The opinion of the court was delivered by: ROYCE C. LAMBERTH
MEMORANDUM OPINION AND ORDER
Plaintiffs in these consolidated cases are all holders of commercial paper issued by Washington Bancorporation ("WBC"), the holding company which owned the National Bank of Washington ("NBW"). On May 7, 1990, WBC defaulted on all of its outstanding commercial paper, including approximately $ 35.2 million owned by the various plaintiffs in these actions. Plaintiffs here are seeking damages from NBW, now in receivership under the auspices of the Federal Deposit Insurance Corporation ("FDIC"), and certain individual officers and directors ("the individual defendants"), for their alleged role as the sellers of commercial paper. Plaintiffs and the individual defendants ("the settlors") have concluded a partial settlement which contemplates a $ 7.6 million cash payment to the plaintiffs. The settlement also includes a contribution and indemnity bar that would prevent the FDIC from seeking any funds from individual defendants (or from certain non-defendants) and a pro tanto judgment reduction provision which would create a dollar-for-dollar offset of the settlement on any judgment rendered against the FDIC. Because these provisions substantially affect the rights of the FDIC and require the exercise of the court's power, the court must carefully consider whether to approve the settlement. The court has considered the memoranda submitted by all counsel, including those of the amici non-party settlors and Luther Hodges, whom the court has permitted to intervene for the sole purpose of opposing this motion.
II. The Proposed Settlement
Plaintiffs are holders of WBC commercial paper. In addition to pursuing their remedies against WBC in bankruptcy proceedings, these individuals and institutions have sued NBW (now represented by the FDIC) and certain officers and directors of NBW for their participation as sellers of commercial paper. The parties engaged in settlement negotiations which appeared to bear fruit in late 1991; the parties indicated to the court that settlement was a real possibility. The FDIC, however, halted negotiations in order to obtain the court's ruling on certain special defenses which would absolve it of all liability. The plaintiffs, while litigating the FDIC's defenses under the common-law D'Oench doctrine and various provisions of Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA"), began bilateral negotiations with the individual defendants. The court dismissed the majority of plaintiffs' claims, but found that a few of the claims survived. Although the court and most of the parties hoped for a settlement following the court's opinion, the FDIC has maintained the position that they have no liability.
Plaintiffs and the individual defendants returned to the bargaining table and hammered out a bilateral settlement which is substantially similar to the settlement which had been contemplated prior to the court's D'Oench ruling. The individual defendants agreed to pay plaintiffs $ 7.6 million, only slightly more than the $ 7.5 million that had been tentatively set by the earlier settlement negotiations. The bulk of this money would derive from the directors' and officers' liability insurance policy which has funded the individual defendants' participation in this lawsuit. In addition, the proposed settlement would prohibit the FDIC from seeking any contribution, indemnity, or other claims in connection with the commercial paper program, however denominated, from the individual defendants. Further, as recompense for the decrease in the D insurance policy which covers all of the former officers and directors of NBW, the remaining officers and directors of NBW, who are not defendants, would also be protected by the claims bar. Without these protections, the individual defendants would have little incentive to settle.
The plaintiffs and the individual defendants represent that the proposed settlement is fair and that $ 7.6 million is the most that the individual defendants can reasonably pay. Rejecting the settlement would mean that the bulk of the funds in the insurance policy would flow to the hundreds of lawyers in this case, rather than to the injured plaintiffs. The FDIC opposes the settlement as unfair. In particular, the FDIC questions the motives of the plaintiffs and individual defendants; although falling short of alleging outright collusion, the FDIC raises the specter of "insider plaintiffs" and the possibility that the settlement will simply be a "war chest" for pursuing claims against the deep pocket FDIC. More importantly, the FDIC argues that the specific provisions, including the contribution bar and the pro tanto judgment reduction provision, handcuff them from pursuing their rightful remedies and leave the federal government "holding the bag" for the misdeeds of others.
III. Issues and Defenses Peculiar to Certain Plaintiffs
As an initial matter, the FDIC raises concerns about certain plaintiffs who either are in default on loans to NBW or were allegedly "insiders" at NBW. The FDIC specifies no particular effect that these factors should have on the court's consideration of the settlement, and the settling parties argue that these provisions are irrelevant. The court shall consider each concern in brief below.
The FDIC raises the fact that certain of the plaintiffs have defaulted on over $ 60 million in loans to NBW; these claims total substantially more than all of the commercial paper claims combined. The FDIC stated in its opposition memorandum that it would bring these claims after it has had the opportunity to conduct discovery.
The court does not see the relevance of these claims to the proposed settlement. If FDIC is found to be liable to a plaintiff who is allegedly in default, then the FDIC may be able to obtain an offset. The individual defendants have no defense on account of the defaults, and, even if they had such a defense, they have waived it by agreeing to the settlement. Further, the court does not see why the bank needs discovery to bring a loan default action against these plaintiffs, or indeed, why these actions must be brought in the commercial paper cases; all of the necessary documentation -- that the loan was made and that the borrower failed to pay in a timely fashion -- should be in the records of the bank, which the FDIC possess. Thus, the court ...