Settlement of class action lawsuit against Consumer Buyline
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
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HELEN RHODES, on behalf of herself and all others similarly situated, |
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Plaintiff, |
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Civil Action 92-10877K |
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vs. |
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KEITH RANIERE and CONSUMERS' BUYLINE, INC. |
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Defendant. |
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STIPULATION AND AGREEMENT OF SETTLEMENT
WHEREAS:
A. On our about August 21, 1992, Plaintiff filed her First Amended Class Action Complaint ("Amended Complaint") on behalf of herself and all others similarly situated, in the United States District Court for the District of Massachusetts against Consumers' Buyline, Inc. ("CBI") and Keith Raniere ('"Raniere") (hereinafter jointly referred to as "Defendants"). The action was brought on behalf of all persons who purchased membership in CBI from May 1, 1990 through the date of the filing of the Amended Complaint (August 21, 1992) and who allegedly suffered economic loss thereby.
B. In her Amended Complaint, Plaintiff alleged violations of the following
by each of the defendants: (I) Sections 12(1) and 12(2) of the Securities act of 1933; (ii) Section 10(b) of the Securities Exchange Act of 1934; (iii) civil provisions of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. ξ1962 (a), ξ 1962 (c) and ξ1962(d) ("RICO"); (iv) common law fraud and deceit; (v) false advertising in violation of N.Y. Gen. Bus. Law ξ350; (v) operating a chain distributor scheme in violation of N.Y. Gen. Bus. Law ξ359-fff; (vi) deceptive acts and practices in violation of N.Y. Gen. Bus. Law ξ349; and (vii) operating an illegal lottery in violation of the United States postal lottery law, 39 U.S.C. ξ3005.
C. In response to the amended Complaint, Defendants served and filed a
motion to dismiss all counts of the Amended Complaint. In an Order dated May 10, 1993, Judge Robert Keeton of the U.S. District Court for the District of Massachusetts denied Defendants' motion to dismiss the counts alleging violations of federal securities law, false advertising, common law fraud and deceptive acts and practices, and granted Defendants' motion to dismiss each of the counts alleging violation of the civil RICO provisions, as well as the counts under N.Y. Gen. Bus. Law ξ359-fff and 39 U.S.C. ξ3005.
D. Also in response to the amended Complaint, Defendants moved to compel
arbitration of this matter, pursuant to an arbitration clause in the CBI Affiliate Agreement which was signed by Plaintiff and all members of the putative class, and requested that the Court stay the matter pending resolution of the arbitration proceeding. On May 10, 1993, as part of the same Order referred to above, Judge Keeton denied the motion to stay and refused to compel arbitration, on the grounds that Plaintiff had made a prima facie showing that Defendants' marketing plan violated N.Y. Gen. Bus. Law ξ359-fff, as well as the public policy of both New York and Massachusetts.
E. Defendants have appealed judge Keeton's ruling on their Motion to Stay to the U.S. Court of Appeals for the First Circuit. Their appeal is pending.
F. Plaintiff has served requests for production of documents upon each of the Defendants, In partial response to those requests, Defendants have produced nearly 8,000 pages of documents. Plaintiff's counsel have had the opportunity to review such documents and have spend substantial amounts of time in connection with the document review and analysis. Additionally, plaintiff's counsel have engaged experts who have consulted with counsel and assisted with the analysis of the records produced by defendants.
G. As part of the appellate process, the Court of Appeals directed the parties to participate in pre-argument mediation pursuant to the Civil Appeals Management Program (CAMP) The First Circuit's Office of settlement Counsel appointed the Honorable Alice Daniel, a former judge of the New York Supreme Court, to serve as mediator. The parties attended a series of mediation sessions before Judge Daniel, both in person and by telephone, in order to discuss the possibility of settlement.
H. Counsel of plaintiff have made a
thorough study of the legal principles applicable to the Settled Claims, have
conducted extensive discovery relating to those claims, have thoroughly
evaluated the likelihood of success if the case proceeded to trial. The
decision of Plaintiff and her Counsel to settle is not an admission that the
Amended Complaint lacks merit, but is based primarily on Defendants' weak
financial condition and inability to pay an significant judgement which might
be rendered in this matter. Based upon these undertakings, the Plaintiff and
her counsel have concluded that it will be impossible to obtain a judgment,
whether by trial or settlement, which will provide any restitution for the
putative Class alleged in Plaintiff's Amended Complaint, that the d
Defendants are unable to pay the costs of any settlement to the putative Class,
that the injunctive relief provided for herein will benefit the putative Class,
and that nothing herein will bar or prejudice any member of the putative Class
from seeking any relief against the Defendants.
I. The Defendants contend that the Amended Complaint is meritless and have at all times denied, and contain to deny, that they have committed, or have threatened to committed, or have threatened to commit, any wrongful acts or violations of law to any nature whatsoever in connection with the allegations in either the original complaint or Amended Complaint, or any other matter related in any way to any aspect of CBI or its business and operations, or its dealings with CBI members or distributors.
J. Plaintiff's Counsel have engages in extensive arms-length negotiations with
counsel for the Defendants with respect to the settlement of the claims. Those negotiations included conferences before the mediator, as set forth above. The Defendants, while continuing to deny all allegations of liability, also desire to settle and terminate the claims against them so as to avoid further lengthy and time-consuming litigation and the burden, inconvenience and expense connected therewith.
NOW, THEREFORE, IT IS HEREBY STIPULATED, CONSENTED TO AND AGREED, by and among the undersigned attorneys, on behalf or their respective clients, as follows:
A. DEFINITIONS:
1."Person" means any individual, corporation, partnership, association, joint
stock company, trust, unincorporated association, entity, government and any political subdivision thereof, or any other type of legal entity.
2."Claims" means any and all causes of action under federal, state or
common law or equity, claims, suits, demands, rights, liabilities, damages, losses, fees, costs or expenses of any kind whatsoever, whether class, direct, representative or individual in nature, known, unknown or otherwise, suspected or unsuspected, fixed or contingent, accrued or unaccrued, and whether or not concealed or hidden, which have been, could have been or might in the future be asserted by Plaintiff and her agents, heirs, executors, administrators, successors, or assigns or any of them against any of the Defendants, their officers, directors or employees, or the agents, heirs, executors, administrators, successors or assigns of any of them, arising from, or relating in any manner to, any of the following: (i) any matter complained of in this litigation; (ii) the presentation, offering or sale of any CBI memberships; (iii) any presentation, offering, recruitment, sale or participation with respect to any CBI distributor or Affiliate position; and (iv) any matter complained of in any other pending litigation relating to or involving any of the above.
3. "CBI Membership" means only those amounts paid to purchase a CBI membership.
4. "Membership Fee" means only those amounts paid to purchase a CBI membership.
5. "Distributors" or "Affiliates" means individuals who have submitted applications to CBI to be authorized to sell CBI memberships and recruit other affiliates, and who have been approved as such by CBI.
B. EQUITABLE RELIEF
As consideration for the release of all claims by Plaintiff against the Defendants,
Defendants agree to the following equitable relief:
1. Defendants CBI agrees to cease and desist from all business activities
involving the recruitment of members, distributors or affiliates through a multi-level form of direct marketing.
2. Defendant Raniere shall implement and strictly enforce the following policies
and procedures with respect to any multi-level marketing program of which he is an officer, director or controlling person:
a. All promotional materials for such program will specify that individuals wishing to become affiliates/distributors, or the equivalent of such person, are not required to make any purchase or payment which violates any federal or state securities or consumer protection law. The purchase of any product or service by an affiliate/distributor will not in any manner affect the level of commissions to be earned by that affiliate/distributor. Such program will require anyone who becomes an affiliate or distributor to sign a disclaimer stating that he/she has been informed of the above policy.
b. Such program will provide for separate and distinct marketing materials for the sale of products or services to members or consumers and for the recruitment of affiliates/distributors, or the equivalent of such persons.
c. No claims concerning the potential for commission earnings by affiliates/distributors, or the equivalent of such persons, including testimonial earnings claims, shall be made in any promotional materials for such program, unless the average earnings of affiliates/distributors, or the equivalent of such persons, are also disclosed.
d. Such program will not implement any requirement that affiliates/distributors, or the equivalent of such persons, must sell one membership for each affiliate or distributor he/she recruits, nor engage in marketing which has the effect of creating a one-to-one relationship between members and affiliates/distributors.
e. Such program will not make unsubstantiated representations about the amount, type, nature or frequency of savings realized by its members who purchase products and services through its program. Such program shall also affirmatively disclose all limitations, terms or conditions of all such transactions at the time of membership solicitations.
The Equitable Relief described above shall remain binding upon the Defendants
for a period of three years from the entry of final judgment in this matter. The parties agree that the above Equitable Relief constitutes valuable consideration to be given by the Defendants and received by the Plaintiff Helen Rhodes.
C. PLAINTIFF'S ATTORNEYS' COSTS
As further consideration for Plaintiff's release of all claims against
Defendants, Defendants agree to reimburse Plaintiff's counsel in the amount of $25,000.for costs incurred in the prosecution of this matter. This consideration shall be paid by Defendants as follows: (i) $10,000.upon the execution of this Stipulation of Settlement; (ii) 45,000.thirty (30) days after execution of this Stipulation of Settlement; (iii) $5,000.sixty (60) days after execution of this Stipulation of Settlement; and (iv) $5,000.nently (90) days after execution of this Stipulation of Settlement. The parties agree that the above payment of Plaintiff's attorneys' costs constitutes valuable consideration to be given by the Defendants and received by the Plaintiff Helen Rhodes.
D. FINANCIAL CONSIDERATIONS
As stated above, one of the major considerations for Plaintiff in entering into the proposed settlement is the weak financial condition of the Defendants and the apparent inability of the Defendants to satisfy any significant monetary judgement, to pay an meaningful restitution to the Members of the Class, or even to pay the costs of notice to the Members of the Class, or even to pay the costs of notice to the Members of the Class. Therefore, as a condition precedent to the settlement, Defendants shall submit to Plaintiff's counsel on or before July 8, 1994, affidavits and documentary proof of their financial condition and inability to satisfy a judgment, including as to Raniere, an attestation that his total current net worth does not exceed negative one million dollars (-$1,000,000.), and for each, that no insurance coverage is available for the claims asserted in the Amended Complaint.
E. RELEASE OF CLAIMS
1. Individual Plaintiff's Release Of Defendants.
Upon the entry of final judgment, Plaintiff, individually and not on behalf of the putative Class Members, completely, voluntarily, knowingly, unconditionally and forever releases, remises, acquits and discharges each of the Defendants, their current and former officers, directors, employees, trustees, attorneys, insurers, and their respective heirs, executors and administrators, representatives, successors and assigns, from each and every claim on behalf of herself, her heirs, executors and administrations, legal representatives, successors, and assigns, for good and sufficient consideration, the receipt of which is herein acknowledged; and shall be deemed to have released each Defendant, their current and former officers, directors, employees, trustees, attorneys, insurers, and their respective heirs, executors and administrators, legal representatives, successors and assigns from any and all Claims, together with attorneys fees, interests and costs, except that nothing herein releases any claim arising out of a violation of this Stipulation of Settlement. It is expressly understood and agreed that nothing in this Release shall bar any putative Class member from seeking any remedy from the Defendants arising out of or related to the amended complaint or otherwise.
2. Defendants' Release Of Plaintiffs And Plaintiff's Counsel.
Upon the entry of final judgment, the Defendants shall be deemed to have individually, completely, voluntarily, knowingly, unconditionally and forever released, remised, acquitted and discharged Plaintiff and Plaintiff's Counsel from every and all asserted of potential, separate, joint, individual, or other claims, actions, rights, causes of action, demands, liabilities, losses and damages of every kind and nature, anticipated or unanticipated, direct or indirect, fixed or contingent, known or unknown, under federal, state or common law, or any other law or regulation, or at equity, against Class counsel and the Plaintiff or any of them for, based upon or by reason of the institution, prosecution, assertion or resolution of this litigation or the Claims, except that nothing herein releases any claim arising out of a violation of this Stipulations of Settlement.
3. Without in any way limiting the preceding, the parties acknowledge that they
may have sustained damages, expenses and losses in connection with the subject matter of the Claims which are presently unknown or not suspected and that such damages, expenses and losses, if any, may give rise to additional damages, expenses or losses in the future which are not now anticipated by them. The Parties acknowledge that this Stipulation and the foregoing releases have been negotiated and agreed upon in light of this realization and, being fully advised thereof, hereby expressly waive any and all rights that they may have under any statue or common law principle which would limit the effect of the foregoing releases to those claims actually known or suspected to exist at the time of execution of this Stipulation of Settlement.
F. TOLLING AGREEMENT
This Settlement Agreement does not settle or release any claims of any putative Class members arising out of or related to the causes of action asserted in the Amended Complaint, other than those of the Plaintiff Helen Rhodes. The filing of the Complaint tolled the statute of limitations as to any such claims, which were not already barred at the time the Complaint was filed, until the date a final judgment is entered in this actions. Nothings in this agreement shall preclude or stop the Defendants from raising any defense to any claim which may be asserted by any Class Member, other than the tolling of nay applicable statute of limitations during the pendency of this action as set forth in this paragraph.
G. NOTICE
It is the understanding of the parties that in light of the Plaintiff's voluntary dismissal of her motion for class certification, and in light of the provisions of this agreement which expressly recognize the rights of putative class members to asset any and all claims against the Defendants, that no notice to the members of the putative class is required under Rule 23 of the Federal Rules of Civil Procedure.
H. EFFECT OF DISAPPROVAL CANCELLATION OR TERMINATION
1. This Stipulation of Settlement shall become null and void in the event that the Court modifies or refuses to approve any material apart of this Stipulation, or if, on appeal, an appellate court materially modifies the final judgement or the terms of the Stipulation of Settlement, unless all parties hereto promptly agree in writing to proceed with the settlement effected by this Stipulation of Settlement as and if modified after the determination of the Court or an appellate court. In particular, if the Court requires either or both of the parties to provide notice of this settlement to the putative class, this shall constitute a material modification of this Stipulation, making such Stipulation null and void. a) In the event that the Stipulation of Settlement is not approved by the Court, then: a) this Stipulation of Settlement shall become null and void, and of no further force and effect; (b) this Stipulation of Settlement and all negotiations, statements, releases, and proceedings relating there to shall be, except with respect to disputes arising in connection with subpart (c) below, without prejudice to the rights of nay and all parties hereto, shall not be used for nay purpose whatsoever in any subsequent proceeding in this litigation or in any other action in any court or tribunal, and shall not be construed to be an admission or concession by any party hereto; and (c) any amounts paid to Plaintiff or Plaintiff's counsel in consideration of the settlement of this matter shall be refunded to the Defendants. In such event, the parties to this Stipulation shall be deemed to have reverted to their respective status as of the date and time immediately prior to the execution of this Stipulation and they shall proceed in all respects as if this Stipulation and related orders had not been executed.
I. SUBMISSION OF SETTLEMENT TO COURT FOR REVIEW:
FINAL JUDGMENT
1. Promptly following execution of this Stipulation of Settlement, and
the payment of the Plaintiff's Attorney's Costs as set forth in Section C. above, the parties shall apply to the Court for the entry of an Order:
a. approving the settlement;
b. withdrawing Plaintiff's Motion for Class Certification; and
c. dismissing Defendants' appeal to the First Circuit.
2. If the Court approves the settlement as set forth in this Stipulation
of Settlement, then an Agreed Order and Judgment (the "Final Judgment") substantially in the form attached hereto as Exhibit shall be entered in this action:
a. directing that this action be dismissed as to named Plaintiff only,
without costs and without costs and without prejudice as to the other Class Members, in full and final discharge of the Claims against the Defendants;
b. reserving jurisdiction over all further proceedings in this actions, including the administration and consummation of this settlement and the enforcement of the provisions hereunder for equitable relief;
c. finding that all claims for contribution, indemnification, or
reimbursement, however denominated, against Defendants arising under federal or state law, including those based in tort, contract, or statute, or any other body of law, in favor of persons who are asserted to be or who may be joint tortfeasors or wrongdoers, however denominated, with the Defendants, are extinguished discharged, satisfies, barred, enjoined and/or otherwise unenforceable;
d. directing that the judgement entered pursuant hereto be deemed final pursuant to Fe. R. Civ. P. 54(b).
J. NON-ADMISSION OF LIABILITY OF THE DEFENDANTS
Neither this Stipulation of Settlement, nor the settlement embodied therein, nor the payment or provision of any consideration provided for in this Stipulation of Settlement nor any action taken in accordance with the terms and conditions set forth here in (a) is or shall be construed or deemed to be an admission by the Defendants or their past or present officers, directors, employees, predecessors, executors, administrators, legal representatives, successors, representatives, agents, attorneys, heirs or assigns respecting the validity or invalidity of any of the claims asserted or of damages or of the Defendants' liability with respect to any such claim, or of any alleged wrongdoing by any of them whatsoever; or (b) shall be offered for admission in any proceeding or utilized in any manner whatsoever as evidence of any such alleged liability or wrongdoing or of any such amount of damages; provided, however, that nothing contained in this paragraph shall preclude the Stipulation of Settlement from being used, offered or received in evidence in any proceeding to approve, enforce or otherwise effectuate the settlement.
K. MISCELLANIOUS PROVISIONS
1. The parties hereto and their attorneys agree to cooperate fully with one
another in seeking Court approval of this Stipulation of Settlement and to use their best efforts to effect the consummation of this Stipulation of Settlement and the settlement provided for herein.
2. This Stipulation of Settlement, including the Exhibits hereto, shall be binding
on and inure to the benefit of the Parties hereto, including all Class Members, and their respective heirs, successors, assigns, executors, administrators and legal representatives.
3. All of the Exhibits attached hereto are hereby incorporated by this reference as though fully set forth herein.
4. This Stipulation may be amended or modified only by a written instrument
signed by all Parties or their successors-in-interest. Counsel may sign the written instrument on behalf of Parties.
5. The waiver by one Party of any breach of this Stipulation by an other Party
shall not be deemed a waiver of any other prior or subsequent breach of this Stipulation.
6. This Stipulation and its exhibits constitute the entire agreement among the
parties hereto, and no representations, warranties or inducements have been made to any Party concerning this Stipulation or its exhibits other than the representations, warranties and covenants contained and memorialized in such documents.
7. This Stipulation may be executed in one or more counterparts. All executed
counterparts and each of them shall be deemed to be one and the same instrument provided that counsel for the Parties to this Stipulation shall exchange among themselves original signed counterparts.
DATEDD: July____,1994
GILMAN AND PASTOR
By: ________________________
Kenneth G. Gilman
BBO# 192760
David Pastor
BBO # 391000
