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IN RE SYNTHROID MARKETING LITIGATION

August 4, 2000

IN RE SYNTHROID MARKETING LITIGATION


The opinion of the court was delivered by: Elaine E. Bucklo, United States District Judge.

  MEMORANDUM OPINION AND ORDER

Synthroid is a synthetic version of levothyroxine sodium, one of several levothyroxine drugs used to treat thyroid disorders. There are eight million users of such drugs in the United States. The market for these drugs is $600 million a year. Synthroid had 70-90% of this market in the period at issue in this case. Consumers and third party payors filed this class action lawsuit against Knoll Pharmaceutical Company (the manufacturer of Synthroid), BASF Corp., Boots Pharmaceuticals, and individual defendants, alleging that they concealed or suppressed information about cheaper bioequivalent drugs, falsely represented that there were no equivalents, and charged individual consumers and their insurers more than they would have been able to if the correct information had been known, in violation of federal antitrust and racketeering laws and state fraud statutes. The various claims were consolidated before me under the multi-district litigation statute, and I certified two classes, one of consumers and one of third party payors. I rejected an earlier settlement for reasons explained in In re Synthroid Marketing Litig., No. 97 C 6017, M.D.L. 1182, 1998 WL 526566 (N.D. Ill. Aug. 17, 1998) (unreported opinion). The parties now propose a new settlement that they believe substantially corrects the defects I identified there. Because I agree, I grant final approval to the new or Second Settlement.

I.

The terms of the Second Settlement are these. There is a fund established by the defendants in connection with the First (rejected) Settlement that now contains about $106.4 million (the $98 million initially deposited in December 1997 plus interest) The defendants will add an additional $1 million to that existing fund. The consumer class, in exchange for a release from the third party payors of claims for subrogation, reimbursement, and other specified claims, will transfer $20 million to the third party payor class settlement fund. In addition to the $1 million supplement to the existing fund, the defendants will pay an extra $25.5 million to the third party payor class fund, for a total of $45.5 million. The third party payor class recovery will be divided pro-rata based on the number of covered lives per insurer as of January 1995, roughly the mid-point of the class period.

The consumer class settlement fund is the remaining balance, $87.4 million. In exchange for releasing the defendants from liability for claims associated with fraud and anticompetitive behavior as regards the substitutibility of equivalent thyroid medicines, the consumers will be free from any claims against their shares of the settlement being lodged by the third party payors.

The defendants will also pay over $45 million to the states' attorneys general, and, over the next five years, about $27 million in cy pres remedies to the pharmacy industry. The settlement is administered by Gilardi & Co., L.C.C. (the "administrator"), which makes disbursements and handles disputes, and has managed at least 40 settlements in the past 14 years.

Notice has been provided in a number of ways: about 450,000 consumers were notified by direct mail, providing them with a tollfree 1-800 number and a website with frequently asked questions, claims forms (both electronic and paper), and other information.*fn1 In addition, the administrator and class counsel devised an "attorney call center," a secure website through which class members can contact class counsel and receive callbacks from actual human beings.

Finally, counsel for the third party payor classes has asked for attorneys' fees in the amount of about 22% of the class settlement funds (principal amount plus interest), as well as for expenses, and the consumer class counsel asks for 29% of the consumer settlement amount, plus costs, all of which I reduce to a more reasonable rate, as explained below.

II.

Federal courts naturally favor the settlement of class action litigation. E.E.O.C. v. Hiram Walker & Sons, Inc., 768 F.2d 884, 888-89 (7th Cir. 1985). Because of "the potential for a collusive settlement, a sellout of a highly meritorious claim, or a settlement that ignores the interests of minority class members," I have a "heavy duty to ensure that any settlement is fair, reasonable, and adequate." Piambino v. Bailey, 757 F.2d 1112, 1139 (11th Cir. 1985); see also Isby v. Bayh, 75 F.3d 1191, 1196 (7th Cir. 1996). I do find the Second Settlement to be fair, reasonable, and adequate for the reasons explained below.

In evaluating the reasonableness and adequacy of the settlement, it is useful to restate my concerns about the earlier settlement. I was concerned that under the First Settlement "a substantial part — perhaps the greater part. . . of the settlement fund may be paid to a different class [than the consumers]." 1998 WL 526566, at *2. That is no longer the case: under the Second Settlement, the third party payors' settlement is about half the size of the consumer class settlement. I was also concerned that the number of claims, in theory as many as 5 million, was unknown, and it was unclear how much the consumer class members might receive — perhaps less than $13 a person. Id. Now the actual distribution to the approximately 778,000 consumer settlement class members with potentially valid claims who have filed will be at least $84 for each claimant who bought Synthroid before 1995 and $55 for those who bought it starting in 1995 — or more, because I have reduced the attorneys' fees; that is at least two years of the price differential between Synthroid and its cheaper competitors.*fn2 Moreover, I was unhappy with the notice provided in the First Settlement — essentially mass audience major publications — which I thought uninformative, unenlightening, and unhelpfully terse. Id. While notice to a very large class is always a problem, the direct mailings, toll-free 1-800 numbers, websites, and the attorney call center are reasonable steps, and no one has proposed anything that would be demonstrably better here. I was also unhappy with the attorneys' fees, and I still am, but I can use my discretion to adjust the figures to a more reasonable level, and I have done so here.

III.

In assessing the fairness, reasonableness, and adequacy of a class action settlement, I consider: (1) the strength of the plaintiff's case on the merits measured against the terms of the settlement; (2) the complexity, length, and expense of continued litigation; (3) the degree of opposition to the settlement; (4) the presence of collusion in gaining a settlement; (5) the opinion of competent counsel as to the reasonableness of the settlement; and (6) the stage of the proceedings and the amount of discovery completed. General Electric Capital Corp v. Lease Resolution Corp., 128 F.3d 1074, 1082 (7th Cir. 1997)


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