The mailing of the Notice of Pendency also satisfied the dictates of due process because it was "reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." See Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950); see also Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985) ("the procedure . . . where a fully descriptive notice is sent by firstclass mail to each class member, with an explanation of the right to 'opt-out,' satisfies due process").

"It is widely recognized that for the due process standard to be met it is not necessary that every class member receive actual notice, so long as class counsel acted reasonably in selecting means likely to inform persons affected." In re Prudential Sec. Inc. Ltd., 164 F.R.D. 362, 368 (S.D.N.Y. 1996)  


(Opinion page 37)

(citing Weigner v. City of New York, 852 F.2d 646, 649 (2d Cir. 1988)); Grunin v. Internat'l House of Pancakes, 513 F.2d 114, 121 (8th Cir. 1975) (notice by mail to class members' last known address satisfied requirements under due process even though onethird of class members were not reached) (citing Eisen v. Carlisle & Jacquelin, 417 U.S. 174-77 (1974) (notice by mail to class members' last known address was "the best notice practicable")).

Accordingly, the fact that a few individual Class Members may not have actually received the Notice of Pendency does not render the whole mailing defective. Also, the fact of non-receipt cannot justify such Class Members being allowed to exclude themselves from the Class at this time, nearly four years after the deadline for doing so. As this Court has held, "a class action settlement is binding on an absent class member if the notice program is procedurally adequate, even if the absent class member does not receive personal written notice." In re Nasdaq Market-Makers Antitrust Litig., No. 94 Civ. 3996, 1999 WL 395407, *2 (S.D.N.Y. June 15, 1999).

Some objectors contend that the settlement amount is unfair because the proposed settlement does not estimate the amounts deducted for taxes, administration fees, and counsels' expenses. However, in June of this year, Class Members were provided with individualized Statements of Estimated Settlement Distribution that estimated individual settlement shares after accounting for estimated administration costs and counsel fees and  


(Opinion page 38)

expenses. There is no reasonable risk that the amount of the Settlement will be appreciably depleted by these taxes, costs and fees, particularly because the funds used to pay the taxes and administration fees will always be in custodia legis of the Court. In re Prudential Ins. Co. of Am. Sales Practices Lit., 962 F. Supp. 450, 557 (D.N.J. 1997) (class members can evaluate the settlement fairness without advance notice of the manner in which additional remediation disbursements will be allocated), aff'd, 148 F.3d 283 (3d Cir. 1998).

Certain Class Members also object to the manner in which the Stipulation allocates settlement benefits, asserting that benefits should be allocated per capita, not based on Overall Premium Limits. Class action settlement benefits may be allocated by counsel in any reasonable or rational manner because "allocation formulas . . . reflect the comparative strengths and values of different categories of the claim." In re Nasdaq Market-Makers Antitrust Litig., 2000 WL 37992, at *2 (S.D.N.Y. Jan. 18, 2000) ("An allocation formula need only have a reasonable, rational basis, particularly if recommended by 'experienced and competent' Class Counsel.") (citations omitted); see also Maley, 186 F. Supp.2d at 367 (same). "As with other aspects of settlement, the opinion of experienced and informed counsel [on appropriate allocation] is entitled to considerable weight." In re American


(Opinion page 39

Bank, 127 F. Supp.2d at 430.

In this case, the pro rata allocations provided in the Stipulation are not only reasonable and rational, but appear to be the fairest method of allocating the settlement benefits. The parties' negotiated plan of allocation recognizes that Class Members had differing maximum limits on the amounts of insurance that could be underwritten on their account, and also that Class Members underwrote with Lloyd's for differing lengths of time. Class Members who underwrote larger amounts of insurance over a greater number of years clearly are more likely to have had greater dollar amounts of premiums deposited in, and claims paid from, the LATF; if liability and damages were established, such Class Members would be expected to have suffered greater losses in proportion to their greater financial exposure. The detailed overall premium limit calculations in Exhibit J to the Stipulation appropriately recognize these differences in allocating settlement benefits. See Maley, 186 F. Supp.2d at 367 (approving allocation plan that had rational basis and was "devised by experienced plaintiffs' counsel who are familiar with the relative strengths and weaknesses of the potential claims of Class Members"); see also In re Oracle Sec. Litig., No. C-90-0931-VRW, 1994 WL 502054, at *1 (N.D. Cal. June 18, 1994) ("A plan of allocation that reimburses class members based on the extent of their injuries is generally reasonable.") (citing In re Gulf Oil/Cities Serv. Tender Offer Litig., 142 F.R.D. 588, 596 (S.D.N.Y. 1992)).  


(Opinion page 40)

By contrast, a per capita distribution would treat all Class Members the same, regardless of the amounts of their funds passing through the LATF over the years. See In re Painewebber Litig., 171 F.R.D. at 129 ("'[T]here is no rule that settlements benefit all class members equally,' . . . as long as the settlement terms are 'rationally based on legitimate considerations.'") (quoting In re "Agent Orange" Prod. Liab. Litig., 611 F. Supp. 1396, 1411 (E.D.N.Y. 1985)). An equal allocation of settlement benefits would award a windfall to the Class Members with less substantial investments.

A number of the objections are based on misinformation or failure to read the notice and some of the objections are based on the hope that recovery in this litigation against Citibank would recoup all the market losses the Names suffered from underwriting at Lloyd's regardless of what caused the losses. These objections, however, improperly assume that Plaintiffs' alleged losses and damages have already been proven. Such objections are therefore entitled to no weight, because it is inappropriate to assume in the context of approval of a settlement that liability has been shown or that Plaintiffs have "lost" anything. Class Plaintiffs, 955 F.2d at 1291 (court is not to "reach any ultimate conclusions on the contested issues of fact and law which underlie the merits of the dispute, for it is the very uncertainty of outcome in litigation and avoidance of wasteful and  


(Opinion page 41)

expensive litigation that induce consensual settlements" (citing Officers for Justice, 688 F.2d at 625 ("The proposed settlement is not to be judged against a hypothetical or speculative measure of what might have been achieved.")). Lloyd's and its related entities are not subject to suit in the United States, and this action concerned solely whether Citibank had breached its fiduciary duty as trustee of the LATF.

Some objectors contend that fair settlement consideration should be at least $160 million, calculated on 10 percent of an unsupported projection that the Class' damages could be $1.6 billion. However, liability or damages at trial is far from certain. See Grinnell, 495 F.2d at 455 n.2 ("there is no reason, at least in theory, why a satisfactory settlement could not amount to a hundredth or even a thousandth part of a single percent of the potential recovery"). Indeed, under the damages theory most likely to govern Plaintiffs' claims, the $20 million in cash and credit notes provided by the proposed settlement is fair and adequate.

The Grinnell Factors Are Satisfied

This action involves complex issues of fact and law that involve significant risk for the Names in establishing Citibank's liability to the Class. In order to succeed, Plaintiffs would have to show that Citibank breached its fiduciary duties to the Names for whom it acted as a trustee by, among other things, (a) failing  


(Opinion page 42)

to abide by the terms of the LATD; (b) failing to inform the trust beneficiaries of information that Citibank allegedly knew but the Names allegedly did not know, about massive impending losses resulting from asbestos and pollution liabilities; and (c) selfdealing. Plaintiffs would also need to refute Citibank's argument that it (a) acted in accordance with the terms of the LATD, (b) complied with all directions it received from Lloyd's, as it was required to do by the LATD; (c) did not breach any duties owed to any Name; and that (d) no Name suffered any damages by virtue of Citibank's conduct.

The course of discovery in this action and other actions pending in England has established that some of the allegations underlying areas of Plaintiffs' action are difficult to support. For example, the allegations concerning Citibank's role in the conspiracy to recruit people to be Names at Lloyd's and knowledge of the impending losses attributable to asbestos claims have been found to be tenuous. Roger Bradley ("Bradley") alleged in the English litigation that Citibank knew that Lloyd's faced substantial asbestos insurance claims in the near future which would render Lloyd's insolvent and would necessitate the recruitment of additional Names to shoulder the liability. His testimony was seriously impeached and other attempts to obtain evidence of such knowledge through formal discovery and informal investigation have been unsuccessful.  


(Opinion page 43)

The only substantial claim for the Plaintiffs' alleged breach of fiduciary duty turned on Citibank's administrative duties as trustee. Citibank admitted that it opened group accounts rather than accounts for individual Names and that when it faced a group account with a negative balance, monies were taken from group accounts with positive cash balances and that Inter-Name Lending occurred. Citibank also admitted that it followed Lloyd's instructions with regard to paying liabilities from certain group accounts.

However, damages and loss causation remain problematic. Notwithstanding the asserted failure of Citibank to adhere to the technical terms of the trust deed, it is not clear that such activity caused any particular Name any economic injury. The Inter-Name Lending, colloquially referred to as the "robbing Peter to pay Paul" scenario, was found to have occurred, but the investigation has indicated that the accounts were handled in a commercially appropriate manner and may have benefitted the solvent group accounts. The borrowing which occurred between the accounts was recorded in Citibank's records, and the accounts from which the monies were borrowed were repaid and credited with a favorable rate of interest (prime plus 500 basis points). The account reconciliations and crediting of interest occurred on a daily basis. Prior to implementing R&R, this process was reviewed and verified to ensure that each account was accurate. Thus it


(Opinion page 44)

appears that no solvent group account suffered any economic injury. Citibank might be able to move successfully for a directed verdict claiming that Plaintiffs had failed to carry the burden of showing causation of damages. The allegations in this case concern transactions in the LATF dating back to its inception in 1939. Over the many ensuing years, Citibank received millions of instructions from Lloyd's in the normal course of administering the LATF. The difficulty of sorting through these many transactions and documents and their implications, if any, for each Class Member, would be multiplied by the critical role that Lloyd's and the agents played in providing instructions to Citibank and in maintaining records of Class Member transactions and balances. See Lloyd's II, 1998 WL 50211, at *14.

Whether the allegation that Citibank breached its fiduciary duty to Class Members by extending unauthorized and unsound Inter-Name Loans could even apply to a particular Class Member depends on whether the Class Member was a member of a syndicate that was a net "lender" or "borrower" -- a determination that would "require[] detailed analysis of what was done with each Name's funds." Lloyd's II, 1998 WL 50211, at *14. "Since each Name may have participated in several of the more than 400 Lloyd's syndicates in any given year in which that Name underwrote at Lloyd's, this analysis [would be] a significant undertaking." Id.  


(Opinion page 45)

The determination of damages, like the determination of liability, is a complicated and uncertain process, typically involving conflicting expert opinions. The reaction of a jury to such complex expert testimony is highly unpredictable. Expert testimony about damages could rest on many subjective assumptions, any one of which could be rejected by a jury as speculative or unreliable. Conceivably, a jury could find that damages were only a fraction of the amount that Plaintiffs contended. As the only surviving claim in this action was a breach of fiduciary duty claim against Citibank, the Settlement amount was premised on a disgorgement of trustee fees theory, i.e., the amount of fees Citibank received for services rendered to the Class Members as the trustee of the LATF.

The number of Names at Lloyd's was in excess of 32,000. following R&R, the number of Names eligible to participate as Class Members had dropped to approximately 1,500. Through individual settlements between Lloyd's and Names during the pendency of the action, the number of Class Members dropped to less than 1,400 (approximately 4.4% of all Names). Discovery has shown that Citibank's total fee for acting as trustee of the LATF during the class period was approximately $75,000,000. Citibank might well be entitled to offset any disgorgement of its fees with a claim for quantum merit compensation for those duties it did adequately perform for its beneficiaries. Moreover, there was no evidence  


(Opinion page 46)

that Citibank's ministerial failings caused the trust assets to be depleted or that Citibank benefitted itself at the expense of Class Members, or that Citibank acted in a faithless or malicious manner, or had insider information about the impending asbestos losses other than the Bradley allegations. In light of the number of Names who released Citibank from liability and are not entitled to seek disgorgement, the settlement achieved here (which has a value of at least $20 million) is a worthwhile recovery.

Although Plaintiffs had engaged in significant discovery (including the review of approximately 1.8 million pages of documents from Citibank's files, and thousands of documents obtained through Plaintiffs' investigation), significant additional discovery would need to be taken, including additional depositions of Citibank and its representatives; depositions of key third party witnesses, such as representatives of Lloyd's which would likely have to occur in the United Kingdom; and expert designation and expert discovery. In addition, Citibank's expected motion for summary judgment would have to be briefed, argued and overcome, a pretrial order would have to be prepared, proposed jury instructions would have to be submitted and motions in limine would have to be filed and argued.

Even if Plaintiffs overcame the significant risks of receiving nothing at trial, any judgment likely would be appealed. See Maley, 186 F. Supp.2d at 362 ("Summary judgment motions were  


(Opinion page 47)

possible, extensive trial preparation was inevitable, and postjudgment appeals were highly likely. All of the foregoing would have extended the case and delayed the ability of the class to recover for years."). Settlement at this juncture results in a substantial and tangible present recovery, without the attendant risk of appeal and delay of trial and post-trial proceedings.

The "ability of the defendant to pay," a consideration courts sometimes use to justify a relatively small settlement with a defendant with limited resources, is not a factor that played any role in the negotiation of the Settlement with Citibank. Plaintiffs have alleged that Citibank breached its fiduciary duty by failing to inform Class Members concerning impending losses from asbestos and pollution liabilities. Even assuming that Citibank had such advance knowledge, which it has denied, and further assuming that Citibank, as trustee of the LATF, had some duty to advise each Name on the prudence of the syndicates he or she joined, or the wisdom of every underwriting decision made by such syndicates, individual questions concerning whether particular Class Members knew or should have known about these risks from other sources, and thus knowingly accepted those underwriting risks, would need to be determined. See Lloyd's II, 1998 WL 50211, at *14.  


(Opinion page 48)

In the meantime, Lloyd's could be expected to attempt to attach any judgment rendered by this Court before it could reach the hands of the Class. All the while, the time and expense of Plaintiffs' counsel would steadily increase, risking a further diminution of the Class' ultimate recovery. Maley, 186 F. Supp.2d at 362 ("The expenses of continued litigation would further burden any recovery obtained for the class, that is assuming Plaintiffs recovered more than the settlement now before the Court, if they were to recover at all.").

The complexity, expense and likely duration of further litigation strongly support approval of the proposed settlement. See id. ("Settlement at this juncture results in a substantial and tangible present recovery, without the attendant risk and delay of trial. These factors weigh in favor of the proposed Settlement."); Klein v. PDG Remediation, Inc., No. 95 Civ. 4954, 1999 WL 38179, at *2 (S.D.N.Y. Jan. 28, 1999) (complexity, expense and likely duration of litigation favored settlement that "offer[ed] Class Members the benefit of immediate recovery as opposed to an uncertain award several years from now").

Under the second Grinnell factor, courts examine any objections to determine whether the absence of substantial opposition to the settlement supports its fairness and adequacy. See In re Sumitomo Copper Litig., 189 F.R.D. at 281 ("absence of substantial objections . . . strongly favors approval of the


(Opinion page 49)

proposed settlements"); Maywalt v. Parker & Parsley Petroleum Co., 864 F. Supp. 1422, 1429-30 (S.D.N.Y. 1994) (objections should be examined to shed light on the assessment of the overall adequacy of the settlement), aff'd, 67 F.3d 1072 (2d Cir. 1995). In addition, "it is well established that a settlement can be fair notwithstanding a large number of objectors." Grant v. Bethlehem Steel Corp., 823 F.2d 20, 23 (2d Cir. 1987) (collecting cases).

Indeed, "even 'majority opposition to a settlement cannot serve as an automatic bar to a settlement that a district judge, after weighing all the strengths and weaknesses of a case and the risks of litigation, determines to be manifestly reasonable.'" County of Suffolk v. Long Island Lighting Co., 907 F.2d 1295, 1325 (2d Cir. 1990) (quoting TBK Partners, 675 F.2d at 462 (2d Cir. 1982)); see also In re Nasdaq, 187 F.R.D. at 479 ("Although each objection must be evaluated on its merits, the primary concern . . . is to compare the terms of the proposal with the likely rewards of litigation."). In this case, nowhere near a majority of Class Members have objected to the proposed settlement. To the contrary, objections have been filed by a relatively modest minority of the Class. In its preliminary order, the Court required all objections to the settlement to be filed with the Court and served on the parties no later than August 12, 2002. Out of the approximately 1,350 Class Members, only 239 -- or less than 18 percent -- have submitted objections. This relatively low number of objections itself supports approval of the settlement. See, e.g., In re  


(Opinion page 50)

Nasdaq, 187 F.R.D. at 479 (citing Stoetzner v. U.S. Steel Corp., 897 F.2d 115, 118-19 (3d Cir. 1990) (fact that only 10% of class objected "strongly favors settlement") and Boyd v. Bechtel Corp., 485 F. Supp. 610, 624 (N.D. Cal. 1979) (fact that only 16% of class objected deemed "persuasive" of settlement's adequacy)); see also Grant, 823 F.2d at 24 (settlement approved despite opposition by 36% of the class because there is "no reason why a settlement cannot be considered fair despite opposition . . . [of] significantly less than half of the class").

Also, of the 53 Names who originally requested exclusion from the Class in 1998 and who are still eligible for Class membership, 18 of them, or 34 percent, have timely submitted requests to rejoin the Class and participate in the Settlement pursuant to the opt-in opportunity provided under the proposed settlement. Of these 18, two also submitted objections to certain features of the proposed settlement. And notably, 88 individuals who had never requested exclusion from the Class -- and who therefore did not need to submit opt-in requests expressing their decision to participate in the Settlement -- submitted such requests anyway. These facts further demonstrate the Class' support for approval of the Settlement. See In re Corrugated Container Antitrust Litig., MDL No. 310, 1981 WL 2093, at *14-15 (S.D. Tex. June 22, 1981) (small percentage of objectors and significant number of opt-outs who opted back in after receipt of settlement notice supported approval of settlement), aff'd, 659


(Opinion page 51)

F.2d 1322 (5th Cir. 1981).

Although some of the objections filed in this case have been vigorously asserted, this Court has a fiduciary duty to protect all Class Members -- including the silent majority who have not voiced any objections to the Settlement. See Grant, 823 F.2d at 23 ("[T]he mere fact that the only class members expressing opinions regarding the settlement were a vocal minority opposing it does not alter the district court's discretion in approving the settlement or its duty to protect the interests of the silent class majority . . ."). Further, where the objections that are voiced are based on improper assumptions or otherwise flawed arguments, such lack of credible opposition counsels in favor of approving the settlement. See In re Nasdaq, 187 F.R.D. at 479 ("an objection based on an assertion or argument not readily supportable at trial should not be permitted to bar settlement").

Based upon the consideration of the objections, the Grinnell factors, and the Stipulation, the proposed settlement is fair and adequate.

The Attorneys' Fees Are Approved

Courts have long recognized that where, as here, a class plaintiff successfully recovers a fund, the costs of litigation should be spread among the fund's beneficiaries. Under this  


(Opinion page 52)

"equitable" or "common fund" doctrine established more than a century ago in Trustees v. Greenough, 105 U.S. 527 (1882), attorneys who create a common fund to be shared by a class are entitled to an award of fees and expenses from that fund as compensation for their work. See Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980); Mills v. Elec. Auto-Lite Co., 396 U.S. 375 (1970).

In Lindy Bros. Builders, Inc. v. Am. Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir. 1973) (Lindy I), aff'd in part, vacated in part, 540 F.2d 102 (3d Cir. 1976) (en banc) (Lindy II), the Court of Appeals for the Third Circuit applied the socalled "lodestar" analysis to a common fund case. In applying that analysis, a court first calculates a lodestar by multiplying the number of hours expended by plaintiffs' counsel in litigating the case by their reasonable hourly rates. That result is then adjusted by a "multiplier" to reflect such factors as the results obtained, the risks involved, the contingent nature of the fee, quality of the work performed, and public policy considerations. The lodestar approach was adopted by the Second Circuit shortly after the Lindy II decision. Grinnell, 495 F.2d at 471.

Chief Judge Aldisert of the United States Court of Appeals for the Third Circuit, the author of Lindy II, convened a task force of prominent judges and practitioners to reconsider the lodestar method because "a number of difficulties [had] been  


(Opinion page 53)

encountered." Court Awarded Attorney Fees, Report of the Third Cir. Task Force, (Arthur F. Miller, Reporter), reprinted in 108 F.R.D. 237 (3d Cir. 1985) (the "Task Force Report"). The Task Force Report identified at least nine perceived deficiencies of the lodestar approach. Consequently, the Task Force concluded that that approach need not be followed in common fund cases and that fee awards in common fund cases should be based on a percentage of recovery. Id. at 254-59.

Indeed, many courts have held that the percentage approach is a permissible method for determining attorneys' fees in common fund cases. See, e.g., Blum v. Stenson, 465 U.S. 886, 900 n.16 (1984). In recent years, many Circuit courts have approved the percentage-of the fund method. See, e.g. In re Thirteen Appeals Arising out of the San Juan DuPont Plaza Hotel Fire Litig., 56 F.3d 295, 307 (1st Cir. 1995); In re GMC, 55 F.3d at 821-22; Rawlings v. Prudential-Bache Props., Inc., 9 F.3d 513, 515-17 (6th Cir. 1993); Gottlieb v. Barry, 43 F.3d 474, 487 (10th Cir. 1994); Camden I Condo Ass'n v. Dunkle, 946 F.2d 768, 774 (11th Cir. 1991); Swedish Hosp. Corp. v. Shalala, 1 F.3d 1261, 1271 (D.C. Cir. 1993).

Although the law in this Circuit has not been uniform, and both the lodestar and percentage of the fund methods are available to the district courts within the Second Circuit, the Second Circuit has held that it is within the discretion of the district court to determine whether to apply a percentage of the


(Opinion page 54)

recovery or a lodestar analysis. Goldberger v. Integrated Res., Inc., 209 F.3d 43, 50 (2d Cir. 2000). This Court has previously found that the percentage approach is appropriate in a class action common fund context. In re Nasdaq, 187 F.R.D. at 484 ("there is strong support for the percentage approach from district courts in this Circuit"). See also In re American Bank Note, 127 F. Supp.2d at 431 ("the trend of the district courts in this Circuit is to use the percentage of the fund approach."); In re Sumitomo, 74 F. Supp.2d at 397 ("Courts increasingly have come to recognize the shortcoming of the lodestar/multiplier method as a universal rule for compensation."); Chatelain v. Prudential-Bache Sec., Inc., 805 F. Supp. 209, 215 (S.D.N.Y. 1992) ("This Court declines to apply the lodestar method, and instead favors the use of the straight percentage of recovery method"); In re RJR Nabisco, Inc. Sec. Litig., No. 88 Civ. 7905, 1992 U.S. Dist. LEXIS 12702, at *18 (S.D.N.Y. Aug. 24, 1992); In re Gulf Oil, 142 F.R.D. at 596-97.

The percentage method directly aligns the interests of the class and its counsel and provides a powerful incentive for the efficient prosecution and early resolution of litigation, which clearly benefits both litigants and the judicial system. The percentage approach is also the most efficient means of rewarding the work of class action attorneys, and avoids the wasteful and burdensome process -- to both counsel and the courts -- of preparing and evaluating fee petitions, which the Third Circuit Task Force described as "cumbersome, enervating, and often


(Opinion page 55)

surrealistic." Task Force Report, 108 F.R.D. at 258. See also In re Union Carbide Corp. Consumer Prods. Bus. Sec. Litig., 724 F. Supp. 160, 170 (S.D.N.Y. 1989); In re "Agent Orange", 611 F. Supp. at 1306 (criticizing lodestar approach as one that "tends to encourage excess discovery, delays and late settlements, while it discourages rapid, efficient and cheaper resolution of litigation"), aff'd in part, rev'd in part, 818 F.2d 226 (2d Cir. 1987).

Further, the percentage approach most closely approximates the manner in which private litigants compensate their attorneys in the marketplace contingency fee model:

[A] percentage-of-the-fund approach more accurately reflects the economics of litigation practice. The district court in Howes v. Atkins, 668 F. Supp. 1021 (E.D. Ky. 1987), noted that "plaintiffs' litigation practice, given the uncertainties and hazards of litigation, must necessarily be result-oriented. It matters little to the class how much the attorney spends in time or money to reach a successful result." Id. at 1025.

Swedish Hosp., 1 F.3d at 1269. See also In re Sumitomo, 74 F. Supp.2d at 397 (nothing that the percentage approach is "uniquely the formula that mimics the compensation system actually used by individual clients to compensate their attorneys."); In re RJR Nabisco, 1992 U.S. Dist. LEXIS 12702, at *18-19.

The requested amount of attorneys' fees, which includes  


(Opinion page 56)

expenses, approximately $4,350,000 in cash from the cash settlement fund, plus $1,300,000 in credit notes, representing approximately 28% of the total settlement consideration, is consistent with awards made in similar cases. In this district alone, there are scores of common fund cases where fees alone (i.e., where expenses are awarded in addition to the fee percentage) were awarded in the range of 33-1/3% of the settlement fund). See, e.g., Maley, 186 F. Supp.2d at 370 (awarding 1/3 of settlement fund); Newman v. Caribiner Int'l Inc., No. 99 Civ. 2271 (S.D.N.Y. Oct. 19, 2001) (awarding 33 1/3% of an all cash $15 million settlement); Lemmer v. Golden Books Family Entm't Inc., No. 98 Civ. 5748 (S.D.N.Y. Oct. 12, 1999) (awarding 1/3 of settlement fund); Maywalt v. Parker & Parsley Petroleum Co., 963 F. Supp. 310, 313 (S.D.N.Y. 1997), aff'd sub nom.; Olick v. Parker & Parsley Petroleum Co., 145 F.3d 513 (2d Cir. 1998); Moelis v. Hyperion Capital Mgmt. Inc., No. 94 Civ. 3328 (S.D.N.Y. Oct. 16, 1997) (awarding 1/3 of settlement fund); In re JWP, Inc. Sec. Litig., No. 92 Civ. 5815 (S.D.N.Y. Jan. 24, 1997) (awarding 1/3 of settlement fund); In re In-Store Adver. Sec. Litig., No. 90-CIV 5594 (S.D.N.Y. Dec. 18, 1996 (33 1/3%); In re SLM Int'l, Inc. Sec. Litig., No. 94 Civ. 3327 (S.D.N.Y. July 23, 1996 (33 1/3%); In re Columbia Sec. Litig., No. 89 Civ. 6821 (S.D.N.Y. Feb. 15, 1995) (awarding fees of $8,333,333 or one-third of the settlement fund); In re Wedtech Sec. Litig., No. M21-46, MDL 735 (S.D.N.Y. July 30, 1992) (granting fee award of $17,650,000.00, or one-third of the settlement fund); In re Allstar Inns Sec. Litig., No. Civ. A. 88CIV 9282, 1991 WL 352491 (S.D.N.Y. Nov. 20,  


(Opinion page 57)

1991) (35%); Baron v. Commercial & Indus. Bank of Memphis, No. 75 Civ. 1274, 1979 U.S. Dist. LEXIS 9380, at *18 (S.D.N.Y. Oct. 3, 1979 (awarding 36% of $900,000 settlement).

The Second Circuit recently addressed the issue of fee awards in class action litigation where a common fund has been created. In Goldberger, 209 F.3d at 44-45, the Second Circuit authorized the award of attorneys' fees to plaintiffs' counsel in a class action on either the percentage or lodestar approach, and affirmed a district court's discretion to award fees to plaintiffs' counsel on the lodestar method which award amounted to less than 4% (or about $2.1 million in fees) of the total recovery of four separate settlements aggregating over $54 million. However, in Goldberger, the district court had found, at the outset that the case was almost certain to produce a large recovery from the defendants. Id. at 54-55. This conclusion was based upon the district court's findings that, among other things, counsel had benefitted from the work done by the federal authorities during both criminal and civil actions brought against certain of the defendants, the claims involved no novel issues of law and the case was generally without risk. The Second Circuit agreed with the lower court's assessment that the case was a low risk case. Id. at 53-55.

The facts of this particular litigation, therefore, make it closer to Maley than Goldberger. Maley, 186 F. Supp.2d at 371- (Opinion page 58)

74; see also Steiner v. Williams, No. 99 Civ. 10186, 2001 U.S. Dist. LEXIS 7097, at *18-19 (S.D.N.Y. May 31, 2001) (awarding 30% because plaintiffs' argument was "novel and risky" and because "counsel took a tremendous risk that, in the end, nothing would be recovered.").

The requested fee award is also reasonable based on a cross-check of the percentage award against counsel's lodestar. Plaintiffs' counsel collectively spent in excess of 8,030 hours in performance of their services on behalf of the class. The cumulative lodestar at current hourly rates for the services performed by all Plaintiffs' firms is $2,614,830.75.

The fee requested here represents a multiplier of just 2.09[ftnote 8] to the cumulative lodestar of all plaintiffs' firms. Under the lodestar method, a multiplier is typically applied to the lodestar in recognition of the contingency risk as well as other factors. Steiner, 2001 U.S. Dist. LEXIS 7097, at *19 (noting that the risk of success has been identified as the foremost factor in determining whether to award a fee enhancement); Weseley v. Spear, Leeds & Kellogg, 711 F. Supp. 713, 716 (E.D.N.Y. 1989) ("The most significant factor in the calculation of an upward adjustment is  


8 The 2.09 multiplier is calculated using the face value of the requested credit noted ($1,300,000) and the requested cash ($4,350,000) less the litigation expenses ($193,665.77), for a total fee of $5,456,334.30, divided by the lodestar amount $2,614,830.75.  


(Opinion page 59)

the risk of the litigation.").

This Court approved a multiplier of approximately 3.97 in In re Nasdaq, 187 F.R.D. at 489, noting the Honorable Leonard B. Sand's observation that "[i]n recent years multipliers of between 3 and 4.5 have become common." Rabin v. Concord Assets Group, Inc., [1991-92 Transfer Binder] Fed. Sec. L. Rep. (CCH) p.96,471 (S.D.N.Y. 1991) (applying a 4.4 multiplier), quoting O'Brien v. National Property Analysts, 88 Civ. 4153, TR P. 72 (S.D.N.Y. July 27, 1989); see, e.g., Roberts v. Texaco, Inc., 979 F. Supp. 185, 198 (S.D.N.Y. 1997) (5.5 multiplier); In re RJR Nabisco, 1992 U.S. Dist. LEXIS 12702, at *15-16 (6 multiplier). Much higher multipliers have been awarded as well. See, e.g., Weiss v. Mercedes-Benz of N.Am., Inc., 899 F. Supp. 1297, 1304 (D. N.J. 1995) (awarding fee that resulted in a multiplier of 9.3 times hourly rate), aff'd, 66 F.3d 314 (3d Cir. 1995); Glendora Cmty. Redevelopment Agency v. Demeter, 202 Cal. Rptr. 389, 398-99 (App.2d Dist. 1984) (12 times lodestar). See also Cosgrove v. Sullivan, 759 F. Supp. 166-67 n.1 (S.D.N.Y. 1991) (multiplier of 8.74 based on $1 million fee against lodestar of $114,398).

Here, the resulting multiplier of 2.09 is at the lower end of the range of multipliers awarded by courts within the Second Circuit. See Maley, 186 F. Supp.2d at 368-69 (finding a multiplier of 4.65 to be within the range in this Circuit).  


(Opinion page 60)

The courts of this Circuit, including this district, have expressly recognized that the contingent nature of counsel's fee, with the built-in risk of litigation, is a highly relevant factor in determining the fee to be awarded. As the Grinnell court stated:

No one expects a lawyer whose compensation is contingent upon his success to charge, when successful, as little as he would charge a client who in advance had agreed to pay for his services, regardless of success. Nor, particularly in complicated cases producing large recoveries, is it just to make a fee depend solely on the reasonable amount of time expended.

495 F.2d at 470-71 (citing Cherner v. Transitron Elec. Corp., 221 F. Supp. 55, 61 (D. Mass. 1963)). See also Steiner, 2001 U.S. Dist. LEXIS 7097, at *19; In re "Agent Orange", 818 F.2d at 236; In re Union Carbide, 724 F. Supp. at 164 ("[C]ontingent fee risk is the single most important factor in awarding a multiplier"); In re Warner, 618 F. Supp. at 747 ("Numerous cases have recognized that the attorneys' contingent fee risk is an important factor in determining the fee award.").

Taking into account the significant complexity of the issues, the magnitude of the action, and the risks of this litigation and contingent nature of the fee, the amount sought by Plaintiffs' counsel is certainly reasonable. The result achieved and the quality of the services


(Opinion page 61)

provided are also important factors to be considered in determining the amount of reasonable attorneys' fees under a lodestar/multiplier analysis. See, e.g., Hensley v. Eckerhart, 461 U.S. 424, 436 (1983) ("[M]ost critical factor is the degree of success obtained"); Behrens v. Wometco Enters. Inc., 118 F.R.D. 534, 547-48 (S.D. Fla. 1988) ("The quality of work performed in a case that settles before trial is best measured by the benefit obtained"), aff'd, 899 F.2d 21 (11th Cir. 1990); In re Warner, 618 F. Supp. at 748-49. Plaintiffs' counsel include some of the best known and highly regarded firms in class action litigation.

Plaintiffs' counsel were faced with formidable opposition in this action. Citibank was represented by two of the country's leading law firms. That Plaintiffs' counsel were able to obtain a substantial settlement of the action from Citibank is additional confirmation of the quality of their representation in this matter, and is another important factor for the Court to consider in determining the reasonableness of Plaintiffs' fee request. See, e.g., In re Warner, 618 F. Supp. at 749; In re Computron Software, Inc., 6 F. Supp.2d 313, 323 (D. N.J. 1998).

A review of the percentages and the multipliers awarded in other similar class action litigations, the complexity, magnitude and risks of this litigation, and the contingent nature of the fee, the result achieved for the Class given the status of the action, the quality of the representation by Plaintiffs'  


(Opinion page 62)

counsel, as well as public policy, establish that the fee request of approximately 28% of the settlement fund is fair and reasonable and should be awarded by the Court.

It is so ordered.

New York, NY _________________________

November 26, 2002 ROBERT W. SWEET


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