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IN RE FOLDING CARTON ANTITRUST LITIGATION

February 17, 1983

IN RE FOLDING CARTON ANTITRUST LITIGATION.


Before Robson and Will, District Judges.

  MEMORANDUM OPINION

The folding carton antitrust litigation involved an alleged conspiracy on the part of the various defendants, all manufacturers of folding cartons, to fix prices in violation of the Sherman Act. Among the civil cases consolidated in this district for pretrial proceedings, see 28 U.S.C. § 1407, were several nationwide class actions on behalf of a certified class of direct purchasers of various types of folding cartons. On September 19, 1979, prior to trial, the class actions settled. The settlement was the result of a so-called "global agreement" under which all defendants contributed a total amount of roughly $200,000,000 to a settlement fund for ultimate distribution in accordance with an agreed-upon "plan of distribution."

In our order approving the settlement — on the basis of our finding that it was fair, reasonable and adequate — we retained jurisdiction "for all purposes related to the administration and distribution of the settlement funds." See Pretrial Order No. 60. Although the cases have long been closed, the matter is before us again pursuant to that retained jurisdiction. Several motions have been filed by a few former class members whose claims were paid relating to the disposition of approximately $6 million in the reserve fund established to pay late claims and to meet various expenses and contingencies associated with the distribution of the settlement fund.

Also pending is the motion of two former class members to vacate certain administrative orders approving payments from the reserve fund of attorneys' fees and expenses associated with the administration of the settlement fund. These two former class members, Cumberland Farms Dairy, Inc. and Pantry Pride Enterprises, Inc., also seek, through depositions to be taken pursuant to subpoenas duces tecum, to obtain access to records relating to those fees and expenses.

For the reasons which follow, we deny all motions filed by certain former class members and by certain settling defendants for distribution of the reserve fund, either to the former class members and/or to the settling defendants, respectively. We approve the recommendation of the Folding Carton Administration Committee that any reserve funds remaining after all valid claims and expenses have been paid be utilized for research into possible techniques for maximizing competition and preventing or detecting and stopping violations of the antitrust laws or other anticompetitive activity. To that end, we direct the Committee, subject to our approval as to the charter, by-laws, directors, officers and procedures, to establish a foundation to be called "The Antitrust Development and Research Foundation" and to transfer the interest hereafter earned on the reserve fund to the foundation from time to time as it accrues. Finally, we direct that the remaining principal be transferred to the foundation one year from the date hereof. The Administration Committee is also directed to propose steps to locate former class members who have not previously filed claims and assist them in making properly substantiated claims against the reserve fund. The motion of the former class members Cumberland Farms Dairy, Inc. and Pantry Enterprises, Inc. to vacate administrative orders authorizing payment from the reserve fund of administrative fees and expenses is denied and the subpoenas duces tecum are quashed.

The Settlement and Distribution

The approximately $200,000,000 settlement of these class actions was, at the time of its approval, unprecedented in amount. The complaints had alleged an ongoing conspiracy on the part of the defendants to fix prices and to conceal the existence of the conspiracy which allegedly spanned the years 1960 to 1974. Billions of dollars worth of purchases of folding cartons were involved. And settlement negotiations — undertaken by appointed attorneys for the plaintiff class with the assistance of the Court — were in progress almost from the beginning of the litigation.

The global settlement which we ultimately approved was the result of separate agreements entered into by attorneys for the plaintiff class with each of the various defendants. Each agreement provided that the settling defendant was to pay its settlement share into an escrow fund, the interest on which was to be retained in the fund; identical Escrow Agreements were entered into with each settling defendant. The settlement papers established no basis for calculating the class members' shares or for distributing the settlement funds and it was understood at the time that a mechanism for pro rata distribution based on class members' purchases would have to be developed. The parties agreed, and we ordered, that no distribution of the funds be made without an order of Court.

The Escrow Agreements recited that the settlement funds were "irrevocabl[y]" transferred for the purpose of satisfying the defendants' possible liabilities and that the defendants had the right to return of the deposited funds only in the case of termination or invalidity of the settlement. Paragraph 11 of the Escrow Agreements — the only paragraph in the Agreements regarding defendants' possible future interest in the fund — provided:

  No Settling Defendant shall have any right, title or
  interest to any portion of the principal or interest
  of the Fund until such time as such Settling
  Defendant, pursuant to the settlements and this
  Agreement, shall receive return of its contribution
  to the Fund upon withdrawal from or termination of
  the Settlements.

None of the contingencies which would have generated an interest of the settling defendants in the escrow funds ever materialized.

The proponents of the settlement, representatives of the plaintiff class, formulated and proposed a plan of distribution of the settlement fund which they submitted together with their memorandum in support of the proposed settlement. The plan of distribution, to which we agreed, was described in the following terms:

  Plaintiffs propose that the distribution to class
  members be made on a claims made basis. Each
  participating class member would be required to
  submit a claim to the Court for approval which would
  consist of its highest four years of folding carton
  purchases from defendants during the 1960-1974
  period. Record substantiation would be required for
  each claim, except that where records for less than
  four years exist an estimate could be provided for
  the missing years. . . . Each claimant will recieve
  [sic] a share of the Fund based upon the claimants'
  allowed purchases as they relate to the Fund, after
  deduction of attorneys' fees, costs, administration
  expenses and reserves ordered by the Court.

Memorandum of Class Plaintiffs in Support of The Proposed Settlements and Proposed Plan of Distribution at 69.

As an appendix to their Memorandum in Support of the Settlement, the class attorneys suggested a form of Notice of Hearing on the proposed settlement and plan of distribution. We approved the form and, prior to the September 13, 1979 hearing on the adequacy of the settlement, see Fed.R.Civ.P. 23(e), that form together with an approved claim form was forwarded to all the putative members of the plaintiff class. The recipients of these materials were approximately 6,000 direct purchasers of folding cartons who could be identified from defendants' customer and sales lists.

The class notice described the approximate amount of the settlement and the plan of distribution. In pertinent part it provided:

  Subject to Court approval, proposed settlements in
  the aggregate principal amount of $199,616,051 have
  been reached with all of the defendants in the case.
  Inclusive of interest, it is estimated that the Fund
  will be $218 million as of January 2, 1980. These
  figures are before any deduction for attorneys' fees,
  costs and administrative expenses and reserves which
  may be ordered by the Court.
    THE PROPOSED PLAN OF DISTRIBUTION OF THE SETTLEMENT
  FUND. On July 9, 1979, plaintiffs submitted to the
  Court a proposed Plan of Distribution of the
  Settlement Fund. This proposed Plan of Distribution
  has been approved by all of the active class
  representatives and their attorneys, and has been
  preliminarily approved by the Court subject to
  modification or final approval after the hearing
  commencing on September 13, 1979. The proposed Plan
  of Distribution provides that:
    (a) All class members desiring to participate in
  the Fund must submit their claims on the Claim Form
  which accompanies this Notice.
    (c) The allowed claims of all class members will be
  totalled.
    (d) Each claimant will receive a share of the Fund
  based upon the claimant's allowed purchases for any
  four years from 1960 to 1974 inclusive, as they
  relate to the Fund, after deduction of attorneys'
  fees, costs, administrative expenses and reserves
  ordered by the Court as more fully described in the
  Claim Form which accompanies this Notice.

The class notice also contained an emphasized waiver provision which stated:

    ANY CLASS MEMBER WHO DOES NOT MAKE ITS OBJECTION,
  IF ANY, TO THE PROPOSED SETTLEMENTS, THE PROPOSED
  PLAN OF DISTRIBUTION, OR THE ATTORNEYS' FEES, COSTS,
  ADMINISTRATIVE EXPENSES, AND RESERVES IN THE MANNER
  SET FORTH IN THIS NOTICE, SHALL BE DEEMED TO HAVE
  WAIVED SUCH OBJECTION. [Emphasis added.]

The attached claim form advised each plaintiff how to estimate the amount of its recovery. It contained the following instructions:

    ESTIMATE OF YOUR RECOVERY. For purposes of the
  computation of your recovery, `Total Defendants'
  Sales' shall mean the sum of $4,701,604,000,
  representing the total sales of folding cartons for
  the period of 1971-1974 by all of the defendants, and
  `Net Fund' shall mean the sum of $199,367,285,
  representing the estimate of the Fund as of an
  estimated January 2, 1980 distribution date,
  including an estimate of interest earned and minus an
  estimate for attorneys' fees and costs and
  administrative expenses and reserves. To estimate the
  approximate amount of your recovery from the proposed
  settlements, make the following calculation: First,
  divide your total purchases for the four years shown
  on the Claim Form by Total Defendants' Sales and then
  multiply the resulting percentage by the Net Fund.
  The actual amount of your recovery will vary to some
  extent from the amount obtained by such calculation
  as a result of the following factors:
    (a) Any particular claimant may submit a Claim Form
  for four years different than 1971-1974. Therefore,
  Total Defendant Sales for purposes of the calculation
  may be more or less than the sum of $4,701,604,000
  referred to above.
    (b) Certain class members may decide not to submit
  any Claim Form, which would tend to reduce the amount
  of Total Defendants' Sales for purposes of the
  calculation and increase your recovery.
    (c) A portion of the claims submitted may be
  disallowed by the Court upon notice.
    (d) On the date of distribution, the Net Fund may
  be more or less than the estimate of $199,367,285,
  depending on the actual amount of interest earned to
  the date of distribution, the valuation of the
  Federal Paper Company, Inc. notes and warrants, and
  the actual attorneys' fees, costs, administrative
  expenses and reserves ordered by the Court.

Prior to the hearing on the settlement, expert opinion was received on the fairness of the proposal. The class plaintiffs' expert estimated that the overcharge attributable to defendants' illegal activity was 3.6% of the selling price on defendants' total sales during the four year period 1971-1974, the period which formed the basis for the settlements. Using the $4.7 billion total sales estimate, total single damages were calculated at $169,200,000. The Court's impartial expert viewed the overcharge rate as approximately 2.6% of the total sales price, yielding an estimated total single damages amount of $122,200,000.

The benefit of the settlement to the plaintiff class is fairly, if rather glowingly, described in the Report of the Folding Carton Fee Committee, an appendix to Pretrial Order 61A, which approved the awards of fees and expenses to the plaintiff class attorneys. The Pretrial Order and its appendix are reported at In re Folding Carton Antitrust Litigation, 84 F.R.D. 245, 254 (N.D.Ill. 1979):

    The settlement was the largest dollar settlement in
  the history of class action litigation at the time it
  was made, and is the highest [antitrust] settlement
  ever achieved as a percentage of single damages,
  i.e., 118% [of the estimated damages to the total
  class]. Compared to settlements approved as fair,
  adequate and reasonable in other cases the result is
  outstanding. For example, in Newman v. Stein,
  464 F.2d 689 (2d Cir. 1972), the Court approved a
  settlement representing 14% of potential recovery; in
  City of Detroit v. Grinnell Corp., 356 F. Supp. 1380,
  1386 (S.D.N.Y. 1972), aff'd, 495 F.2d 448 (2d
  Cir. 1974), the Court approved a settlement amounting
  to 9-11% of estimated damages; in In Re Four Seasons
  Securities Law Litigation, 58 F.R.D. 19, 37
  (W.D.Okla. 1972), the Court approved a settlement of
  less than 8% of estimated damages; in Helfand v. New
  America Fund, Inc., 64 F.R.D. 86, 92 (E.D.Pa. 1974),
  the Court approved a settlement of 5% of damage
  claims filed; in In Re Sugar Antitrust Litigation,
  MDL 201 (N.D.Cal.), the Court approved partial
  settlements of 30.90%, 54.02%, and 47.90% of
  estimated damages for four years; in Dorey Corp. v.
  E.I. duPont de Nemours and Co., 426 F. Supp. 944, 947
  (S.D.N.Y. 1977), the Court approved a final
  settlement of approximately 55% of estimated damages;
  in Mersey v. First Republic Corp. of America, 43
  F.R.D. 465, 1967-69 CCH Fed.Sec.L.Rep. ¶ 92,304, p.
  97, 422 (S.D.N.Y. 1968), the Court approved a 5-10%
  final settlement; and in In Re Anthracite Coal
  Antitrust Litigation, 79 F.R.D. 707 (M.D.Pa. 1978),
  the Court approved a final settlement of 28% of
  estimated damages for four years.
    The $35,000,000 [footnote omitted] offered by
  defendants on March 24, 1977 to settle this
  litigation amounted to 20% of single damages and was
  within the range of settlements approved by other
  courts, indicated above.
    The amount should also be viewed in the context of
  the statute of limitations defense, which in
  antitrust actions is four years. The conspiracy
  alleged in the complaints terminated in mid-1974. The
  government indictments were returned in February,
  1976. The four year statute, applicable if fraudulent
  concealment could not be proved for earlier periods,
  would go back to February, 1972, leaving only
  approximately two years and nine months vulnerable to
  damage, [sic] claims, absent fraudulent concealment.
  The $200 million settlement then can be described as
  more than 200% of single damages for two years and
  nine months.

It was clearly understood that the principal amount of the settlement fund — $199,616,051 at the time of our approval of the settlement — was subject to deductions for "attorneys' fees, costs and administrative expenses and reserves which may be ordered by the Court." In fact, however, because of profitable investment of the fund as settlements were reached and added to the fund, the actual amount eventually distributed substantially exceeded the total amount of the individual settlements. The aggregate of fees and expenses which we approved was less than the interest earned on the fund and left a balance of more than $8,000,000 in interest available for distribution in addition to the principal of the settlement fund. Thus, after appointment of an Administration Committee to review the documentation and validity of class members' claims against the fund and after recommendations by that Committee with respect to each submitted claim, distribution of some $206,000,000 in cash and in notes and warrants of one of the defendants was made to over 2,500 claimants who filed claims which were satisfactorily substantiated. Distributions to a total of approximately 75 class members who filed properly substantiated late claims were subsequently made out of the reserve fund as follows: $1,548,909 in September 1980; $298,696 in 1981; and $72,627 in 1982. In all, distribution payments have been made to approximately 2,632 class members who filed valid claims based on approximately $3.6 billion in purchases, or roughly 77% of the total estimated $4.7 billion in purchases for the relevant period. The figures indicate that 97% of the total available funds, exclusive of class attorneys' fees and costs, were paid to these claimants. Thus, those who filed valid claims have already received 163% of their provable single damages using the plaintiffs' expert's 3.6% damage estimate, or 174% of single damages if the 2.6% damage estimate of the Court's expert is used.

Because of the very large amount in the settlement fund as well as the large number of claims against the fund, the Administration Committee's review and audit of the claims filed was, obviously, a substantial undertaking. The Administration Committee, with our approval, engaged Touche Ross & Co. as accountants to assist in the review and audit of the claims; Analytical Computer Services, Inc. to provide computer services and procedures; LaSalle National Bank to maintain custody of the funds; and Harris Associates to act as investment advisors. Beginning shortly after the approval of the settlement, the Administration Committee, assisted by these technical advisors, began the extensive process of reviewing the submitted claims and conducting individual negotiations with many of the approximately 2,700 class claimants.

As a result of the review, the purchases allowed for purposes of computation of the pro rata shares in the distribution was reduced by over 25% — from over $4,800,000,000 in claimed purchases to approximately $3,900,000,000 of allowed purchases. Thus, the effect of the review and audit process was to distribute to valid class claimants an additional approximately $54,000,000 of the settlement fund. The Administration Committee was also responsible, with the Court's approval, for investment decisions concerning the fund during the interim between its deposit in escrow and its distribution to those class members who filed properly ...


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