Opinion
Case No. 05-12309-JNF.
April 17, 2007
Harold B. Murphy (the "Trustee"), the Chapter 7 trustee of the bankruptcy estate of Claudia Corsini Velloso-Potts (the "Debtor"), hereby moves this Court to approve a proposed settlement (the "Settlement") by the Trustee of the Debtor's cause of action against certain defendants in a civil action in which the Debtor was a plaintiff pre-petition ("Defendants" and, together with the Trustee, the "Parties"). The Settlement resolves a dispute between the Parties arising from the Debtor's pre-petition usage of the diet drug(s) Pondimin and/or Redux (the "Diet Drugs"). The Trustee further requests authority to pay his special counsel its fees and costs from the proceeds of the settlement without further Court order. In support of this motion, the Trustee states as follows:
I. BACKGROUND
1. On March 24, 2005 (the "Petition Date"), the Debtor filed a Chapter 7 petition for relief with this Court.
2. The Trustee was appointed interim trustee of the Debtor's bankruptcy estate (the "Estate") thereafter and has continued to serve as Trustee since that date.
3. As of the Petition Date, the Debtor was a plaintiff in a civil action captioned Dorothy Ausevich et.al, v. Indevus Pharmaceuticals, Inc., et.al, Superior Court, Middlesex Division, Docket No. 04-1286 (the "State Court Litigation"). The Debtor became a party to the State Court Litigation after submitting a notice opting out of a certain Nationwide Class Action Settlement Agreement entered into between certain class action plaintiffs and the Defendants relating to the plaintiffs' use of the Diet Drugs.
4. In the Complaint filed which initiated the State Court Litigation, the Debtor alleged (the "Claim") that she had suffered certain injuries, including valvular heart disease, as a result of her ingestion of the Diet Drugs. The Debtor further alleged that she was at risk of developing or was already suffering from secondary pulmonary hypertension and other related conditions as a direct and proximate result of her ingestion of the Diet Drugs.
5. The Debtor alleges in the Litigation that the Diet Drugs were created and distributed by the Defendants.
6. The Defendants have denied and continue to deny any liability based upon the Debtor's claims, allegations and assertions.
7. Following the Petition Date, the Trustee employed the Debtor's pre-petition counsel, the firm of Aylstock, Witkin Sasser, PLC ("Special Counsel"), as his special counsel for the purpose of pursuing the Claim.
8. Pursuant to the terms of Special Counsel's employment, as approved by the Court, Special Counsel is entitled to a sum equal to forty percent (40%) of all sums recovered for the Estate, plus reasonable costs.
9. Special Counsel, on behalf of numerous plaintiffs, is a party to a global settlement agreement (the "Global Settlement") with the Defendants. The Global Settlement was reached in the context of a national class action lawsuit (the "National Litigation"). The Global Settlement calls for a lump-sum to be paid over by the Defendants (the "Global Settlement Payment") to be divided by Special Counsel among plaintiffs who choose to participate in the Global Settlement based upon the facts of each plaintiff's injuries, length of ingestion of the diet drugs, as well as other factors. Special Counsel is under a confidentiality agreement and cannot reveal the contents of the Global Settlement or the amount of the Global Settlement Payment.
10. As is set forth in more detail herein, Special Counsel has proposed an amount that is appropriate to be paid to the Estate from the Global Settlement Payment in light of the facts and circumstances surrounding the Claim. Special Counsel has represented to the Trustee that prior to entering into negotiations with the Defendants that resulted in the Global Settlement, it developed a system for evaluating the claims of each of its clients, and that Debtor's claim has been evaluated in a manner similar to that of every one of its clients that has chosen to participate in the Global Settlement.
11. Special Counsel has represented to the Trustee that in determining the potential value to be assigned to each plaintiff's claim, it spent months reviewing the files of approximately 3000 clients to assess each person's age, amount of ingestion, product ingested, level of injury, and that person's lifestyle and other health factors that benefited or harmed the individual plaintiff's claims. Special Counsel then categorized each of person in groups, using the aforementioned factors, and assigned a relative value for each of the groups. These values assigned considered potential jury verdicts based on the previous success or failure of diet drug jury trials with similar factors. Special Counsel also took into account the strength and weaknesses of the evidence and potential testimony from witnesses as it pertained to each case, and further considered the information that the Defendants provided. Special Counsel then made adjustments to each individual case based on any unique facts and circumstances that it believed would impact a likely jury verdict. Special Counsel obtained authority to settle each claim at or below the target values it assigned to each case. All clients, including the Debtor, authorized a minimum settlement value prior to undertaking negotiations. The settlement proposed is at or above or the minimum settlement value that the Debtor had approved.
12. Given the facts and circumstances of this case, and based upon his communications with Special Counsel, the Trustee has determined that it would be prudent to join in the Global Settlement. Further, the Parties desire to resolve their disputes to avoid the delays, costs and risks inherent in any litigation.
II. THE PROPOSED SETTLEMENT
13. The terms of the Settlement include the following:
The summary of the Settlement set forth in this motion is supplemented by the release signed by the Debtor, attached as Exhibit A, which contains additional terms and conditions.
(i) Upon the Court's approval of the Motion, Special Counsel shall allocate for payment to the Trustee the sum of $20,000 (the "Settlement Amount") in full settlement of the Claim.
(ii) In consideration of the Settlement Amount, the Debtor shall release, acquit and forever discharge the Defendants and their predecessors, successors, assigns, parents, subsidiaries and affiliates, and past and present officers, directors, shareholders, attorneys, agents, and employees from any and all claims, damages, actions, demands, and causes of action arising from the Claim (the "Release"). The Trustee has not been asked to provide a release to the Defendants.
(iii) The Settlement Amount shall be paid to the Trustee, after deduction of Special Counsel's fees and expenses, no later then ten (10) days following Bankruptcy Court approval of this Motion.
14. Rule 9019 of the Federal Rules of Bankruptcy Procedure provides, in pertinent part, that "[o]n motion by the trustee and after notice and a hearing, the Court may approve a compromise or settlement." Local Rule 9019-1 also authorizes "settlement of any controversy that affects the estate."
15. A settlement should be approved where it is fair, equitable and in the best interests of the estate. See Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 88 S. Ct. 1157 (1968); Jeremiah v. Richardson, 148 F.3d 17 (1st. Cir. 1998); Connecticut Gen. Life Ins. Co. v. United Cos. Fin. Corp. (In re Foster Mtg. Corp.), 68 F.3d 914 (5th Cir. 1995). The First Circuit has held that a bankruptcy court should also consider the following factors in determining whether to approve a settlement: (a) the probability of the success in the litigation being compromised, (b) the difficulties, if any, to be encountered in the matter of collection, (c) the complexity of the litigation involved and the expense, inconvenience, and delay in pursuing the litigation, and (d) the paramount interest of the creditors and a proper deference to their reasonable views. See Jeremiah, 148 F.3d at 23 (citing Jeffrey v. Desmond, 70 F.3d 183, 185 (1st Cir. 1995)); see also Hicks, Muse Co., Inc. v. Brandt (In re Healthco Int'l, Inc.), 136 F.3d 45, 50 (1st Cir. 1998); In re Lawrence Paperboard Corp., 52 B.R. 907, 909 (Bankr. D. Mass. 1985). The Trustee submits that the Stipulation more than satisfies these requirements.
16. Following his discussions with Special Counsel, the Trustee believes that the Settlement represents a reasonable recovery for the bankruptcy estate. The Debtor alleges that she ingested the Diet Drug Redux for a period of sixty (60) days. The Defendants have presented scientific evidence in other jury trials on this issue suggesting that the Diet Drugs could not have cause the injury in question in patients who ingested the drug less for less than ninety (90) days. Further, the Debtor's injuries are relatively minor in comparison to the injuries of many of the various plaintiffs that have pursued such claims. The Defendants have been very successful in defending the so-called less severely injured plaintiffs by achieving low jury awards.
17. Taking into account the risks and costs associated with a trial on the Claim, the limited length of ingestion by the Debtor, the level the Debtor's injury, and the strength and weaknesses of her case, the Trustee believes the proposed settlement is justified and is in the best interest of the estate and its creditors.
Proposed Payment of Special Counsel From Proceeds
18. The Trustee further seeks authority to permit Special Counsel to deduct its fees and costs from the Settlement Amount without the need for further court order.
19. On October 26, 2006, the Court entered an order authorizing the employment of Special Counsel under a contingent fee agreement (the "Agreement"). A copy of the order authorizing Special Counsel's employment is attached hereto as Exhibit "A." The Agreement provides for payment of a contingency fee to Special Counsel in the amount of forty percent (40%) of any amounts recovered, plus reasonable out-of-pocket expenses, subject to approval by this Court. Special Counsel's contingency fee totals $8,000. Its costs total $1,376.31.
20. Certain of the costs of Special Counsel are classified as "common benefit" costs, referring to costs benefiting all clients and not just the Debtor, such as expert witness depositions and fees. Special Counsel's aggregate common benefit costs were $732,708.10, shared among 2093 clients. A closing fee of $50 charged to each client in anticipation of storage facility fees for storing the client's file for a period of four years following resolution of the case and for other administrative and accounting activities of closing the file. A pro-rata share of the out-of-pocket expenses incurred by Special Counsel's local counsel are also included with Special Counsel's expenses. A chart providing a breakdown of costs incurred is attached here as Exhibit "B." The Debtor's expense charges are in compliance with MLBR 2016-1.
20. Following Special Counsel's deduction of his fees and costs from the proceeds, Special Counsel will pay $10,623.69 to the Trustee.
WHEREFORE, the Trustee requests that the Court: (a) approve the Stipulation, and (b) authorize Special Counsel to deduct his contingency fee in the amount of $8,000 and its expenses in the amount of $1,376.31 from the Settlement Amount without further Court order; (c) authorize and direct Special Counsel to pay the Trustee $10,623.69, and (d) provide such other and further relief as may be just.
EXHIBIT "A" TRUSTEE'S MOTION TO RETAIN SPECIAL COUNSEL TO PURSUE PERSONAL INJURY CLAIM
To the Honorable Joan N. Feeney, Chief United States Bankruptcy Judge:
Harold B. Murphy, the duly appointed trustee ("Trustee") in the above-captioned case, respectfully requests the entry of an Order authorizing the retention of Joshua A. Jones and the firm of Aylstock, Witkin, Sasser, PLC ("Aylstock"), to represent the Trustee in pursuing a products liability claim arising from the Debtor's prepetition usage of the diet drug(s) Pondimin and/or Redux, in connection with "Phen-Fen" Litigation. In support thereof, the Trustee states as follows:
1. On March 24, 2005 (the "Petition Date"), the Debtor commenced a bankruptcy case by filing a petition for relief under Chapter 7 of the United States Bankruptcy Code ("Bankruptcy Code").
2. Thereafter, a bankruptcy estate (the "Estate") was created.
3. The Section 341 meeting of creditors was conducted on or about May 12, 2005. The Trustee's investigation of the Debtor's financial affairs revealed no unencumbered, nonexempt assets available for administration. Consequently, on or about May 17, 2006, the
EXHIBIT "B"
Exhibit