The opinion of the court was delivered by: Judge Robert W. Gettleman
MEMORANDUM OPINION AND ORDER
In July 2011, the court certified a settlement class under Fed. R. Civ. P. 23(b)(3) and preliminarily approved the settlement agreement in this class action, arising out of AIG's alleged scheme of fraudulently underreporting workers compensation premium, the complex procedural and factual history of which this court's previous opinions describe in some detail.*fn1 Notice of this action and the proposed settlement was sent to 1,346 class members in accordance with the court-approved plan, pursuant to Fed. R. Civ. P. 23(c)(2)(B) and (e)(1). Only three related class members-Liberty Mutual and two of its subsidiaries, Safeco and Ohio Casualty-objected to the settlement agreement,*fn2 and just one-RLI Insurance Company-requested to be excluded from the class.
The proposed settlement agreement factors in approximately $375 million in economic damages (and interest), plus an additional $75 million, for a total of $450 million, allocated to the class members based on their participation in the market. The proposed settlement agreement's terms allow AIG to terminate the agreement if any potential class member with one percent or more of the class fund's allocation-other than Liberty and any of its affiliates, subsidiaries, divisions, or units (such as Safeco and Ohio Casualty)-elects to exclude itself from the class, or if potential class members-again excluding the Liberty companies-that together add up to at least five percent of $450 million elect to opt out.
In addition to the proposed settlement agreement, AIG has entered into a Regulatory Settlement Agreement ("RSA") with the states, conditioned on approval of the instant class action settlement by December 31, 2011. Under that agreement, AIG will pay the states $100 million in penalties and $46,507,385 in back taxes and assessments, and has agreed to reform its workers compensation reporting.
On November 29, 2011, the court held a final fairness hearing pursuant to Fed. R. Civ. P. 23(e)(2), and on December 21, 2011, the court held a hearing on the parties' various fee petitions. The next day, the court entered an order that granted final approval of the settlement (but stayed that ruling pending the court's determinations of fees and issuance of this memorandum opinion), granted Settlement Class Plaintiffs' first, second, and third interim fee petitions, granted Settlement Class Plaintiffs' petition for incentive fee awards, granted in part Liberty Mutual's fee petition, and granted in part Safeco and Ohio Casualty's fee petition.*fn3
I. Final Approval of the Settlement
"Federal courts naturally favor the settlement of class action litigation." Isby v. Bayh, 75 F.3d 1191, 1196 (7th Cir. 1996). But the court may not approve a settlement that binds class members unless it finds, after a hearing, that the settlement is "fair, reasonable, and adequate." Fed. R. Civ. P. 23(e)(3); e.g., Williams v. Rohm and Haas Pension Plan, 658 F.3d 629, 634 (7th Cir. 2011).*fn4 Whether a settlement is "fair" requires comparing class members against each other and against similarly situated non--class members. Manual of Complex Litig. § 21.62 (4th ed. 2004). Whether a settlement is "reasonable" calls for analysis of the class's claims in comparison to its terms. Id. Finally, whether a settlement is "adequate" demands assessing the settlement's terms with reference to what the class members might have obtained individually, absent a class action. Id.
In making these three determinations, the court considers five factors: (1) the strength of plaintiffs' case compared to the terms of the proposed settlement; (2) the likely complexity, length and expense of continued litigation; (3) the amount of opposition to settlement among affected parties; (4) the opinion of competent counsel; and (5) the stage of the proceedings and the amount of discovery completed. Synfuel Techs., Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 653 (7th Cir. 2006) (quoting Isby, 75 F.3d at 1199).
The court provisionally performed this analysis in determining that preliminary approval of the settlement was appropriate, and because the parties have not presented materially different arguments this time around, the court's review is more searching but the issues are fundamentally identical.*fn5 As the court concluded at preliminary approval, these five factors all support the court's conclusion that the settlement is fair, reasonable, and adequate.
A. Strength of Plaintiffs' Case Compared to Settlement Amount
The "most important factor" in evaluating a proposed settlement is "the strength of plaintiff's case on the merits balanced against the amount offered in the settlement." In re Gen. Motors Corp. Engine Interchange Litig., 594 F.2d 1106, 1132 n.44 (7th Cir. 1979) (quoted in Synfuel, 463 F.3d at 653). The Seventh Circuit instructs that "[a] district court must take special care in performing this assessment when the proposed settlement evinces certain warning signs." In Synfuel, that was a "settlement bias toward in-kind compensation" (Williams, 658 F.3d at 634 (citing Synfuel, 463 F.3d at 654)); in Mirfasihi v. Fleet Mortg. Corp., 356 F.3d 781, 785 (7th Cir. 2004), it was a "large subset of the class receiving 'a big fat zero' in settlement," Williams, 658 F.3d at 654 (quoting Mirfasihi, 356 F.3d at 785); and in Reynolds v. Beneficial Nat'l Bank, 288 F.3d 277, 283 (7th Cir. 2002), it was strong evidence of collusion between class counsel and the defendant. But here, there is no indication of any similarly suspicious circumstances. To the contrary, the circumstances affirmatively indicate that Settlement Class Counsel-whose fees are based on their standard 2010 hourly rates, not a contingency arrangement-is not selling out the class, and that the class members-who are all insurance companies-are well-positioned to protect their own interests. The class members are in the risk assessment business themselves, and are certainly qualified to weigh the risks of litigation against the benefits of the settlement. This does not mean that the court's role is usurped-but it does mean that the court need not view Settlement Class Counsel's predictions and calculations with the same suspicion that another sort of case might demand.
First, to determine the case's strength, the court is instructed to calculate the "net expected value of continued litigation to the class." Reynolds, 288 F.3d at 284--85. Once the net expected value of litigation is determined, the court proceeds to "estimate the range of possible outcomes and ascribe a probability to each point on the range." Synfuel, 463 F.3d at 653 (citation and quotation marks omitted). Although this might sound like an exact science, the Seventh Circuit recognizes that "a high degree of precision cannot be expected" in these calculations, which are by definition speculative. Instead, courts are to provide a "'ballpark valuation'" of the class's claims. Synfuel, 463 at 653 (quoting Reynolds, 288 F.3d at 285).
At the final fairness hearing, counsel for all parties helpfully devoted a substantial portion of their time to presenting their calculations of the net expected valuation of the class claims. Somewhat less helpfully, however, Settlement Class Plaintiffs and the Objectors disagree on the amount of AIG's underreporting. Thus, their analyses differ in significant and fundamental ways, and those divergent analyses result in vastly different estimates of how much a litigation class could hope to recover. Because courts are instructed to avoid "resolving the merits of the controversy or making a precise determination of the parties' respective legal rights," E.E.O.C. v. Hiram Walker & Sons, Inc., 768 F.2d 884, 889 (7th Cir. 1985), the court is not in a position to resolve the dispute by performing its own analysis and making independent assessments of how much a litigation class's claims would be worth. See Schulte, 805 F. Supp. 2d 560, 582 n.18 (N.D. Ill. 2011) (citing Williams v. Gen. Elec. Capital Auto Lease, No. 94 C 7410, 1995 WL 765266, at *4 (N.D. Ill. Dec. 26, 1995) ("It is neither appropriate nor necessary to resolve the merits of the conflicting positions in the case in order to evaluate the fairness of the settlement.").
But Synfuel does not bar settlement whenever the parties disagree on the value of plaintiffs' claims. If that were the law, objectors could thwart settlement simply by presenting a facially plausible net valuation analysis that contradicts the settlement proponents' predictions. Instead of scrutinizing the merits of the claims, though, the court's role is to ensure that the settlement proponents' analysis is a reasonable one. Here, the court has ample assurances that the analysis is sound, from a number of competent and non-conflicted entities: Settlement Class Plaintiffs (who all sit on the NWCRP Board and have a duty to act in the best interest of all the NWCRP PCs); Settlement Class Counsel; the NWCRP Board's counsel, Locke Lord (who prepared the litigation risk analyses upon which Settlement Class Counsel partially relies); the multistate examiner, David Leslie; and regulators from every state and the District of Columbia, all of whom accepted Leslie's methodology.
Settlement Class Plaintiffs have presented two different analyses of the class claims' worth, under either of which the $450 settlement figure is more than reasonable. First, they point to the analysis performed by David Leslie, the appointed Examiner-in-Charge for the nationwide examination of AIG's workers compensation premium underreporting, in conjunction with actuarial consultants Merlinos & Associates. After a lengthy period of review, meetings, and disagreement, AIG agreed with Leslie and Merlinos' finding that the amount of AIG's underreporting was approximately $2.1 billion. All 51 state insurance regulators approved this conclusion. Next, after considering a variety of damages theories, Leslie and Merlinos determined that a cash flow analysis approach would be the most reliable, in part because other theories depended on legal and factual assumptions that would require extraordinary expenses and protracted litigation to resolve. Having decided that a cash flow damages model provided the most accurate estimate of the actual damages caused by AIG's underreporting, Leslie and Merlinos calculated that the NWCRP's cash flow damages totaled $366,062,346 (including interest), and the NMCRP's cash damages plus interest was $8,620,053, for a total of $374,682,399. Leslie and Merlinos added $75 million to that figure-for a total amount slightly below $450 million-based on their conclusion that AIG had engaged in serious misconduct over a long period and had failed to acknowledge that wrongdoing even after its chief legal officer revealed it to senior management in 1992.
In addition, Settlement Class Plaintiffs offer a second, alternative way to value the class claims: five Litigation Risk Analysis presentations ("LRAs") that Locke Lord created for and presented to their client, the NWCRP Board, over a period of years. The LRAs were not prepared to help effectuate settlement; they constituted counsel's advice to their client, in the ordinary course of litigation, designed to allow the NWCRP Board to make a reasoned decision whether to settle or litigate. The LRAs conveyed the Leslie/Merlinos analysis but also offered alternative damages theories, information obtained from the Objectors' counsel, and Locke Lord's views, informed by the firm's expertise on, for example, the likelihood that the court would certify the litigation class headed by Safeco and Ohio Casualty. They concluded that the expected value of the litigation was somewhere between $343 million and $534 million, with a number of caveats.
These caveats included the possibility that the original litigation class would not be certified, which Locke Lord initially estimated as an insignificant risk but came to see as a 35% likelihood. The certification motion was fully briefed before the instant settlement was reached, and it presented issues that certification of this settlement class (led by different class plaintiffs) did not. E.g., Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997) ("Confronted with a request for settlement-only class certification, a district court need not inquire whether the case, if tried, would present intractable management problems for the proposal is that there be no trial.") (internal citations omitte); see id. at 622 ("settlement is a factor in the calculus" in determining whether certification is proper). This is not the only risk that a litigation class would have faced. Without settlement, the "range of possible outcomes" included a number of highly unfavorable ones, including losing a jury trial, a reversal from the Seventh Circuit, or AIG's successfully asserting an affirmative defense. See Schulte, 805 F. Supp. 2d at 582 ("Absent settlement, Class Members would face the real risk that they would win little or no recovery. What is assured is that any victory would come only after many months (or years) of hard-fought litigation.").
These LBAs, in combination with the Leslie/Merlino analyses, provide the court with more than sufficient information to evaluate the strength of the litigation class's claims. The Seventh Circuit next instructs the court to discount the value of the class claims based on possible defense theories. Synfuel, 463 F.3d at 653.In performing this analysis, the court should not evaluate the merits of those defenses. See Schulte, 805 F. Supp. 2d at 582 n.18; see Armstrong, 616 F.2d at 313. AIG has identified several affirmative defenses that it would assert if the case were to proceed. These include: (1) the claims are barred by the doctrine of in pari delicto; (2) the claims are barred by the doctrine of unclean hands; (3) many of the class members knew or should have known about the alleged misconduct within the applicable statute of limitations period; and (4) many of the class members knew or should have known about AIG's underreporting decades ago, and delayed bringing their lawsuit, thereby making it more difficult for AIG to defend itself. Based on the history of this litigation, it is beyond doubt that AIG would mount a vigorous defense that would have resulted in costly, protracted litigation of each of these defenses.
In comparison to the uncertain and unknowable benefits of litigation, the benefits of this settlement agreement to the class are significant. First, as is typical, "a major benefit of the settlement is that Class Members may obtain these benefits much more quickly than had the parties not settled." Schulte, 805 F. Supp. 2d at 583. If the class members were "required to await the outcome of a trial and inevitable appeal, [ ] they would not receive benefits for many years, if indeed they received any at all." AT & T Mobility Wireless Data Servs. Sales Tax Litig., 789 F. Supp. 2d 935, 961 (N.D. Ill. 2011). And here, repose is even more valuable than is typical, because the class members are all part of an industry that has been ravaged by this very litigation for the past half-decade. The viability and integrity of the NWCRP (and NMCRP), which allows employers in the residual market to obtain workers compensation insurance, is a shared concern among all class members. Although it is impossible to ascribe a cash value to this type of benefit, industry-wide peace is certainly valuable to the class members-and to the public. As one of the Settlement Class Plaintiffs stated, "[t]his intercompany warfare has gone on too long already, and has been a drain on money, time, effort, and emotion. This does not benefit the PCs, or the clients they serve and want to serve."
In addition, a monetary value can be ascribed to a related benefit: the fact that the class members will no longer be obliged to pay legal fees and expenses in connection with this litigation. (Due to the indemnification obligations provided in the NWCRP Articles of Agreement, and the NWCRP Board's decision to advance litigation expenses, the NWCRP has advanced the class's attorneys fees and expenses.) As of January 2012, the NWCRP had incurred approximately $47 million in legal fees and expenses in this matter. In 2011, the NWRCP advanced an average of $2 million a month.
And it is not as if the $450 figure is insubstantial. In fact, it is the figure upon which the Leslie/Merlinos analysis landed, and it is in the center of the damages range that Locke Lord estimated. In light of these analyses and the defenses AIG is likely to mount, the net expected value to the class members of litigating their claims through judgment and appeal is not likely to exceed $450 million-and it is eminently possible that the class could recover substantially less, or nothing at all. Given the value of peace to the industry and the speculative nature of any recovery, the settlement figure is certainly reasonable.
B. Likely Complexity, Length, and Expense of Litigation
The likely complexity, length, and expense of trial strongly supports the settlement's fairness, reasonableness, and adequacy. One of the very few issues that have not been vigorously contested is how complex this litigation is. As for length, without a settlement the parties estimate that it will be at least three years before the litigation concludes. Settlement Class Plaintiffs submit that the case "probably will not end until 2015," and the Objectors predict that the case will be ready for trial two years after the discovery stay is lifted-the appeal that would almost certainly follow a jury verdict would likely add at least another year. (In their objections to final approval, however, Safeco and Ohio Casualty claim that "if the case does not settle now, it likely will follow the same course as most other class actions and settle at a subsequent juncture.")
Further, the court has ample evidence with which to evaluate the litigation's expense. Based on the expenses incurred thus far as well as the parties' projections of future expenses should this matter proceed to trial, continuing on the path to trial will be quite costly for the NWCRP. From the inception of the '07 Action to January 13, 2012, the Objectors and Liberty claim to have paid approximately $19,458,003.32 in legal fees and expenses, and the NWCRP incurred (as stated above) around $47 million. As an estimate of fees going forward, the NWCRP spent an average of $2 million a month in 2011. If the NWCRP continued to spend that amount through 2015, the total cost to the NWCRP would approach $100 million.
C. Amount of Opposition to the Settlement
Because, in assessing the settlement's fairness, adequacy, and reasonableness, the court is instructed to act as a fiduciary for the class, a lack of opposition presumably merits minimal weight. But to the extent that this factor serves a valuable function, it is particularly meaningful here, where-as is not typically the case-the class members are all sophisticated insurance companies that been kept apprised of the litigation, the settlement negotiations, and the Objectors' opposition to it.
Out of a class of over thirteen hundred class members, only three (Liberty Mutual, Safeco, and Ohio Casualty) have objected, and just one has excluded itself from the class. Thus, using the number of class members as a metric, there has been almost no opposition to the settlement. This indicates that the class members consider the settlement to be in their best interest. See AT & T Mobility, 789 F. Supp. 2d at 964--65 ("[I]t is illuminative that only a tiny fraction of the Class Members saw fit to opt out or to object."); In re Mexico Money Transfer Litig., 164 F. Supp. 2d 1002, 1021 (N.D. Ill. 2000) (holding that the fact that "99.9% of class members have neither opted out nor filed objections . . . is strong circumstantial evidence in favor of the settlements"), aff'd, 267 F.3d 743 (7th Cir. 2001); Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 101 (2d Cir. 2005) (fact that 18 out of 5 million class members objected weighed in favor of settlement's fairness, when many of non-objecting class members were "large and sophisticated merchants").
The Objectors insist that the court must consider the "amount of opposition" based not on the number of class members who oppose the settlement, but on the amount the opposing class members would recover under the settlement. This measure obviously favors the Objectors, who in the aggregate will receive more than 22% of the settlement amount, but it has no basis in Seventh Circuit law. In fact, the Objectors offer no authority to support this proposition. Even if the percentage of expected recovery were the appropriate metric for the "amount" of opposition, however, the specific objections to this settlement do not cast doubt upon the value of the settlement to the class, for reasons discussed in the preliminary approval order and below. This factor would therefore be entitled to less weight in this case. See 7B Wright, Miller & Kane, Federal Practice and Procedure: Civil § 1797.1, at 77 (3d ed. 2005) (indicating that the weight a court gives to each factor depends on the circumstances of the case); Officers for Justice v. Civil Serv. Comm'n of City & Cty. of San Francisco, 688 F.2d 615, 625 (9th Cir. 1982) ("The relative degree of importance to be attached to any particular factor will depend upon and be dictated by the nature of the claim(s) advanced, the type(s) of relief sought, and the unique facts and circumstances presented by each individual case.").
The Objectors speculate that they stand alone in objecting because other class members have similar concerns but, having read the court's previous opinion certifying the settlement class-in the course of which it addressed and rejected the Objectors' arguments against certifying the settlement class, which are essentially identical to their objections to the settlement-they thought it futile to make similar objections at final approval. This is disingenuous, for two reasons. First, it ignores the fact that the court specifically and unambiguously called for objections to the settlement: "At this point, the only way to gauge any additional opposition is to solicit it by sending notice of the settlement to the class and inviting its members to voice their opinions." AIG, Inc. v. ACE INA Holdings, Inc., Nos. 07 C 2898, 09 C 2026, 2011 WL 3290302, at *7 (N.D. Ill. July 26, 2011). The court made clear that it was not closing the door on entertaining opposition to the settlement, noting that "it is premature to fully assess this factor" at preliminary approval. Id. (citing AT & T Mobility Wireless Data Servs. Sales Tax Litig, 270 F.R.D. 330, 350 (N.D. Ill. 2010). Thus, any class members with legitimate objections were felt encouraged to bring those objections at the time of the final fairness hearing.
Second, the Objectors cannot have it both ways. The Objectors chose to file objections to the proposed settlement at the preliminary approval stage. Had the court not addressed their arguments, the Objectors would certainly, and rightly, have complained that their objections were being ignored. But the court did address those arguments, which had been fully presented to the court at that point and on which nothing credible has now been offered that would change the court's opinion. The court rejected the contentions that the Settlement Class Plaintiffs are conflicted, that the settlement figure was the product of collusion, and that it was discounted to account for AIG's claims against the class members who had also been accused of underreporting. Having asked the court to rule on those objections, the Objectors are not in a position to complain that the court should revisit those objections again.
The Objectors also ignore the fact that objecting was not the only option available to class members who were unsatisfied with the proposed settlement; they also had the option, which one class member exercised, to exclude themselves from the class. Gauging "opposition" based on both opt-outs and objections, the court concludes that the meager amount of opposition strongly supports approval of the settlement.
Finally, the Objectors claim that the court should consider not the number of objectors or the percentage of the class fund they represent, but instead the "vociferousness" of the objections. But it makes little sense to weigh opposition based on how strenuously it is made if the court concludes that the opposition lacks merit. Below, the court considers these objections (to the extent they have not been thoroughly addressed before) and finds that they do not warrant denying approval.
D. Opinion of Competent Counsel
"The opinion of competent counsel is relevant to the question whether a settlement is fair, reasonable, and adequate under Rule 23." AT & T Mobility, 789 F. Supp. 2d at 965; Schulte, 805 F. Supp. 2d at 586 (both citing Synfuel, 463 F.3d at 653). When this court preliminarily approved the settlement, it noted that it had discovered "no legitimate reason to doubt [Settlement Class Counsel's] integrity and motives." ...