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SCHOLES v. STONE

December 21, 1993

STEVEN S. SCHOLES, Receiver, et al, Plaintiffs,
v.
STONE, McGUIRE & BENJAMIN, et al., Defendants.


ALESIA


The opinion of the court was delivered by: JAMES H. ALESIA

In this action, a Receiver for Michael S. Douglas ("Douglas"), D&S Trading Group, Ltd. ("D&S"), Analytic Trading Systems, Inc. ("AT Systems"), Analytic Trading Service, Inc. ("AT Service"), and Market Systems, Inc. ("MSI") and a certified class of plaintiffs brought claims against defendants Stone, McGuire & Benjamin ("SMB"), Howard L. Stone ("Stone") and Michael L. Siegel ("Siegel") (collectively "the SMB defendants") and Rosenthal & Schanfield, P.C., William P. Rosenthal and Leslie J. Weiss ("the R&S defendants") arising from fraud perpetrated by Douglas. The extensive facts of the case are set out in prior opinions of this court. See Scholes v. Stone, McGuire & Benjamin, 786 F. Supp. 1385, 1387-92 (N.D. Ill. 1992) (disposition on motion to dismiss). Also currently pending, before Judge Norgle of this court, is the related case entitled Agnes v. Weis, No. 91 C 5880 ("the Agnes case"), involving numerous plaintiffs against the SMB defendants and the R&S defendants based on the same facts. After three years of litigation, all plaintiffs in this case and the Agnes case have reached a proposed settlement agreement with the SMB defendants. Under the Settlement Agreement, plaintiffs will be paid $ 2.9 million from an insurance policy issued by CNA, the insurance carrier for the SMB defendants. One of the many provisions of the settlement agreement requires that the court bar any claims for contribution the R&S defendants may ultimately have against the SMB defendants. The R&S defendants object to this provision. Presently before this court is the class plaintiffs' Motion for Final Approval of Settlement.

 On November 15, 1993, this court held a hearing at which all class members were given an opportunity to object to the proposed settlement and at which the R&S defendants were given an opportunity to object to the provision barring all contribution claims. No class member objected to the terms of the settlement. R&S presented no witnesses in support of their objections. R&S did, however, submit voluminous written materials in opposition to the settlement agreement.

 The court has examined all the materials submitted by the parties. Among the factors which the Court considered in judging the fairness of the proposed Settlement Agreement are the following:

 
(1) the strength of the case for plaintiffs on the merits, balanced against the amount offered in settlement;
 
(2) the defendant's ability to pay;
 
(3) the complexity, length and expense of further litigation;
 
(4) the amount of opposition to the settlement;
 
(5) the presence of collusion in reaching a settlement;
 
(6) the reaction of members of the class to the settlement;
 
(7) the opinion of competent counsel; and
 
(8) the stage of the proceedings and the amount of discovery completed.

 Armstrong v. Board of School Directors, 616 F.2d 305, 314 (7th Cir. 1980) (discussing "district court review of a class action settlement proposal" and noting that the first factor, the strength of plaintiffs' case on the merits balanced against the settlement offer, is generally regarded as the most important). After reviewing all relevant evidence of all the parties, the court made the following findings of fact and conclusions of law. For the following reasons, the class plaintiffs' Motion for Final Approval of Settlement is granted.

 FINDINGS OF FACT

 I. Matters Considered/Evidentiary Rulings

 1. In considering whether the Settlement Agreement should be approved as required by its terms, the Court has considered the entire record in this case, including all of the submissions by the parties with respect to Plaintiffs' Motion for Final Approval; the financial information submitted by the Settling Defendants in camera as required by this Court on November 11, 1993; and the information submitted by the R&S defendants in camera with respect to the terms of a proposed settlement of the claims against Leslie Weiss and Rosenthal & Schanfield, P.C. in the Agnes case. Furthermore, this Court is substantially familiar with this case based on its involvement in numerous hearings, class certification, contested motions, pretrial conferences, and settlement conferences.

 2. The Court also has taken into account the views of the Securities Exchange Commission (the "SEC"). At the fairness hearing on November 15, 1993, Laura Ramsey, an attorney representing the SEC, appeared and advised the Court that the staff of the SEC believes that final approval should be given to the Settlement Agreement in accordance with its terms.

 3. Each of plaintiffs, the Settling Defendants and the R&S Defendants submitted voluminous materials in connection with the motion for final approval of the Settlement Agreement. The R&S Defendants contend that a limited number of the materials submitted by plaintiffs may not be admissible at a trial on the merits. In deciding whether final approval should be given to the Settlement Agreement, the Court considered the evidentiary objections asserted with respect to these materials, together with the representations by each of the parties who submitted them to the effect that these materials: (a) reflect the record developed during the course of this and related litigation; and (b) constitute the factual bases upon which plaintiffs and the Settling Defendants considered, evaluated, and agreed to the Settlement Agreement, and upon which the R&S Defendants object to the entry to a settlement bar order as called for in the Settlement Agreement.

 4. These findings and conclusions are made for the purposes of deciding whether the Settlement Agreement should receive final approval and whether a settlement bar order should be entered. The Court is not ruling on the admissibility of any evidence which may be proffered at a trial, or making any other findings or conclusions. See Carson v. American Brands, Inc., 450 U.S. 79, 88 n.14, 101 S. Ct. 993, 998-99 n.14, 67 L. Ed. 2d 59 (1981) (when determining the fairness of a proposed compromise, the court does not "decide the merits of the case or resolve unsettled legal questions").

 5. None of the parties proffered any witnesses at the hearing conducted on November 15, 1993, and each party stated its intention to rest on its written submissions notwithstanding the Court's order permitting witnesses to be called.

 6. The opinion of Class counsel to the effect that the Settlement Agreement is fair, reasonable, and adequate has been considered by the Court only insofar as it discharges the obligations of counsel under Rule 23 of the Federal Rules of Civil Procedure. The Court finds that Class counsel is competent and experienced in these matters, based in part on the Court's observations during the course of this litigation. In making the findings set forth herein with respect to whether the Settlement Agreement should be approved ...


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