After nine years of intense and complex litigation and negotiations, Matthew Wild and I, as court-appointed class counsel, won judicial approval of a settlement in a unique class action antitrust case. The difficulty of this case deserves study by anyone contemplating representing indirect purchasers who have been victimized by an antitrust conspiracy. It is detailed in the attached 54-page opinion. A brief description of this litigation follows.
We represented indirect purchasers of packaged ice (i.e., retail consumers). Our Complaint alleged that the country’s three largest manufacturers of packaged ice agreed to divide the country into three territories, one for each and with the further agreement they would not compete against one another. This allegedly allowed Defendants to charge more for their ice than if there were free and open competition. They sold to “direct purchasers,” typically supermarkets, which passed on the overcharge, sometimes adding a mark-up.
The initial problem in representing indirect purchasers, which the Court characterized as like “herding cats,” was caused by long established Supreme Court precedent, Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), holding only direct purchasers could recover financially for Sherman Act violations, making indirect purchasers ineligible for a financial recovery. However, as victims, indirect purchasers are entitled to injunctive relief.
In reaction to Illinois Brick, 27 states (referred to as the Illinois Brick Repealer States”) passed laws or interpreted their pre-existing laws to give all victims of antitrust violations committed within the states jurisdiction the right to financial recovery. Thus, all the indirect purchasers of Defendants’ packaged ice had claims for injunctions under federal law. Those who purchased in a repealer state also had claims under state law.
In representing indirect purchasers, we sued in federal court alleging the violation of the federal antitrust laws and sought injunctive relief. As to those who purchased in repealer states, relying upon supplemental jurisdiction and the Class Action Fairness Act, we added state claims and sought financial recovery. This created two classes of Plaintiffs, those who were entitled only to injunctive relief and those who also were entitled to a financial award.
Many such actions were instituted throughout the country. The Judicial Panel on Multidistrict Litigation ordered that they all be transferred to the Eastern District of Michigan, where all pre-trial proceedings were to be under the control of a single federal judge. Matthew Wild and I won appointment as interim co-lead counsel for a putative class of indirect purchasers. John Perrin, a Michigan lawyer, was appointed liaison counsel. We were thereafter in charge of the litigation.
At a relatively early point in the litigation and before we were permitted to conduct formal discovery, we investigated all available material. After extensive study of it, we concluded we had a good case. We negotiated a settlement with the smallest of the three Defendants. It required the Defendant’s executives to cooperate with us in pursuing our cases against the two larger Defendants. The settling Defendant also paid $2.7 million dollars and agreed to an injunction.
This cooperation agreement, which the District Court characterized as an “ice breaker,” put heavy pressure on the two larger Defendants should there be a trial. It gave us great hope that we could quickly settle with them for much greater amounts.
Shockingly, all expectation of a quick settlement with other Defendants was destroyed as the two larger Defendants filed for bankruptcy protection. Their filings removed our cases against them from the efficiency of the multidistrict court and made our task incredibly more difficult.
One Defendant was a Canadian company with a Delaware subsidiary. The case against them had to be pursued in bankruptcy courts in Canada and the District of Delaware. Thus, we were suddenly confronted with learning Canadian bankruptcy law and how it applied to class actions and antitrust matters.
The other Defendant filed a prepackaged Chapter 11 in the bankruptcy court in Dallas, Texas. The problems with that representation are discussed below.
The problems these bankruptcies caused us were exceedingly difficult, complex and likely unique in the world of class actions. We now had to pursue the Class’ claims in all three bankruptcy venues. There was no playbook to guide us.
Canadian law is very different from U.S. law, placing us at a considerable disadvantage. The Canadian court appointed a large company as the “monitor” of the Canadian Defendant. A monitor is similar to a trustee in bankruptcy in U.S. law, but with broader powers. We first succeeded in negotiating a method of resolving the claims in Canada. We agreed on an arbitration-type proceeding in which the Canadian bankruptcy court would appoint a U.S. attorney, familiar with U.S. law regarding antitrust and class actions. He would hear the dispute and recommend a resolution. The scope of discovery was unclear. We would be denied a jury. The “Arbitrator’s” recommendation would have to be approved first by the Canadian bankruptcy court and then the Delaware bankruptcy court.
We negotiated a settlement with the monitor in which the the Canadian bankrupt Defendant would pay a maximum of $3.95 million as a settlement. After payment of fees and costs, the amount of the settlement that was not claimed by the class members would remain with the bankrupt’s estate. We succeeded in obtaining approval, first by the Canadian bankruptcy court and then by U.S. Bankruptcy Judge in Delaware who characterized our representation as “highly proficient.”
The Texas Defendant’s bankruptcy filing in Dallas presented different problems. Its assets were insufficient to pay all of its debts. Its pre-packaged Chapter 11, funded by a hedge fund that was acquiring the Texas Defendant’s business, provided only about $300,000 for all its unsecured debts. By our quick action, we were able to negotiate a $700,000 settlement for the indirect purchaser class.
We thereafter sought approval of the settlement we had earlier reached with the smallest Defendant, which was all that remained of the action in the multidistrict court. In approving it, the District Court observed, “Class Counsel has had their work cut out for them in taking this Indirect Purchaser Litigation, and have remained actively involved in the case through its numerous bankruptcies, obtaining the assistance of bankruptcy counsel in the … Texas bankruptcy proceedings, and appearing regularly in the … Canadian bankruptcy proceedings and in the Delaware bankruptcy proceedings, representing the interests of the Indirect Purchaser class.”
In approving the settlement, the District Court characterized it as a “well-informed and fairly-bargained agreement, negotiated after years of diligent work by Class Counsel on behalf of the Class, to finally resolve these Indirect Purchasers’ claims, claims that would be exceedingly difficult to prove should this case go to trial. This truly is a case in which the prospect of the Class Members actually receiving nothing were this Court to disapprove the Settlement agreement is more than a platitude – it is a real possibility.”
The attached 54-page decision points to the hurdles we were faced with and overcame. The twists and turns, complicated by the bankruptcies, could never have been anticipated when we began the action or even while the entire case was being administered by the District Court.
Matthew S. Wild
Wild Law Group PLLC
98 Distillery Road
Warwick, NY 10990