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Sesto v. Prospect Chartercare, LLC

United States District Court, D. Rhode Island

June 6, 2019



          William E. Smith, Chief Judge.

         Before the Court is a joint motion pursuant to Rule 23 of the Federal Rules of Civil Procedure seeking preliminary certification of a settlement class, appointment of class counsel, and preliminary approval of a proposed settlement in this action. The motion is brought by Plaintiffs and Defendants CharterCARE Community Board (“CCCB”), St. Joseph Health Services of Rhode Island (“SJHSRI”), and Roger Williams Hospital (“RWH”) (collectively, “Settling Parties”).[1] Two other groups of parties - the Diocesan Defendants[2] and the Prospect Entities[3] (collectively, “Non-Settling Parties”) - have objected to preliminary approval and moved for discovery concerning whether the proposed settlement was the product of good-faith negotiations. See Joint Mot. for Leave to Propound Limited Disc. Related to the Settlement Agreement Between Pls. & CharterCARE Community Board, ECF No. 103.

         For the reasons that follow, the Joint Motion for Settlement Class Certification, Appointment of Class Counsel, and Preliminary Settlement Approval by Plaintiffs and Defendants SJHSRI, RWH, and CCCB (ECF No. 63) (“Joint Mot.”) is GRANTED. The Joint Motion for Leave to Propound Limited Discovery Relating to Settlement Between Plaintiffs and CCCB (ECF No. 103) is also GRANTED.

         I. Preliminary Approval Under Rule 23(e)

         Rule 23(e)(2) permits the Court to approve a class action settlement only if the proposed agreement is fair, adequate, and reasonable. Fed.R.Civ.P. 23(e)(2); In re Pharma. Indus. Average Wholesale Price Litig., 588 F.3d 24, 32 (1st Cir. 2009). At the preliminary approval stage, however, a less rigorous standard applies: the Court need only determine whether the settlement “appears to fall within the range of possible final approval.” Trom-bley v. Bank of Am. Corp., Civil No. 08-cv-456-jd, 2011 WL 3740488, at *4 (D.R.I. Aug. 24, 2011); see also Armstrong v. Bd. of Sch. Dirs. of City of Milwaukee, 616 F.2d 305, 314 (7th Cir. 1980), overruled in part on other grounds by Felzen v. Andreas, 134 F.3d 873 (7th Cir. 1998). Preliminary approval should not be confused for a final finding of reasonableness or fairness. The first step is merely to “ascertain whether notice of the proposed settlement should be sent to the class . . . .” 4 William B. Rubenstein, Newberg on Class Actions § 13:13 (5th ed. 2018); see also Flynn v. N.Y. Dolls Gentlemen's Club, No. 13 Civ. 6530(PKC)(RLE), 2014 WL 4980380, at *1 (S.D.N.Y. Oct. 6, 2014) (“Preliminary approval requires only an initial evaluation of the fairness of the proposed settlement on the basis of written submissions and an informal presentation by the settling parties.”) (quoting Clark v. Ecolab, Inc., No. 07 Civ. 8623(PAC), 04 Civ. 4488(PAC), 06 Civ. 5672(PAC), 2009 WL 6615729, at *3 (S.D.N.Y. Nov. 27, 2009) (quotation marks omitted)).

         The Court concludes that preliminary approval is warranted here. The proposed terms of the settlement are set forth in the Settling Parties' settlement agreement, ECF No. 63-2 (“Settlement Agreement”). The basic terms of this proposal provide that the Settling Defendants will make an initial lump sum payment of at least $11, 150, 000 to the Receiver. RHW will also assign to the Receiver its interest in an escrow account held by the Rhode Island Department of Labor and Training with a current balance of $750, 000. CCCB will transfer to the Receiver its interest in non-settling defendant CharterCARE Foundation as well as its membership interest in non-settling defendant Prospect CharterCARE. The Settling Defendants are also required to petition the Rhode Island Superior Court to undergo judicial liquidations, pursuant to which their remaining assets will be distributed to creditors, including the Plaintiffs. For these undertakings, the Settling Defendants will receive releases of liability.[4] The Plaintiffs and the proposed settlement class will also release the current officers and directors of the Settling Defendants, with one exception.

         The Non-Settling Parties sound alarms about many of the Settlement Agreement's terms and what those terms may (or may not) reveal about the character of the Settling Parties' negotiations. For instance, the Settlement Agreement includes two surprising concessions by the Settling Defendants, who admit liability for breach of contract and represent that the amount necessary to fund the St. Joseph Health Services Of Rhode Island Retirement Plan (“Plan”) is at least $125, 000, 000. Settlement Agreement ¶ 28. The Settling Defendants also purport to represent that “their proportionate fault in tort, if any, in causing [alleged] damages is small compared to the proportionate fault of the other defendants . . .” Id. at ¶ 30. The Non-Settling Parties contend, among other objections, that these statements demonstrate wrongful collusion. See, e.g., Diocesan Defs.' Opp'n to Joint Mot. 13, ECF No. 73.

         The Court has considered the Non-Settling Parties' arguments and nevertheless concludes that preliminary approval is warranted. On their face, the fundamental terms of the settlement appear fair, reasonable, and adequate with respect to the proposed class, subject to this Order's other terms. See Fed.R.Civ.P. 23(e)(2). Some proposed terms may cause a cautious reader to raise an eyebrow.[5] However, these statements could also reflect an arm's length negotiation by experienced and informed counsel. As explained below, some further investigation is warranted, but the Court is satisfied that the Settlement Agreement “fall[s] within the range of possible final approval[, ]” Trombley, 2011 WL 3740488, at *4.[6]

         II. Settling Parties' Request for a Good Faith Finding Under R.I. Gen. Laws § 23-17.14-35

         In 2018, the Rhode Island General Assembly established certain ground rules for settlements that are unique to this litigation. Those rules are codified in R.I. Gen. Laws § 23-17.14-35, which states:

The following provisions apply solely and exclusively to judicially approved good-faith settlements of claims relating to the St. Joseph Health Services of Rhode Island retirement plan, also sometimes known as the St. Joseph Health Services of Rhode Island pension plan:
(1) A release by a claimant of one joint tortfeasor, whether before or after judgment, does not discharge the other joint tortfeasors unless the release so provides, but the release shall reduce the claim against the other joint tortfeasors in the amount of the consideration paid for the release.
(2) A release by a claimant of one joint tortfeasor relieves them from liability to make contribution to another joint tortfeasor.
(3) For purposes of this section, a good-faith settlement is one that does not exhibit collusion, fraud, dishonesty, or other wrongful or tortious conduct intended to prejudice the non-settling tortfeasor(s), irrespective of the settling or non-settling tortfeasors' proportionate share of liability.

         The Settling Parties have requested that the Court declare the Settlement Agreement to be a “good faith settlement” as defined in this statute. See Mem. In Supp. of Joint Mot. 2, ECF No. 63-1. Such a determination is not required for the Court to grant preliminary approval under Rule 23 and the Court declines to make such a ruling here.[7] The Settling Parties' request is, however, denied without prejudice and may be renewed in connection with any final fairness determination.

         III. The Prospect Entities' Request for Discovery

         The parties have collectively put the good-faith nature of the proposed settlement at issue in this action. The Non-Settling Parties' have identified specific terms in the Settlement Agreement that they interpret as evidence of collusive conduct between the Settling Parties. These terms include the Settling Defendants' concessions of liability and damages and their characterization of the defendants' relative degrees of fault. See Settlement Agreement ¶¶ 28, 30. The Settling Parties have also put the circumstances surrounding the settlement front-and-center through their request for a finding under R.I. Gen. Laws § 23-17.14-35.

         This context, combined with the Court's independent obligation to determine whether the proposed settlement was the product of “non-collusive negotiations, ” see Trombley, 2011 WL 3740488, at *4, persuades the Court that the Prospect Entities' request for targeted discovery is appropriate. Accordingly, the Court will permit the parties sixty days from the date of the entry of this order to conducted limited discovery concerning whether the settlement was executed in good faith and is not collusive in accordance with Rule 23 of the Federal Rules of Civil Procedure and R.I. Gen. Laws § 23-17.14-35.[8]

         Accordingly, parties may propound targeted document requests and notice the depositions of persons with relevant knowledge. The Court will neither indulge unfettered exploration nor tolerate time-consuming stonewalling. Any discovery request shall be narrowly tailored to the subject at hand. The Court expects that any investigation will be pursued cooperatively, expeditiously, and with precision within the allotted time.[9]

         IV. Certification of Class, Class Representatives, and Class Counsel .

         To qualify for preliminary certification, a proposed settlement class must satisfy the requirements of Federal Rule of Civil Procedure Rule 23(a) and one of the three categories in Rule 23(b). See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 621 (1997). Rule 23(a) ...

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