Opinion
No. 98 Civ. 9201 (LAK)
February 17, 2000
ORDER
This is an alleged class action by mental health care providers and others against mental health HMO's for alleged price fixing with respect to the rates paid to mental health care providers for rendering services to persons insured under various health plans. Plaintiffs' motion to certify a class is pending. The parties now move jointly for approval of a stipulation and an order of dismissal with prejudice of the claims of the named plaintiffs. Plaintiffs move also for an order permitting the withdrawal of their motion for class certification.
Rule 23(e) of the Federal Rules of Civil Procedure provides that "[a] class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs." The fact that no class yet has been certified is of no moment. During the interval between institution of a class action and a decision on certification under Rule 23(c)(1), the case must be presumed to be a proper class action, as any other course would risk placing an undue premium on early settlements in order to circumvent Rule 23(e). 7B Wright, Miller Kane, Federal Practice and Procedure 2d: Civil § 1797, at 347 (1986). The questions therefore are whether the dismissal should be permitted and whether any notice should be required.
The notice question may be disposed of quickly. As the absent class members would not be prevented from commencing their own actions, there is no need for notice to permit them to be heard on the fairness of the settlement as between defendants and the named plaintiffs. Nevertheless, there is one concern. The commencement of this class action appears to have been given some currency in the trade and general interest press. Absent class members may have been forestalled from commencing their own actions by their reliance on the protection of their interests by plaintiffs in this action. In consequence, the Court is inclined to the view that significant notice of the termination of the action is appropriate to prevent absent class members from sleeping on their rights. Indeed, the settling parties appear to recognize this, as the proposed settlement contemplates the issuance of a press release.
The difficulty the Court faces is that it lacks sufficient information concerning the extent to which the pendency of this class action was made known to the relevant community and therefore is unable to come to a view as to the extent of the notice that should be required of the dismissal. Accordingly, the parties, on or before February 28, 2000, shall submit affidavits setting forth all known instances of publications relating to the commencement or pendency of this case.
In turning to the substance of the proposed settlement, it is useful to set forth the premises underlying the Court's consideration. Broadly speaking, the terms upon which the named plaintiffs and the defendants choose to resolve their disputes inter se are their own business and no concern of the Court. There are several provisions of the proposed settlement, however, that raise substantial issues.
First, the parties seek approval of a payment of $550,000 by defendants to plaintiffs' counsel. Payment of a fee of this magnitude-particularly where the named plaintiffs will receive no monetary consideration, where the non-monetary consideration (principally a discussion forum for a few hours) is of debatable value, and where the action did not reach the stage of post-discovery dispositive motions or even a class certification decision-creates a concern that class counsel are being compensated to abandon the interests of the class. While the Court is prepared to consider approval of a fee, it is not prepared to do so on the present record, which lacks any of the information typically submitted in support of fee applications.
Second, the settlement agreement contains a release from the named plaintiffs to the defendants which purportedly is executed by the named plaintiffs on behalf of a host of persons and entities who quite likely did not authorize them to release defendants on their behalf. The Court wishes to make clear that its approval of the settlement, if it ultimately does approve it, is not intended to imply that the releases are valid insofar as they purport to bind such persons and entities. The parties should modify the proposed releases in light of this comment.
Third, paragraph 9 of the settlement agreement obligates plaintiffs and their counsel to destroy or turn over to defendants all evidence, information and work product in their possession "accumulated in support of the Action . . ." or "pertaining to any Defendant. . . ." This raises concerns about spoliation of evidence and obstruction of justice. Absent substantial justification, the Court is not disposed to approve a settlement containing such a clause, particularly as the materials assembled by plaintiffs' counsel in the course of representing the alleged class in this case arguably are held by them in a fiduciary capacity for the benefit of the class, not merely the named plaintiffs.
For all of the foregoing reasons, the motion for the entry of stipulation and order of dismissal with prejudice is denied without prejudice to renewal on a more substantial showing and after receipt of the materials relating to notice referred to above and proper data in support of the fee application. The motion to withdraw the motion for class certification is granted without prejudice to the renewal thereof in the event the action proceeds.
SO ORDERED.