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December 6, 2002


The opinion of the court was delivered by: Paul L. Friedman, United States District Judge


This matter is before the Court for consideration of Plaintiffs' Emergency Motion to Preclude Settlement Discussions with Individual Plaintiffs, filed on November 5, 2002. In their motion, plaintiffs assert that the defendants in this action (collectively, "UST") sought to take advantage of the interim period between the oral argument of the class certification motion and the Court's decision on that motion to improperly approach individual putative class members in an attempt to settle the case with as many direct purchasers as possible before certification. Specifically, plaintiffs assert that defendants offered insufficient consideration for their proposed settlements, and that they provided incomplete, inaccurate and misleading information in their communications. Defendants filed an opposition, plaintiffs filed a reply, and the Court heard argument on November 20, 2002.


Plaintiff Keystone Tobacco Co., Inc. filed a class action lawsuit against defendants on June 16, 2000. The Court subsequently consolidated the Keystone suit with a similar suit filed by plaintiff Mutual Wholesale Services, Inc. Plaintiffs together filed a consolidated amended complaint on January 8, 2001, alleging that defendants engaged in unlawful activities to stifle competition in the moist, smokeless, non-chewing tobacco market in the United States. Plaintiffs define the class to include:

all persons and entities in the United States (excluding defendants, their co-conspirators, their subsidiaries, affiliates, officers, directors, and employees, and government entities) who purchased moist snuff products directly from the Defendants, or any subsidiary or affiliate thereof, at any time during the period from January 1, 1990 to the present (the "Class Period").

The Kessler Letter states that a copy of the complaint is enclosed, which by definition includes all of the assertions made by plaintiffs and provides notice of the identities of plaintiffs' class counsel with their addresses and telephone numbers. See Kessler Letter. Although the complaint was not in fact included in the initial mailing, counsel represented at oral argument that this was an inadvertent mistake, as Mr. Kessler's declaration also states. See Defs.' Opp., Ex. B, Declaration of Murray S. Kessler ¶ 11. Defendants now have provided a copy of the amended complaint to each of the direct purchasers. See Notice of Filing of Settlement Communications to Direct Purchasers Enclosing Complaint and Extending Settlement Order ("Compl. Notice"), Ex. 1, Letter from Murray A. Kessler, November 22, 2002 ("Kessler Complaint Letter"). Furthermore, as it agreed to do at oral argument, UST has notified the direct purchasers that the company will extend the deadline for the return of a signed settlement agreement to December 15, 2002 in order to allow putative class members adequate time to assess their positions in light of the amended complaint. See id.*fn1

Plaintiffs argue that two factors independently demonstrate the wrongful nature of defendants' settlement endeavor. First, plaintiffs assert that defendants offered inadequate consideration to the individual class members in exchange for a release from the claims currently pending against defendants in this matter. See Memorandum in Support of Plaintiffs' Emergency Motion to Preclude Settlement Discussions with Individual Plaintiffs ("Pls.' Mem.") at 7-9.

Second, plaintiffs assert that in seeking resolutions of the case with individual putative class members, the defendants unlawfully provided incomplete, inaccurate and misleading information about this litigation and the value of the plaintiffs' claims. See id. at 10. Plaintiffs also assert that because defendants' sales representatives are the people soliciting the settlements, UST has created an inherently coercive environment designed to induce premature settlements by individuals with insufficient information. See id. at 10-12. In light of these alleged improprieties, plaintiffs argue that the Court has a fiduciary duty to intervene and prevent harm to putative class members. See id. at 11.

Defendants respond that settlements in class actions are to be encouraged, that there is no legal impediment that prevents defendants or their representatives from approaching individual putative class members to discuss the possibility of settlement, and that defendants have neither misled nor coerced those with whom they have communicated. See Defs.' Opp. at 9-10, 19-21. Defendants claim that until a class is certified, all communications in pursuit of such settlements, even if misleading, are permitted. See id. at 12. More importantly, they argue, the communications UST sent are not misleading, UST has provided accurate information to sophisticated business people capable of making decisions whether to enter into settlements, and these business people are not being threatened or coerced. See id. at 18. Finally, defendants assert that if the Court is inclined to limit defendants' communications with putative class members, it may only do so narrowly and on the basis of a clear evidentiary record which in this case, defendants say, is sorely lacking. See id. at 19-20.


A. Assessing Pre-Certification Settlement Offers

As an initial matter, the Court rejects defendants' position that it has no authority to limit communications between litigants and putative class members prior to class certification. See Gulf Oil Co. v. Bernard, 452 U.S. 89, 100 (1981) (affirming district court's authority to limit communications between counsel and putative class members, subject to restrictions mandated by First Amendment); Ralph-Oldsmobile Inc. v. General Motors Corp., No. 99 Civ. 4567, 2001 U.S. Dist. LEXIS 13893, at *5 (S.D.N.Y. Sept. 7, 2001) (court's power to restrict communications between parties and potential class members exists prior to class certification); Jenifer v. Delaware Solid Waste Authority, Nos. 98-270, 98-565, 1999 U.S. Dist. LEXIS 2542, at *8 (D.Del. Feb. 25, 1999) ("the Court does have the requisite authority to limit contacts with putative class members"); see also McReynolds v. Sodexho Marriott Services, Inc., No. 01-0510, Order (D.D.C. May 24, 2001) (ESH).

In considering whether to restrict defendants' communications with putative class members, the Court acknowledges the competing policy arguments presented by the parties. Defendants are correct that settlements are looked upon favorably by the courts, particularly in complex class actions in which the Court's resources may be heavily taxed by prolonged litigation. See In re Exxon Valdez Icicle Seafoods, Inc., 229 F.3d 790, 795 (9th Cir. 2000) ("the general policy of federal courts to promote settlement before trial is even stronger in the context of large-scale class actions"). Settlement cannot come, however, at the expense of the class action mechanism itself to the detriment of putative class members. The distribution of misleading information in order to exact ...

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