ALVIN K. HELLERSTEIN, UNITED STATES DISTRICT JUDGE.
By my Memorandum and Order of November 8, 1999, I granted summary judgment to plaintiff, ordering that defendant indemnify plaintiff with respect to the Christensen Class Action claim. I invited the parties to submit briefs and affidavits on the extent of the indemnification that defendant would be required to pay. Having now read and considered those submissions and discussed the issues with the parties, I hold that a triable issue is presented, that a substantial portion of the settlement appears to have been primarily attributable to Conopco's concerns about the willful quality of its conduct and otherwise extraneous to its indemnification obligations, and that a jury will have to resolve those issues.
The parties rejected my suggestion that their motions for summary judgment under Rule 56 be treated as a tender of issues for trial by the court under Rule 52 of the Federal Rules of Civil Procedure.
Imperial Chemical Industries PLC ("ICI"), the defendant, agreed to indemnify Conopco, Inc., the plaintiff, and to hold it harmless against "any liability, loss . . . claim, cost or expense" arising out of the "operations or business or properties" of Stauffer Chemical Company. Conopco, the former owner of Stauffer, had sold Stauffer to ICI. The covenant to indemnify by ICI was part of the consideration paid by ICI to Conopco.
I referred to Conopco as "CPI" in my decision of November 8, 1999.
The indemnification provision was subject to an exception: "except for any liability . . . primarily attributable to . . . the willful misconduct or gross negligence of seller or its affiliates."
I held, in my November 8, 1999 decision, that Conopco's settlement of the class claims of Stauffer's terminated employees (the Christensen Class Action claims) was, generally, an indemnifiable "liability, loss . . . claim, cost or expense" arising from the terms of the [Stauffer] employee benefits plan itself." (Conopco, Inc. v. Imperial Chemical Industries PLC, 97 Civ. 5529, 1999 WL 1021077, *6 (S.D.N.Y. November 8, 1999)). However, the parties had not briefed whether the "quality of [Conopco's] breach", although not affecting "the legal measure of damages" (Id.), "may [have] affect[ed] the amount paid in settlement because of, for example, its unwillingness to expose itself to the public opprobrium of a trial. (Id.) I invited the parties to present facts showing if the settlement price paid by Conopco was "increased by, and . . . was primarily attributed to, the willful quality of CPI's behavior. (Id.)
Having considered the submissions, I find that the degree to which the settlement amount was increased by willful misconduct of Conopco is a material fact issue requiring trial.
The law governing the settled claims was the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1101, et seq. Under ERISA, a participant or beneficiary under a plan may sue to recover benefits denied to such participant or beneficiary. Id., § 1132(a). Stauffer had such a plan, and Christensen, and the employees who constituted the class for whom he sued, were such participants or beneficiaries. They properly brought suit, and the rulings in Judge Cabranes' decision in the Rabin case and in Judge Nevas' decisions in the Christensen case made it clear that the Christensen claimants were probably entitled to the double severance benefits provided by the plan, that they had standing under ERISA to bring suit, and that their suit had been timely brought within the applicable period of limitations.
Rabin v. Chesebrough-Pond's Inc., Civil No. B-88-171 (D.Conn., June 26, 1991) (unpublished). Judge Cabranes, after a six-day trial, found that plaintiff was entitled to receive change-in-control benefits under Chesebrough's Severance Plan equivalent to twice his 1986 salary and bonuses of $195,150 (finding no. 121), that he had already been paid $150,000 representing his 1986 salary (Id.), and that Chesebrough's defense, that double severance is not payable if an employee is notified before a change in control that he will be terminated after the change in control, was without basis in fact or law. (Id., nos. 122-133).
Christensen v. Chesebrough-Pond's, Inc., Civil No. 5-92-Cv-727, (D.Conn. Nov. 24, 1993) (unpublished) (Connecticut's six-year statute of limitations governs; action held timely brought).
Christensen v. Chesebrough-Pond's, Inc., 862 F. Supp. 22 (D.Conn. 1994). Judge Nevas held that Christensen, as an employee of Stauffer, Chesebrough's subsidiary, was a "participant" in the Chesebrough Plan and that Chesebrough was an "employer", that Christensen therefore had standing to sue under ERISA, and that Christensen could maintain a suit under ERISA for unpaid benefits that he claimed were owed to him even though he had already received severance pay from Stauffer.
Under ERISA, a participant or beneficiary may sue to recover benefits due to him that were wrongfully withheld. 29 U.S.C. § 1132 (a)(1)(B). In addition, claimants may recover a reasonable attorney's fee and the costs of suit. Id. § 1132(g). Punitive damages are not recoverable. See Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 144 (1985). Thus, the quality of defendant's conduct, whether willful or grossly negligent or just improper — is irrelevant under ERISA. And since ERISA preempts state law, Id., § 1144(a); Ingersoll-Rand Co. v. McClendon, 498 U.S. 133 (1990), the quality of breaching conduct is irrelevant under state law as well.
The conduct of a wrongdoer may, nevertheless, affect a settlement. As I observed in my November 8, 1999 decision, "the legal measure of damages" may not always govern a party's stance in settlement negotiations. Indeed, that seems to have been the case here.
Frank H. Cjajkowski, Conopco's in-house labor and employment counsel responsible for the litigation, and Scott R. Lucas, Conopco's counsel of record in the Christensen litigation, submitted affidavits testifying that they estimated Conopco's maximum exposure at approximately $3.3 million as of January 1993, and, in April and May of 1995, fixed $1.7 million as the maximum Conopco would pay in settlement, (Cjajkowski aff't Dec. 17, 1999, §§ 3-4; Lucas aff't, Dec. 17, 1999, § 6). They submitted, further, that in negotiations counsel for Christensen and the Class demanded $2.75 million, then, as negotiations proceeded, $1.725 million, $1.495 million and, finally, $1.3 million. (Id. Cjajkowski, § 5). Cjajkowski submitted that Conopco remained firm at the maximum price that had been set, and plaintiff agreed to the final, approved settlement price of $1.298 million. (Id., § 6) Cjajkowski and Lucas state firmly that no consideration was given by Conopco, either in fixing the settlement authorization or in the negotiations, or in anything having to do with the settlement, or in its desire to settle, to any aspect of willful conduct or grossly negligent conduct. (Id. Cjajkowski, § 4; Lucas, §§ 7-8). Cjajkowski and Lucas maintain in their affidavits that the settlement was advantageous to both Conopco and ICI.
The record of discovery, as ICI's rebuttal shows, tells a different story. Lucas' fair estimate of exposure, ICI submits, is not what he now says, but is reflected in his contemporary writing on June 14, 1994 to Luke Mette, Esq., ICI's in-house attorney. Lucas estimated in that letter a maximum exposure of the Christensen class' double-severance claims to be $1.6 million, plus "the potential for doubling . . . if a willful violation of ERISA is found," plus estimated counsel fees of $250,000 — $350,000 — that is, a total exposure "in the range of $3.5 million." (Mette aff't, Jan. 13, 2000, Ex. A. p. 2). In other words, the settlement value set by Lucas and Cjajkowski of $3.3 million in January 1993 reflected, according to his letter to Mette 18 months later, an approximate doubling to account for willfulness.
This concern may have been unwarranted, for, as already discussed, ERISA does not provide for the imposition of punitive damages. Nevertheless, the question that remains is whether the allegedly willful misconduct of Conopco actually increased the settlement amount, not whether Conopco's attorneys would have been correct in considering it a factor in their negotiations.
Mr. Cjajkowski's deposition testimony suggests that his and Lucas' exposure estimate was considerably lower — $900,000. (See Aff't, Richd. D. Batchelder, Jr., Jan. 13, 2000, § 3, attaching Cjajkowski dep'n, Aug. 11, 1998, pp 234-37). Mr. Cjajkowski and Mr. Lewis considered that they might be able to discount this estimate by half in negotiation with plaintiff, taking into account the value of various relevant defenses. (Id). In the negotiations with plaintiffs that followed, however, Lucas and Cjajkowski appeared not to test any area below $900,000. Instead, the negotiations were defined by plaintiffs' terms, beginning at $2.75 million and receding by stages until the agreed number of $1.298 million was reached. ICI argues, reasonably, that the settlement area above $900,000 reflected Conopco's sensitivity to its alleged willful behavior, and that a jury may so infer, not only with respect to the approximate $400,000 difference between $900,000 and the $1.298 million settlement price but, in addition, an additional hypothetical amount assuming some success in negotiating below the exposure estimate of $900,000 posited by Cjajkowski and Lucas. I therefore find that whether Conopco engaged in willful misconduct in denying the double severance claims, and to what extent such willful misconduct increased the amount of the Class Action settlement, are material fact issues for trial.
In my Memorandum and Order of November 8, 1999, I wrote: "Since CPI's liability for double severance benefits did not result from willful misconduct, it appears that summary judgment in favor of plaintiff is appropriate." Conopco, 1999 WL 1021077 at *6. This language should not be understood as a finding that Conopco engaged in no willful misconduct, but is instead a recognition that Conopco's legal obligation to pay double severance benefits was not affected by the quality of its conduct, willful or otherwise.
ICI submits, also, that several members of the Christensen class were non-Stauffer employees who were not covered by ICI's indemnification covenant. These non-Stauffer class members, approximately four-to-eight according to ICI's papers (ICI Submission, Nov. 30, 1999, p. 10), were excluded from sharing in the settlement proceeds without adequate explanation. (Id.) ICI argues that a fair amount of the settlement should be allocated to them, and deducted from Conopco's claim. Conopco rejects Conopco's argument, arguing that these excluded individuals had already been paid severance and were not within the coverage of the settlement class. (CPI Response to ICI Nov. 30 Submission, p. 9) I hold that a triable issue is presented.
The settlement class was defined as individuals "(a) who were salaried employees of defendant Chesebrough-Pond's, Inc. . . . or one of its subsidiaries in 1986; (b) who were participants in the Severance Pay Plan (or Plans) adopted by Chesebrough . . . (c) whose last day worked with Chesebrough or one of its subsidiaries was on or after December 31, 1986 and on or before December 31, 1988; [and] (d) who received or should have received severance compensation and benefits pursuant to their applicable Severance Pay Plan. . . ." (Fourth Batchelder aff't, Nov. 30, 1999, Exs. 1, 2). The pay-out, however, provided uneven payments among the class. (Id.) According to Cjajkowski's notes and the Notice of Proposed Settlement, each of the five named plaintiffs first was to receive a payment of $7,500 for assuming the risks of litigation. (Id., Exs. 1, 3). Next Christensen, as lead plaintiff, was to receive full payment of his claim; and, finally, the other class members were to receive pro rata payments of the net settlement proceeds in an unquantified amount, implicitly less than their full entitlements but not less than the $7,500 already mentioned. (Id.). Cajajkowski calculated that based on the aggregate "actual claim . . ., using ICI figures" of $1,550,000, the estimated recovery of each class member would be "50%+" of their full entitlements, and noted that six "CPI" employees (additional to the 45 ex-Stauffer employees) would be excluded because they had "made separate deals". (Id., Ex. 3). This plan was reflected in the order of the Court, providing that the net sum after the payments to Christensen, the other class representatives, and the plaintiffs' law firms, quantified as $753,100, was to be distributed to the class members, pro rata, "based on each member's full change in control severance entitlement pursuant to [Conopco's] Severance Pay Plan." (Id., Ex. 2, p. 3).
The issue, whether some portion of the settlement payment should be allocated to class members who were excluded, is not sufficiently clear to be decided on this record. It seems strange that a settlement could be unevenly distributed among similarly situated class members, so that one member (Christensen) is paid in full; others (the other class representatives) receive a bonus; and still others, who presumably were counted as part of the class before settlement, come to be excluded from the settlement. An attorney for a class is a fiduciary for all, and must treat all alike. See In re "Agent Orange" Product Liability Litigation, 800 F.2d 14, 18 (2d Cir. 1986). Conopco has the burden to show a principled basis why some members who began as part of the Christensen class should end up without a recovery, and why a portion of the payment requested of ICI should not be allocated to this group.
ICI's submissions make additional arguments. ICI criticizes the reasoning upon which my Memorandum and Order of November 8, 1999 was based, in effect seeking reconsideration. I reject that argument. ICI also contends that since Conopco should have paid the claims of the class when they were first presented, and since an interest component of the settlement payment should be imputed, that interest component should be considered primarily attributable to Conopco's willful conduct and excluded from indemnity coverage. I reject that argument as well. As I noted in my November 8, 1999 decision, ICI willingly joined in opposing payment of the Christensen and Christensen class claims and in forcing continuing litigation, and ICI cannot complain that interest accrued in the meantime.
The parties shall meet with me on April 4, 2000 at 4:00 p.m. to discuss the issues to be tried, the relevant proofs, and to fix a date for trial.
SO ORDERED.