The opinion of the court was delivered by: OBERDORFER
LOUIS F. OBERDORFER, U.S.D.J.
On April 9, 1986, the parties to this litigation entered into a Settlement Agreement whereby defendant Lockheed Aircraft Corporation ("Lockheed") paid into the Court Registry the sum of $10,000,000 in purported settlement of all claims arising out of the crash of the Lockheed C-5A aircraft in Saigon in 1975. Settlement Agreement at para. 2 (filed under seal April 11, 1986, unsealed April 22, 1986). The terms and conditions of the Settlement Agreement are subject to approval by the Court after notice and hearing. Id. at P 3. The Settlement Agreement further contemplates that the Court will adopt a distribution plan after considering the applications of all potential participants in the Settlement Fund. Id. at P 7. The Settlement Agreement leaves the distribution of the Settlement Fund to the discretion of the Court with the understanding that any portion of the Settlement Fund not distributed will revert to Lockheed.
The contemplated hearing was held on August 4, 1986. No objection was raised to the amount or terms of the Settlement Agreement. Moreover, the Court has independently reviewed the Settlement Agreement and finds it reasonable.
This is not a class action. Nevertheless, it is analogous in that it settles numerous similar claims of similarly-situated plaintiffs. Accordingly, the factors relating to approval of class action settlements provide appropriate criteria for appraisal of this settlement. These factors include the complexity and nature of the litigation, the stage of proceedings when settlement was offered and the degree of completed discovery, the likelihood of plaintiffs' establishing the requisite elements of liability and damages, the plaintiffs' reaction to the settlement, the risks attendant to trial, and the ability of defendant to absorb a larger recovery. Officers for Justice v. Civil Service Commission of the City and County of San Francisco, 688 F.2d 615, 625 (9th Cir. 1982), cert. denied, 459 U.S. 1217, 103 S. Ct. 1219, 75 L. Ed. 2d 456 (1983); In re National Student Marketing Litigation, 68 F.R.D. 151, 155 (D.D.C. 1974). In the ordinary class action setting, the court's primary purpose in reviewing a proposed settlement agreement is to protect the rights of absent class members who were not involved in the negotiations leading to settlement. In re Corrugated Container Antitrust Litigation, 643 F.2d 195, 225 (5th Cir. 1981). There is no need for "the court to act in a fiduciary role" to protect the defendant who negotiates a settlement. Id. Nevertheless, in light of the public context of this litigation, the recent concern about the "lawsuit crisis" and the effect of the litigation on defendants and their insurers, this review will address the fairness of the settlement as a whole, as it affects both parties and the public.
This litigation has been extraordinarily complex and prolonged. Civil Action No. 75-0874 was filed in 1975 in this Court by Friends For All Children, Inc. ("FFAC") as Special Administrator and assigned to then Chief Judge William B. Jones. The complaint sought compensatory and punitive damages from Lockheed for the estates and next-of-kin of 76 children who were in FFAC's custody and were killed in the April 4, 1975 crash of a C-5A aircraft, manufactured and designed by Lockheed. Thereafter, Lockheed filed a third-party complaint against the United States. On November 5, 1975, in In re Air Crash Disaster Near Saigon, South Vietnam, on April 4, 1975, 404 F. Supp. 478, the Judicial Panel on Multi-District Litigation transferred a number of other civil actions on behalf of a number of United States citizens who were killed and injured in the April 4, 1975 C-5A crash to Judge Jones for consolidated discovery and pretrial proceedings pursuant to 28 U.S.C. § 1407. The United States citizen plaintiffs were represented by a number of attorneys led by the firm of Cole and Groner appointed by Judge Jones. The firm of Lewis, Wilson, Lewis & Jones, Ltd. was counsel for FFAC as the legal representative of the surviving infants and the estates of the deceased.
In all of these cases there has been exhaustive discovery. Between 1975 and 1979 discovery focused on the liability and punitive damages issues. By 1979, most of the United States citizen cases were settled. In 1979, there was a stipulation in the survivors' cases brought by FFAC by which the survivors abandoned their punitive damages claim and defendant agreed not to contest its liability to anyone injured. From 1979 through 1984 almost all of the discovery and litigation related to the survivors' cases, specifically whether the crash injured the survivors and, if so, to what extent.
Before 1979, the decedents' cases were the subject of a number of appeals and mandamus proceedings before the United States Court of Appeals for the District of Columbia. By Order entered May 1, 1978, this Court ruled provisionally that District of Columbia law would govern the litigation, and that FFAC was qualified under District of Columbia law to bring this litigation as a "legal representative" of the 76 deceased children. By Order entered February 23, 1979, for reasons stated in a Memorandum filed April 12, 1979, this Court denied Lockheed's renewed motion for summary judgment, and appointed Charles R. Work, Esq., and his law firm as guardians ad litem for the interests of infant beneficiaries of the decedents' estates. On March 29, 1979, Lockheed filed a petition for writ of mandamus and sought, and on April 9, 1979, obtained, a stay of further proceedings. By Order entered August 7, 1979, however, the Court of Appeals denied Lockheed's petition for mandamus and vacated the April 9, 1979 stay order, but has never finally ruled on the merits of defendant's challenge to FFAC's standing as a plaintiff. Thereafter, attention focused on the survivors' cases and the decedents' claims lay dormant until the survivors' claims were resolved.
In 1982, after several trials of the cases brought on behalf of surviving plaintiffs adopted by United States parents, defendant paid in settlement $13,500,000 which yielded approximately $125,000 to each of 45 plaintiffs and, upon exhaustion of these and other family resources, an opportunity to draw funds from a trust originally funded with $2,250,000 for a serious medical emergency. In addition, seven individual cases were settled for amounts ranging from $125,000 to $1,000,000 for a total of $4,078,000. After two more trials the cases brought by 76 surviving plaintiffs who had been adopted by parents in foreign countries were settled in 1984 for $ 17,800,000. This settlement yielded between $200,000 and $312,000 to each foreign plaintiff whose case had been tried or prepared for trial and $ 84,673 for each of the other plaintiffs plus access to the proceeds of a trust originally funded with $2,925,000 for supplementary medical and educational services.
For their services in the survivors' cases and the recovery of $31,300,000 for their clients, plaintiffs' counsel and guardians ad litem received approximately $11,780,000 in fees, and more than $4,111,000 as reimbursement for expenses incurred in the prosecution of the survivors' cases over the vigorous defenses mounted by Lockheed and the government. Decision on the fee and expense claims of counsel and the guardians ad litem in the survivors' cases required the services of Harry Huge, Esq., and Duane Vieth, Esq., as Special Masters.
In 1984, after the survivors' cases were settled, discovery reopened in the decedents' cases. For example, 72 additional discovery depositions were taken (with transcripts totalling more than 3,400 pages). On December 18, 1985, this Court entered judgment in favor of Lockheed with respect to the claims filed by FFAC on behalf of estates of 74 of the deceased children. An accompanying memorandum noted that information gathered by the guardians ad litem "reveals that of the 76 decedents only Giang Thi Ngoc Diep and Hguyen Kim Hoa have any natural relative in the United States." Memorandum at 4 (filed Dec. 18, 1985) ("December 18 Memorandum") (citing Report of the Guardian Ad Litem to be Filed Under Seal Pursuant to this Court's November 19, 1985 Order (filed Dec. 6, 1985)). Finding that there was no legal authority for prospective adoptive parents to inherit from a prospective adoptive child, the Court dismissed their claims. Plaintiffs' counsel then filed a notice of appeal to the United States Court of Appeals. This appeal on behalf of the 74 deceased infants with no known natural relatives was unresolved at the time that the present Settlement Agreement was reached.
At the same time that the Court dismissed the claims on behalf of the 74 deceased children without identified blood relatives, this Court denied Lockheed's renewed motion for summary judgment with respect to claims regarding the other two deceased children: one filed by FFAC and Willie A. Powell on behalf of the estate of Giang Thi Ngoc Diep, deceased; the other filed by FFAC and Terry Selzer as next friend of Nga Selzer on behalf of the estate of Nguyen Kim Hoa, deceased. The Powell case was scheduled for trial on April 2, 1986. On March 26, 1986, the Court dismissed Lockheed's third-party complaint against the United States because it more appropriately lies in the United States Claims Court. Order (filed March 26, 1986).
Meanwhile, on February 13, 1986, counsel filed a Joint Motion Requesting the Court to Direct the Parties to Confer with a Judge of this Court Designated as a Settlement Judge. The motion requested the designation of Judge Joyce Hens Green who had successfully presided over the settlement of the multiple claims arising out of the Air Florida crash, In re Air Crash Disaster in Washington, D.C. on Jan. 13, 1982, 559 F. Supp. 333 (D.D.C. 1983), and had also participated importantly in the settlement of the phase of the Lockheed cases involving the foreign survivors. Counsel suggested that it would be inappropriate for the trial judge to become intimately involved with the offers and demands of the parties on the eve of trial and agreed to treat the settlement discussions confidentially. Judge Green graciously accepted the designation and met with counsel over several weeks. Although she proposed a settlement figure after hearing the views and proposals of the parties, her proposal was not agreed to in the time allotted for negotiation and the case reverted to the trial judge. Settlement negotiations continued as the trial date approached, and during the trial, without disclosure to the trial judge of any of the amounts proposed either by the parties or by Judge Green.
On April 2, 1986, following completion of discovery, a jury was selected to try the Powell case, and plaintiffs' counsel presented the testimony of several witnesses. On April 9, 1986, counsel interrupted plaintiff's affirmative case, completed their negotiations and executed the present Settlement Agreement, all with the active assistance of the trial court. The Agreement, filed on April 11, 1986, was intended to settle all of the decedents' cases for what the trial court now understands
is an amount approaching, but less than, that proposed by Judge Green.
Obviously risks attend any trial and, because of the complexity of this one, it is not clear how the jury would have decided. Nevertheless, it was apparent that at the time the trial adjourned the jury appeared sympathetic to plaintiff Powell, and that plaintiffs' counsel were making good on their proffer of evidence to support the punitive damage claim. For example, according to the pretrial brief, to minimize cost, Lockheed had used an aluminum alloy instead of steel in the bellcrank which operated the door which failed in flight. The pretrial brief proffered, among other things, an outline of the testimony of Dr. Malcolm Newman. The brief identified Dr. Newman as an expert in mechanical engineering who had "served in a wide range of duties in academic university appointments and corporate consulting and management." Plaintiffs' Pretrial Brief at I-30 (filed Jan. 14, 1986). Dr. Newman was proffered to testify that the C-5A original design was a grossly defective scale-up of a smaller aircraft C-141, that the original designs of the lock systems of the door that failed and the routing of the hydraulic systems were "defective, negligent and extremely hazardous" and were "likely to fail," and that Lockheed was aware of these problems. Id. at I-30, I-32. Dr. Newman was the last witness to testify before the parties joined in a motion to continue the case in order to complete and consummate the settlement. Transcript of Proceedings (Tr.) 4/4 at 586-613 (filed April 30, 1986). Dr. Newman's testimony, as far as it went, was entirely consistent with the proffer of it in the Pretrial Brief.
In addition to evidence to rebut plaintiffs' evidence of liability and reckless conduct, Lockheed's pretrial briefs relied on the government contractor defense. See Bynum v. FMC Corp., 770 F.2d 556 (5th Cir. 1985); In re Aircrash Disaster at Mannheim, Germany on 9/11/82, 769 F.2d 115 (3d Cir. 1985), cert. denied, Eschler v. Boeing, 474 U.S. 1082, 106 S. Ct. 851, 88 L. Ed. 2d 891 (1986); Tillett v. J.I. Case Co., 756 F.2d 591 (7th Cir. 1985); Koutsoubos v. Boeing Vertol, 755 F.2d 352 (3d Cir.), cert. denied, 474 U.S. 821, 106 S. Ct. 72, 88 L. Ed. 2d 59 (1985); McKay v. Rockwell International Corp., 704 F.2d 444 (9th Cir. 1983), cert. denied, 464 U.S. 1043, 79 L. Ed. 2d 175, 104 S. Ct. 711 (1984); In re "Agent Orange" Product Liability Litigation, 534 F. Supp. 1046 (E.D.N.Y. 1982). This defense can provide government contractors with total immunity from suit if certain conditions are met. Courts in different circuits have defined the defense with varying degrees of strictness. Compare Tozer v. LTV Corp., 792 F.2d 403 (4th Cir. 1986) with Shaw v. Grumman Aerospace Corp., 778 F.2d 736, 740-41 (11th Cir. 1985). Our Circuit has not yet defined the defense. To employ the defense, a government contractor must prove that: (1) the government issued specifications for the item at issue or reviewed and approved a reasonably precise set of specifications; (2) the product conformed to the specifications; and (3) the government had knowledge of the product's hazards equal to or greater than the contractor. Mannheim, supra, 769 F.2d at 121. The third prong of the test imposes a duty on the contractor to warn the government of any dangers or patent defects not known by the government. Koutsoubos, supra, 755 F.2d at 355; McKay, supra, 704 F.2d at 451. As to the first requirement, there is no firm rule as to what constitutes "reasonably precise" specifications and what constitutes government approval. A "continuous series of negotiations" between the contractor and the government, Mannheim, 769 F.2d at 122, or a "continuous back-and-forth" between the contractor and the government, Koutsoubos, 755 F.2d at 355, may be enough. A decision by the Fourth Circuit after settlement of this case embraced the lenient standard, holding that "the defense will be permitted to a participating contractor so long as government approval of design 'consists of more than a mere rubber stamp.'" Tozer, supra, 792 F.2d at 408 (quoting Mannheim, 769 F.2d at 122).
Lockheed is liable to plaintiffs under each of these theories for designing and building a grossly defective fleet of aircraft, the C-5A, and failing to correct the known and obvious defects. Lockheed was aware that this fleet was designed to operate at the order of the President of the United States as an instrument of national policy. Over a span of several years Lockheed consciously and repeatedly engaged the Air Force in a business relationship in which the Air Force was defrauded. In doing so, Lockheed gained substantial profits. At a time of national need, President Ford ordered a C-5A to airlift out of Vietnam 228 orphan children, many of them the children of American servicemen. Lockheed was aware at the time that the C-5A had had numerous occurrences of door failures and that its design made a crash likely. Numerous documents exist which amply prove Lockheed's knowledge of the danger to any passenger or crew member flying in the C-5A. Lockheed failed to fulfill its contractual and citizenship obligations to the Air Force and the American people. Lockheed not only failed to alert the Air Force, it actively concealed from the government the dangers associated with continued operation of the C-5A. Lockheed's failure of its duties was motivated at all times by conscious self-interest, in conscious disregard of the rights of others.
Plaintiffs' Pretrial Brief at IV-I - IV-2. Even the recent cases applying the government contractor defense liberally have adhered to the view that a contractor must warn the government of known defects in the product. Tozer, supra, 792 F.2d at 408; McKay, supra, 704 F.2d at 451. Thus, plaintiffs' proffer of evidence of fraud, could, if proven, have defeated Lockheed's defense.
In addition, the situation presented in this case differed from a situation where the government contractor defense is clearly applicable because here the individuals killed were civilian infants, not military personnel or government employees. Thus, some of the justifications for the doctrine would not apply. The government contractor defense grows from the principles established in Feres v. United States, 340 U.S. 135, 95 L. Ed. 152, 71 S. Ct. 153 (1950), and Stencel Aero Engineering Corp. v. United States, 431 U.S. 666, 52 L. Ed. 2d 665, 97 S. Ct. 2054 (1977), whereby the government is immune from compensating for injuries incurred by servicemen in the course of their military service. The Court in Tozer noted, as two rationales for its decision to apply the government contractor defense to the situation before it:
The disallowance of recovery in these actions will not leave servicemen or their survivors without relief. The Veterans' Benefits Act "provides a swift, efficient remedy for the injured serviceman." Stencel, 431 U.S. at 673, 97 S. Ct. at 2058. Thus one classic rationale for tort liability -- that of compensation of victims -- is less compelling in this context . . . .
Forcing military mishaps into the mold of products liability litigation carries one final drawback. Pilots of the Navy and Air Force, whose service and sacrifice make possible the security of this country, are not the military doubles of civilian motorists. Their lives are led in the company of peril.
Tozer, supra, 792 F.2d at 407.
In sum, the evidence as it was proffered and as it developed during the first three days of trial indicated that plaintiff Powell had a reasonable likelihood of recovering a substantial sum from Lockheed in compensatory and punitive damages. Moreover, the same evidence adduced by plaintiff Powell would have been available to plaintiff Selzer. Although courts and commentators have struggled with the problem of multiple punitive damage awards against one defendant for the same wrongful act, no clear solution has developed. Roginsky v. Richardson-Merrell, Inc., 378 F.2d 832, 839 (2d Cir. 1967); Froud v. Celotex Corp., 107 Ill. App. 3d 654, 437 N.E.2d 910, 913-14, 63 Ill. Dec. 261 (Ill. 1982), reversed on other grounds, 98 Ill. 2d 324, 456 N.E.2d 131, 74 Ill. Dec. 629 (Ill. 1983); Wangen v. Ford Motor Co., 97 Wis. 2d 260, 294 N.W.2d 437, 459-60 (Wis. 1980); J.D. Ghiardi & J.J. Kircher, Punitive Damages, § 5.40 - 5.47 (1984); Owen, Punitive Damages in Products Liability Litigation, 74 Mich. L. Rev. 1257, 1322-25 (1976); Rheingold, The MER/29 Story -- An Instance of Successful Mass Disaster Litigation, 56 Calif. L. Rev. 116, 136 (1968); Comment, Mass Liability and Punitive Damages Overkill, 30 Hastings L.J. 1797 (1979). Lockheed thus faced the clear threat of substantial compensatory and punitive damages recoveries by both plaintiffs Powell and Selzer.
In addition, although the claims on behalf of the other 74 plaintiffs for both compensatory and punitive damages had been dismissed by the December 18 Memorandum, the dismissal was not final in that plaintiffs' appeal of the dismissal was pending at the time of the settlement. Lockheed thus had no assurance that the Court of Appeals would affirm the summary judgment dismissing the 74 additional claims by putative adoptive parents. Because of the uncertain state of the appeal of the dismissal of those plaintiffs' damages claims, viewing some fraction of the $10,000,000 payment as in settlement of these claims is also reasonable. Moreover, in dismissing the 74 claims, the Court noted that there was "no presently apparent reason" why any punitive damages awarded in the Powell or Selzer cases could not be shared by the dismissed plaintiffs. December 18 Memorandum at 10. Thus, notwithstanding the dismissal of claims on behalf of the 74 additional plaintiffs, individuals whose claims were dismissed had some expectation of possible future compensatory and/or punitive damage awards, based upon the possibility that the Court of Appeals might reverse this Court's December 18 ruling
and reinstate their claim for compensatory damages, and the possibility that even if the December 18 dismissal remained intact, they would share in a Powell/Selzer punitive damages recovery. Accordingly, the Agreement may fairly be interpreted as offering consideration for the execution of releases by the 74 individuals who had been dismissed, but whose claims still flickered in the Court of Appeals.
Another consideration regarding Lockheed's potential liability is that until shortly before trial, Lockheed's claim over against the government remained pending. Under an agreement with Lockheed, the government agreed to pay 65 percent of any judgment against Lockheed. Agreement at § 3(1) (filed under seal August 24, 1976, unsealed April 29, 1986). However, the dismissal of Lockheed's claim over left it exposed to the risk that it might have to pay the entire amount of any possible judgment. Although Lockheed could have appealed the dismissal, or could have pursued, and may still pursue, its contract action in the Claims Court, the outcome of either of these actions was, and is, uncertain. The uncertainty was increased by the fact that the Federal Tort Claims Act, 28 U.S.C. § 2674, does not waive the government's sovereign immunity regarding punitive damage awards. Consequently, despite the contract terms, the government may not have been obligated to contribute to any punitive damage awards against Lockheed.
Lockheed's corporate liability was further uncertain because its insurance carrier may well have refused to pay any punitive damages award, depending on the terms of the contract between Lockheed and its insurer. J.D. Ghiardi & J.J. Kircher, supra, at § 7.10. In fact, such insurance may be against public policy. See Hartford Life Insurance Co. v. Title Guarantee Co., 172 U.S. App. D.C. 156, 520 F.2d 1170, 1175 (D.C. Cir. 1975); Northwestern National Casualty Co. v. McNulty, 307 F.2d 432 (5th Cir. 1962); Salus Corp. v. Continental Casualty Co., 478 A.2d 1067, 1070-71 (D.C. 1984). In this regard, the large settlement amount reflects compromise primarily of claims that may not have been covered by insurance, even though the settlement itself may be.
Here, both parties were represented by able counsel with ten years of familiarity with the issues of the litigation. The figure they agreed upon apparently bears a significant relationship to the amount proposed by Judge Green as a settlement figure on the eve of trial when both parties had the fullest opportunity to appraise and state the essence of their claims and defenses. Moreover, these counsel and the sophisticated defendants were well able to assess the risks inherent in going to trial and to judge a fair compromise amount. A settlement "is an exercise of business judgment by the parties." McDonald v. Chicago Milwaukee Corp., 565 F.2d 416, 426 (7th Cir. 1977). There is no reason to believe that that judgment was clouded in this case. Certainly, defendant could have absorbed a greater settlement amount, but even a settlement which includes punitive damages must have some limit. "The very essence of settlement is compromise, 'a yielding of absolutes and an abandoning of highest hopes.'" Officers for Justice, supra, 688 F.2d at 624 (quoting Cotton v. Hinton, 559 F.2d 1326, 1330 (5th Cir. 1977)). Moreover, defendant insisted that the Agreement which left to the court's discretion determination of the amounts to be distributed, include a reverter provision. Lockheed, ...