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In re American Family Enterprises

August 9, 2000

IN RE: AMERICAN FAMILY ENTERPRISES, A DELAWARE GENERAL PARTNERSHIP, ET AL., DEBTORS AND DEBTORS-IN- POSSESSION.
IN RE: AMERICAN FAMILY PUBLISHERS BUSINESS PRACTICES LITIGATION



The opinion of the court was delivered by: Hon. Nicholas H. Politan United States District Judge

Jointly Administered Under Chapter 11 of the U.S. Bankruptcy Code

MDL No. 1235 Master File No. 98 CV 1653 (NHP)

Time: 10:00 a.m.

Hon. Nicholas H. Politan Room 5054

This Document Relates To:

ALL ACTIONS

AMENDED FINAL ORDER AND JUDGMENT

This matter having come before the Court on the application of the Class Representatives and defendants American Family Enterprises ("AFE"), Magazine Associates ("MA," formerly known as and operating under the trade name "American Family Publishers"), TAF Holdings Inc. ("TAF") and AFP Associates, L.L.C. ("AFPA," and, collectively, the "Defendant Parties") for approval of the settlement set forth in the Settlement Agreement and the exhibits annexed thereto dated November 30, 1999 (the "Settlement Agreement"), and the Court having considered all papers filed and proceedings had herein and having held a hearing on whether to grant final approval to the proposed settlement on August 9, 2000, and otherwise being fully informed in the premises and good cause appearing therefor, it is ORDERED, ADJUDGED AND DECREED as follows:

1. This Final Order and Judgment adopts and incorporates herein the Settlement Agreement, and the terms defined therein. This Final Order and Judgment shall also constitute the Court's findings of fact and conclusions of law.

I. JURISDICTION

2. The Court has jurisdiction over the subject matter of this action, and over members of the Class (as defined below) including, without limitation, jurisdiction to approve the proposed settlement, grant final class certification, and dismiss these actions on the merits and with prejudice. Without in any way affecting the finality of this Final Order and Judgment, this Court hereby retains exclusive and continuing jurisdiction as to all matters relating to the administration, consummation, enforcement and interpretation of the Settlement Agreement and of this Final Order and Judgment, and for any other necessary purpose, including the enforcement and application of the injunctive relief set forth in the Settlement Agreement. This Final Order and Judgment expressly contemplates that all actions alleging breach of, and/or to enforce, the Settlement Agreement shall be brought before this Court as described below.

II. CLASS CERTIFICATION

3. The legitimacy of a settlement class was recently confirmed by the Supreme Court in Amchem Prods. v. Windsor, 521 U.S. 591 (1997).

4. The Class this Court previously certified preliminarily is hereby finally certified for settlement purposes under Rules 23(b)(2) of the Federal Rules of Civil Procedure, with respect to the claims asserted against the Defendant Parties in the Master Consumer Class Action Complaint ("Master Complaint") filed in the lead action, Jackson, et al. v. American Family Enterprises, et al., No. 98 CV 3850 (NHP). The Subclass this Court previously certified preliminarily is hereby finally certified for settlement purposes under Rules 23(b)(2) and (b)(1)(B) of the Federal Rules of Civil Procedure, with respect to the claims asserted against the Defendant Parties in the Master Complaint. The Court finds that certification of the Class and Subclass is appropriate under all of the applicable requirements of Rule 23 of the Federal Rules of Civil Procedure. The "Class" certified pursuant to Rule 23(b)(2) of the Federal Rules of Civil Procedure consists of and is hereby defined as all persons ("Class Members") residing in the United States, its Territories and the Commonwealth of Puerto Rico who, during the period of January 20, 1992 through and including December 9, 1999 (the "Class Period"), received any direct mail marketing materials containing sweepstakes entry materials sent under the name "American Family Publishers" that offered an opportunity to purchase magazine subscriptions or merchandise ("AFP Solicitation Materials"). The "Subclass" certified pursuant to Rules 23(b)(2) and (b)(1)(B) of the Federal Rules of Civil Procedure consists of and is hereby defined as all Class Members who, during the period of January 20, 1992 through and including December 9, 1999, ordered and made any payment for magazine subscriptions or merchandise in response to any AFP Solicitation Materials ("Subclass Members").

5. The requirements of Rule 23(a) of the Federal Rules of Civil Procedure are satisfied as follows:

a. Numerosity:

i. The Class and Subclass each numbers in the millions of persons.

ii. The memberships of the Class and Subclass are each ascertainable on the basis of objective criteria, and they are each so numerous that it is impracticable to bring all of them before the Court within the meaning of Rule 23(a)(1) of the Federal Rules of Civil Procedure.

b. Commonality: There is a well-defined commonality of interest among Class Members and Subclass Members, respectively, in that certain pervasive questions of law and fact are common to them. Class Representatives allege that Defendant Parties engaged in a common course of conduct to defraud all Class Members and Subclass Members through the use of substantially uniform omissions and misrepresentations in the form of the standardized AFP Solicitation Materials that were mailed to millions of Class Members. Class Representatives further allege that Defendant Parties' business practices, including their conduct, promotion and administration of the AFE-related sweepstakes, including their refund and billing practices, all of which were applied consistently to Class Members, violated federal and state racketeering laws and state unfair trade practices and consumer fraud acts. There are common questions of law and fact arising out of these allegations, including those set forth in the Master Complaint.

c. Typicality: The allegations concerning the Class Representatives arise from the same course of conduct that gives rise to the claims of the Class Members, and are based on the same legal theories, and the allegations concerning persons named as proposed representatives of the Subclass in the Master Complaint (the "Subclass Representatives") arise from the same course of conduct that gives rise to the claims of the Subclass Members, and are based on the same legal theories.

d. Adequacy Of Representation: As the Supreme Court recently stated in Amchem, 117 S. Ct. at 2236, the adequacy "inquiry serves to uncover conflicts of interest between named parties and the class they seek to represent." There are no conflicts or antagonisms between or among the Class Representatives and the Class Members and Subclass Members or between or among the Subclass Representatives and the Class Members or Subclass Members, because all allegedly have been subject to Defendant Parties' common course of conduct and will receive relief consistent with their arguable injuries. Class Representatives further satisfy another element in this inquiry in that they have retained counsel that are well-qualified to prosecute this litigation effectively and efficiently on behalf of the Class Members and Subclass Members.

6. The requirements of Rule 23(b)(2) of the Federal Rules of Civil Procedure are satisfied, without regard to any "limited fund" considerations (i.e., without regard to the requirements of Rule 23(b)(1)(B)), because Defendant Parties allegedly acted or refused to act on grounds generally applicable to the Class with respect to the Defendant Parties' business practices, including the conduct, promotion and administration of the AFE-related sweepstakes and related billing, refund and other practices, which were applied consistently to all Class Members. Accordingly, it is appropriate that final injunctive and corresponding monetary relief be given with respect to the Class as a whole, and the Settlement Agreement provides a comprehensive "package" of injunctive relief that provides detailed and explicit reforms aimed at addressing the alleged improprieties of the sweepstakes promotions, clarifying the rules, and avoiding the allegedly misleading aspects of the promotions. These are consistent with, and were developed in conjunction with, the reform measures that are the predominant feature of the settlements between Defendant Parties and the State Attorneys General.

7. At the Final Approval Hearing, at least three class members (Ms. Maitland, Ms. Giura and Mr. Ellis, on behalf of his mother) spoke regarding the importance of prospective injunctive relief. Each of these class members emphasized their concerns, not about monetary compensation, but about modifying the practices at issue in this litigation. The Court finds that the statements of these class members demonstrates the value and importance of the injunctive relief portions of the settlement to the class, and confirms the propriety of certification under Rule 23(b)(2). This conclusion is further buttressed by the statements of two Class Members, Mr. Salter and Ms. Saldanha, at the hearing. Both expressed the sincere belief that they had actually won the sweepstakes grand prizes offered by AFE, relying on uniform mass mailings they received from AFE which were no different from the uniform mass mailings received by all Class Members. The confusion exhibited by Mr. Salter and Ms. Saldahna reinforces the Court's conclusion that the injunctive relief component is an integral aspect of the settlement.

8. The requirements of Rule 23(b)(1)(B) of the Federal Rules of Civil Procedure are satisfied with respect to the Subclass for the following reasons:

a. Claims Are Readily Ascertainable. The value of the claims of Subclass Members have been ascertained through the claims process conducted under the terms of the Settlement Agreement, which called for Subclass Members to set forth the percentage of purchases they made from AFE in the belief that such purchases were necessary to win a sweepstakes prize or enhanced the chances of winning. A total of 61,025 timely, eligible, non-deficient claims were filed in connection with the claims process, representing refund claims in the amount of $35,211,125. An additional 1,516 otherwise eligible, late claims were received, which accounted for an additional $608,166 in refund claims. Accordingly, the total amount of such claims that Subclass Members have submitted has been ascertained and amounts to $35,819,291, plus the amount of any additional, otherwise eligible claims filed on or before August 9, 2000.

b. Defendant Parties' Insufficient Assets. In light of the financial information, declarations and analyses submitted for the Court's consideration, including the information submitted in connection with the Chapter 11 bankruptcy filing of Defendant Parties AFE and MA, the Court finds that the costs and risks of individual adjudications greatly exceeds the Defendant Parties' limited resources, which would soon be exhausted if individual litigation were allowed to continue, and that the assets at the disposal of the Defendant Parties constitute a "limited fund" against which claims are properly subject to class certification under Rule 23(b)(1)(B). The evidence shows that:

i. Defendant Parties AFE and MA have no value as going concerns in the absence of approval of the settlement and confirmation of the Plan. As of October 31, 1999, AFE and the other debtors collectively had a negative net worth of $13 million and had, for the previous twelve months incurred a net loss of $76 million. As of June 30, 2000, their net worth had declined to negative $36.4 million (excluding accrued liabilities for costs of the settlement). Under a liquidation analysis, no funds would be available to unsecured creditors, including Class Members;

ii. Defendant Party TAF has no significant assets other than its ownership interests in the Debtors, with such assets being less than one thousand dollars in cash; and

iii. Defendant Party AFPA has minimal assets other than its ownership interests in the Debtors, with such assets consisting of an illiquid minority interest in an office building valued as less than one million dollars.

c. Contribution Of Assets To Settlement. The Defendant Parties are contributing, or having contributed on their behalf, an amount greater than their individual and collective net worth to fund this settlement. These contributions are conditioned upon approval of the settlement, and the record establishes that the Defendant Parties would be unable to raise such additional funds in the absence of approval of the settlement.

d. Equitable Treatment Of Subclass Members. The settlement provides equitable treatment of Subclass Members by providing pro rata refunds of all eligible 牖ꊚ made by those who spent money on magazine subscriptions and merchandise under the belief that the purchases were necessary to win a sweepstakes prize or enhanced the chances of winning. See Ortiz v. Fibreboard Corp., 527 U.S. 815, 119 S. Ct. 2295, 2312 (1999) (in a limited fund settlement, the fund should be "distributed to satisfy all those with liquidated claims based on a common theory of liability, by an equitable, pro rata distribution").

In light of these facts, the prosecution of separate claims against the Defendant Parties by individual Subclass Members would create the risk of individual adjudications, which would, as a practical matter, be dispositive of the interests of other Subclass Members, or which would substantially impair the ability of other Subclass Members to protect their interests.

9. One Class Member objects that designating this action as a mandatory class is unconstitutional. A number of other Class Members have requested exclusion from the Class. However, where the requirements for certification of a class under Rules 23(b)(1)(B) or 23(b)(2) have been satisfied, there is no constitutional or other right to opt-out of the class. See In re Orthopedic Bone Screw Prod. Liability Litig., 176 F.R.D. 158, 180 (E.D. Pa. 1997) (rejecting objections to certification of limited fund settlement class, agreeing that "certification of a mandatory class under Rule 23(b)(1)(B) does not violate due process"); Dosier v. Miami Valley Broadcasting Corp., 656 F.2d 1295, 1299 (9th Cir.1981) ("Nor does due process require the unnamed plaintiffs be given a chance to opt out of Rule 23(b)(2) class actions. Due process requires only that class members be adequately represented."); Kyriazi v. Western Elec. Co., 647 F.2d 388, 393 (3d Cir.1981) ("if the case falls within Rule 23(b)(2), class members are not entitled to notice of the pendency of the action and may not opt out"); Laskey v. United Auto. Workers, 638 F.2d 954, 957 (6th Cir.1981) ("Rule 23(b)(2), Fed.R.Civ.Pro., . . . does not have a right to opt out . . . . Thus, the failure to notify the class members of the right to opt out of the class is not a violation of due process."); Robertson v. National Basketball Ass'n, 556 F.2d 682, 686 (2d Cir. 1977) ("When appropriate notice and opportunity [to be heard] have been provided, preclusion of the opt-out right in a (b)(1) settlement does not violate due process."); Wetzel v. Liberty Mutual Insurance Co., 508 F.2d 239, 252- 53 (3d Cir. 1975) ("the procedural protections of (b)(3), opting out and notice, are . . . unnecessary for the homogeneous (b)(2) class"). Accordingly, the mandatory Class and Subclass suffer no constitutional infirmities, and the opt-out requests are invalid.

10. One Class Member, who is also a named plaintiff in one of the actions transferred to this Court as part of the MDL Litigation, objects to the inclusion of absent class members in the Class. By definition, class actions include within the class persons who are not plaintiffs in any pending action, who often have little stake in the outcome, and who take no active role in the litigation. See Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812-13 (1985) (class membership may not be limited to those who affirmatively request inclusion, noting that "[t]he plaintiff's claim may be so small, or the plaintiff so unfamiliar with the law, that he would not file suit individually, nor would he affirmatively request inclusion in the class if such a request were required").

11. Accordingly, the Court hereby certifies the Class and Subclass, as described above, and the objections to class certification are overruled. III. NOTICE

12. The Court finds in its discretion that the Notice Plan, as set forth in the Settlement Agreement, and implemented by the parties, was reasonably calculated under the circumstances to apprise Class Members of the MDL Litigation and the proposed settlement, their right to object to the proposed settlement and to appear at the Final Approval Hearing, the binding effect of the orders and judgment in this action, whether favorable or unfavorable, on all Class Members, and satisfied all of the requirements for a combined notice of class certification and a proposed settlement as set forth in the Manual for Complex Litigation, Third, §§ 30.211, 30.212 (Federal Judicial Center, 1995). The affidavits submitted by the parties' notice experts, Katherine Kinsella and Wayne L. Pines, estimate, respectively, that the Notice Plan reached at least 90 to 93% of Class Members an average of 2.8 to 3.1 times. There have been no objections to the form or content of the Publication Notice or the Notice Packet, or the sufficiency of the Notice Plan, by any Class Members. The Notice Plan satisfied due process, constituted adequate and sufficient notice to all persons entitled to be provided with notice, generated approximately 143,000 claims, and fully complied with the requirements of Rule 23 of the Federal Rules of Civil Procedure and Rule 2002 of the Federal Rules of Bankruptcy Procedure.

IV. FAIRNESS, ADEQUACY, AND REASONABLENESS OF THE SETTLEMENT

13. Before giving final approval to a proposed class action settlement, the Court must determine that the settlement is "fair, adequate, and reasonable." Walsh v. Great Atlantic & Pacific Tea Co., 726 F.2d 956, 965 (3d Cir. 1983). The Third Circuit has identified nine factors that a district court should consider when making this determination:

"(1) the complexity, expense and likely duration of the litigation ...; (2) the reaction of the class to the settlement ...; (3) the stage of the proceedings and the amount of discovery completed ...; (4) the risks of establishing liability ...; (5) the risks of establishing damages ...; (6) the risks of maintaining the class action through trial ...; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery ...; (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of ...


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