MetLife To Settle Demutualization Litigation For $50 Million – But Class Action Plaintiffs Are To Receive $0
One might think that $50 million to settle a class action is a lot of money. It certainly sounds as if class members would receive a good payout from such a settlement. But the $50 million proposed to settle two class action lawsuits arising from the conversion of the Metropolitan Life Insurance Company from a mutual insurance company to a stock company, in a process known as “demutualization,” aren’t going to benefit the class members at all. Here’s the story:
In April 2000, MetLife demutualized. Owners of Met Life policies that were in force on September 28, 1999 were eligible to vote on the demutualization and received compensation in exchange for their interest as members of the mutual company. This compensation was distributed in part in the form of stock of MetLife, Inc., MetLife's new holding company.
Two lawsuits were brought against MetLife and MetLife, Inc. asserting various claims related to the demutualization. Both lawsuits alleged that to win the policyholders' vote to demutualize, the defendants sent an information package to policyholders' that contained false statements and omitted material facts. The plaintiffs in the federal court lawsuit alleged that the defendants violated federal securities laws. The plaintiff in the state court lawsuit alleged that the defendants violated the New York Insurance Law. Both lawsuits, which were certified as class actions, alleged that eligible policyholders were damaged as a result of the alleged misstatements or omissions. MetLife and the other defendants denied the plaintiffs' claims, arguing that their disclosures to policyholders were true, accurate and complete, and that no policyholders were damaged.
The plaintiffs and the defendants have agreed to settle the claims in both lawsuits. If the settlement is approved, MetLife will contribute $50,000,000 in settlement of the claims in these two lawsuits. Plaintiffs' litigation expenses and attorneys' fees, which must be approved as reasonable by the state of federal court, will be deducted from this amount. $2,500,000 will be contributed to nonprofit organizations selected with court approval. The balance will be contributed in assets to the “closed block” that was established in MetLife's demutualization – the closed block is an accounting mechanism that is meant to protect the dividends of participating policyholders included in the closed block, and the assets contributed to the closed block can only be used pay benefits and dividends to the holders of those policies. No settlement benefits will be paid directly to the individual class members, except that plaintiffs may apply for reimbursement of their time and effort in pursuing the case.
In other words, the amount of the settlement proposed to be distributed directly to the class is zero. The amount being paid to the closed block for the benefit of the state and federal classes, in attorneys' fees and litigation expenses, or to a nonprofit organization is $50,000,000 in the aggregate, or approximately $0.07 per share on average. The attorneys for the federal class intend to make a joint application with attorneys for the state class for reimbursement of expenses not to exceed $5 million and for attorneys' fees of up to 30% of the $50 million settlement for their work on this case (not to exceed $20 million, or approximately $0.03 per share, in fees and expenses in the aggregate). The amount of fees and expenses paid, if any, will be determined by the courts. The parties disagree on the average amount of damages per share that would be recoverable if the federal plaintiffs prevailed on each claim alleged under federal law. In the plaintiffs' view, the amount of damages would be up to $11.25 per share if they prevailed on all claims. In defendants' view, the amount of damages would be $0 per share even if the plaintiffs prevailed on all claims.
Will this be approved by the court at the end of December? Is it good for the plaintiffs? What do you think?