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In re American Family Enterprises

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY


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 litigation...." In re Prudential Ins. Co. of America Sales Practices Litig., 148 F.3d 283, 317 (3d Cir. 1998), quoting Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir. 1975).

These factors

are a guide and the absence of one or more does not automatically render the settlement unfair. Rather, the court must look at all the circumstances of the case and determine whether the settlement is within the range of reasonableness under Girsh. Bone Screw, 176 F.R.D. at 184 (citation omitted).

A. The Complexity, Expense, and Duration of the Litigation.

14. Many of these cases have been pending for over two and one-half years. They have, collectively, already consumed millions of dollars in attorney time and litigation expenses on both sides. While significant discovery has been conducted, additional work remains to be done to fully prepare the cases for trial. See In re Warner Communications Securities Litigation, 618 F. Supp. 735, 745 (S.D.N.Y. 1985), aff'd, 798 F.2d 35 (2d Cir. 1986) ("Although much discovery has been conducted, much would remain if the parties were to go to trial."). At trial, Plaintiffs would likely need to introduce expert testimony to establish liability and damages. See In re Prudential Ins. Co. of America Sales Practices Litig., 962 F. Supp. 450, 539 (D. N.J. 1997) ("another potential risk may be plaintiffs' necessary reliance on expert testimony to establish liability and damages; a jury's acceptance of expert testimony is far from certain, regardless of the expert's credentials. And, divergent expert testimony leads inevitably to a battle of the experts."). Given the large sums of money at issue, the losing party is almost certain to appeal. See In re Ikon Office Solutions, Inc., 194 F.R.D. 166, 2000 WL 567104 (E.D. Pa. 2000) ("the extremely large sums of money at issue almost guarantee that any outcome, whether by summary judgment or trial, would be appealed. This factor thus weighs in favor of the proposed settlement."). The bankruptcy of the principal Defendant, AFE, may further complicate and delay a final resolution of this matter through litigation. Accordingly, the complexity, expense, and duration of the litigation weigh heavily in favor of approval of the proposed settlement. See, e.g., Prudential, 148 F.3d at 318 ("The court found that litigation would require expensive and time consuming discovery, would necessitate the use of several expert witnesses, and would not be completed for years. Consequently, the court concluded that this factor weighed in favor of settlement. We agree.").

B. The Reaction of the Class and Subclass to the Proposed Settlement.

15. On balance, the response of the Class and Subclass to the proposed settlement has been very favorable. The Class and Subclass each have tens of millions of members, placing them among the largest of which the Court is aware. Over 143,000 persons filed claims with the Settlement Administrator, seeking a share of the proposed settlement. Fewer than 150 Class Members have objected in any way to the proposed settlement, with the plurality of these claiming entitlement to sweepstakes grand prizes based on their receipt of and response to the standardized sweepstakes mailings. See Prudential, 148 F.3d at 318 (district court properly discounted objections filed by handful of litigants in cases with competing or overlapping claims). This represents an infinitesimal fraction of both the Class and Subclass. While courts are more cautious today about inferring support from a small number of objectors to a sophisticated settlement, the principal economic terms of this settlement are relatively straightforward (i.e., partial refunds and special sweepstakes), and the small number of objections weighs in favor of approval. Id.; Bone Screw, 176 F.R.D. at 185 ("It would certainly be preferable if there were no objections but that would be contrary to a mature and realistic expectation in a settlement such as this one. . . . [T]he relatively low objection rate `militates strongly in favor of approval of the settlement'" (citation omitted)).

16. In addition, a number of State Attorneys General have agreed to settle their parens patriae claims against AFE on the basis, inter alia, that their residents will receive pro rata shares of the Refund Pool. This also militates in favor of approval of the Proposed Settlement. See Prudential, 962 F. Supp. at 537-38 ("The Court also finds as an extremely favorable indicator of class reaction, the fact that the insurance regulators in all fifty states and the District of Columbia have accepted the proposed settlement as fair and adequate. Thus, the regulators of all the states as representatives of their constituencies have indicated their complete approval of the proposed settlement.").

C. Stage of Proceedings and Amount of Discovery Completed.

17. As set forth in their Memorandum, Lead Counsel had the benefit of significant formal and informal discovery before entering into the proposed settlement. Much of this information was provided informally by the Defendants to facilitate settlement discussions, with the knowledge and approval of the Court. See Prudential, 148 F.3d at 319 ("the court found that class counsel's `use of informal discovery was especially appropriate in this case because . . . informal discovery could provide the information that plaintiffs needed.' . . . We see no error here."). The Court has observed that Lead Counsel were able to use this information effectively in their negotiations with the Defendant Parties, and finds that Lead Counsel had an adequate appreciation of the merits of their claims, both as to liability and damages, before entering into the proposed settlement. Accordingly, the stage of proceedings, and the amount of discovery completed, weigh heavily in favor of the proposed settlement.

D. The Risks of Establishing Liability and Damages.

18. A number of Courts have adjudicated claims against American Family Publishers and other sweepstakes companies that are very similar to the claims asserted by the Class Representatives and the other plaintiffs in the MDL Litigation, both in terms of the legal theories and the underlying facts. With one exception, these claims have been dismissed on the pleadings or the plaintiffs have suffered summary judgment, and several of these decisions have been affirmed by the Fourth, Sixth, and Ninth Circuits. See, e.g. Workmon v. Publishers Clearing House, 118 F.3d 457 (6th Cir. 1997) (affirming district court's denial of motion to amend to add statutory consumer fraud claim as futile, finding that in light of conditional language, plaintiff's belief that he had won the sweepstakes was not reasonable; affirming grant of summary judgment on breach of contract claim based on presence of conditional language); Freeman v. Time, Inc., 68 F.3d 285 (9th Cir. 1995) (affirming dismissal of statutory consumer fraud and common law fraud claims, finding that in light of qualifying language, and taken in context, a reasonable person would not be deceived by sweepstakes mailing, and it was doubtful plaintiff suffered any damages; plaintiff did not challenge district court's dismissal of breach of contract claim); Sharpe v. American Family Publishers, 25 F.3d 1040, 1994 WL 224180 (4th Cir. 1994) (unpublished disposition) (affirming grant of summary judgment on statutory consumer fraud and common law fraud claims, finding that plaintiff could not establish either reasonable reliance on or damages proximately caused by representations). However, in Miller v. American Family Publishers, 284 N.J. Super. 67, 663 A.2d 643 (1995), the trial Court found that plaintiffs' claims under the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1, et seq., and for common law fraud presented triable issues of fact. The Court does not have motions to dismiss or motions for summary judgment before it, and does not now resolve the disputed questions of fact and law that such motions may present. The Court finds only that in light of the conflicting decisions of other Courts that have decided similar questions, Plaintiffs face substantial risks in establishing both liability and damages. Accordingly, these risks weigh heavily in favor of the proposed settlement.

E. The Risks of Maintaining the Class Action Through Trial.

19. The Defendant Parties have stipulated to the certification of the Class and Subclass for settlement purposes, and have reserved all of their defenses to class certification if the proposed settlement is not approved. Accordingly, under Amchem Prods. v. Windsor, 521 U.S. 591 (1997), the Court need not and does not decide at this time whether the Class and Subclass would remain certifiable through trial if the proposed settlement is not approved. As the primary relief sought by the Class is injunctive, the Class may remain certifiable through trial under Rule 23(b)(2) of the Federal Rules of Civil Procedure. Unless the Defendant Parties' financial condition improves dramatically, the Subclass may also remain certifiable through trial under Rules 23(b)(1)(A) and Rule 23(b)(2) of the Federal Rules of Civil Procedure. However, the bankruptcy of AFE and MA, and the decision they may face whether or not to continue in business if this settlement were to fail, may have a substantial impact on one or both of these issues. The Third Circuit has recently observed that this sixth Girsh factor has become "toothless" and insignificant. Prudential, 148 F.3d at 321. Accordingly, its application to the proposed settlement is also insignificant.

F. Ability to Withstand a Greater Judgment.

20. In a limited fund settlement, "[i]t is inherent . . . that [the defendant] would not be able to withstand a greater aggregation of judgments than the proposed settlement amount . . . ." Bone Screw, 176 F.R.D. at 186. See also In re General Motors Corp. Pick-Up Truck Fuel Tank Prod. Liab. Litig., 55 F.3d 768, 784 (3d Cir. 1995) ("a settlement may represent the best method of distributing damage awards to injured plaintiffs, especially where litigation would delay and consume the available resources and where piecemeal settlement could result, in the Rule 23(b)(1)(B) limited fund context, in a sub-optimal distribution of the damage awards"). As set forth above, the Defendant Parties cannot withstand any significant judgment at all, let alone a greater judgment than the $33 million in monetary relief being offered in compromise. Accordingly, this factor weighs most heavily in favor of the proposed settlement.

G. Range of Reasonableness of the Settlement Fund in Light of the Best Possible Recovery and All the Attendant Risks of Litigation.

21. The Claims Administrator reports that the Subclass Members who have submitted eligible claims will receive an average of $511, representing approximately 90% of their Maximum Refunds. *fn1 This is an excellent result for any contested litigation, let alone a case in which the principal Defendants are in bankruptcy without any net worth or liquidation value, and in which, while Class Members' hopes for sweepstakes prizes may have been dashed, they unquestionably received the consumer magazines and merchandise they ordered, generally at discount prices. In light of the risks the Class Representatives face in establishing liability and damages at trial, prevailing on appeal, the attendant delays in payment, and the Defendant Parties' inability to satisfy a greater judgment, the Court finds that the proposed settlement is fair, adequate, and reasonable, under the nine Girsh factors. See Prudential, 962 F. Supp. 541 ("The Court finds also that the proposed settlement is fair, reasonable, and adequate in light of the best possible recovery and the attendant risks of litigation. To estimate the best possible recovery for plaintiffs in the aggregate would be exceedingly speculative, and unnecessary here. In the present case, an individual's recovery exceeds the value of the best possible recovery discounted by the risks of litigation."); 148 F.3d at 322 (affirming district courts analysis, noting that class members "will receive full compensation without paying attorneys fees and without delay").

H. Opinion of Experienced Counsel.

22. In determining the fairness, adequacy, and reasonableness of a proposed settlement, significant weight should also be given "to the belief of experienced counsel that settlement is in the best interest of the class," so long as the Court is satisfied that the settlement is the product of "good faith, arms-length negotiations." Bone Screw, 176 F.R.D. at 184 (internal quotations and citations omitted). The Court has had ample opportunity to observe the conduct of Lead Counsel in their negotiations with the Defendants, and finds that Lead Counsel have extensive experience in complex class action litigation; that the proposed settlement is the product of extensive, good faith, arms-length negotiations; and that significant weight should therefore be given to the belief of Lead Counsel that the proposed settlement is in the best interests of the Class and Subclass.

V. OBJECTIONS TO THE PROPOSED SETTLEMENT.

23. The Court has received communications from approximately 175 Class Members, most of them unrepresented by counsel, concerning the proposed settlement. Approximately ten Class Members, their counsel, and/or relatives appeared at the Final Approval Hearing. Of these, nine spoke regarding the settlement. Several of these presentations were not, strictly speaking, objections, and in fact Class Members Cecilia Maitland and Sandra Giura spoke generally in favor of the settlement. One Class Member present used the occasion to fill out and submit a claim form to ensure her receipt of benefits under the settlement.

24. The Court has reviewed and considered each of the many written communications it has received from Class Members, and they will be addressed in the categories into which they fall.

A. Objections from Class Members Seeking Sweepstakes Prizes.

25. The most common objection to the proposed settlement is from Class Members who believe that they have won one or more significant sweepstakes prizes from AFE based on their receipt of and response to AFE's form letter sweepstakes mailings. Many of these Class Members have supplied the Court with the sweepstakes mailings they received from AFE on which they base their claims. These Class Members are unhappy with the proposed settlement because it will not require AFE to pay them these prizes, and will release AFE from any obligation to do so. *fn2

26. The Court has reviewed the sweepstakes mailings provided by these Class Members, and finds that they contain the identical conditional, qualifying language, such as "If you have the winning number, please be advised . . . .", that is featured in the mailings sent to the Class as a whole. AFE has submitted an uncontroverted affidavit that all of its mailings during the Class Period contained similar qualifying language, Lead Counsel have extensively examined these standard mailings and compared them to the exemplars that the objectors are submitting to support their claims to unique treatment, and the fact of uniformity is apparently not in dispute. The Court has also received an affidavit from a representative of AFE attaching lists of the winners of all of the sweepstakes prizes over $250 it has awarded during the Class Period, and confirming that none of these objectors appear on any of these lists.

27. The chief objection of the Class Members who appeared to object at the Final Approval Hearing likewise centered around their belief that the mailings they had received from the defendants uniquely entitled them to claim a sweepstakes prize. They did not have any appreciation that the mailings they received, although they were personalized by computer, are in fact duplicates of mailings sent to millions of other class members. Indeed, the specific representations and suggestions in these mailings constitute the basis of the common claims of the entire class, not unique claims of any Class Members. And while that was difficult for these Class Members to comprehend, appreciate, and accept, the Court has reviewed the mailings provided by these objecting Class Members, compared them to AFE's standardized mailings that have been provided by the parties, and has concluded that in fact the operative language is identical and does not give rise to any unique claims on the part of individual Class Members.

28. "Courts judge the fairness of a proposed compromise by weighing the plaintiff's likelihood of success on the merits against the amount and form of the relief offered in the settlement. They do not decide the merits of the case or resolve unsettled legal questions." Carson v. American Brands, Inc., 450 U.S. 79, 88 n.14 (1981). However, AFE and other sweepstakes companies have been subject to similar claims for sweepstakes prizes in other cases. In each of these other cases, these claims have been dismissed on the pleadings, or the plaintiff has suffered summary judgment. See, e.g., Fazio v. Time, Inc., 142 F.3d 443, 1998 WL 225062 (9th Cir. Apr. 24, 1998) (unpublished disposition) (affirming dismissal of breach of contract claim); Workmon v. Publishers Clearing House, 118 F.3d 457 (6th Cir. 1997) (affirming grant of summary judgment on breach of contract claim based on presence of conditional language); Freeman v. Time, Inc., 68 F.3d 285 (9th Cir. 1995) (affirming dismissal of statutory consumer fraud claims based on presence of conditional language; plaintiff did not challenge district court's dismissal of breach of contract claim); Billet v. American Family Publishers, 822 F.2d 61, No. 86-2387, slip op. (unpublished disposition) (9th Cir. 1987) (affirming dismissal of breach of contract claim); Fozard v. Publishers Clearing House, 1:98cv00149, slip op. (E.D. N. C. Apr. 29, 1999) (dismissing breach of contract claim based on presence of conditional language); Mobley v. Fred C. Shotwell of American Family Publishers Million Dollar Sweepstakes, No. C-3-90-422, slip op. (S.D. Ohio July 12, 1991) (granting AFP's motion for summary judgment on breach of contract claim); Silvious v. American Family Publishers, No. CA-90-40-C-K (N.D. W. Va. July 30, 1990), aff'd, 922 F.2d 836 (4th Cir. 1991) (granting AFP's motion for summary judgment on breach of contract claim); Alvarado v. The Reader's Digest Ass'n, Inc., No. 89CV1776, 1989 WL 200951 (D.N.J., Oct 10, 1989) (Wolin, J.) (granting summary judgment on breach of contract claim).

29. The Court concludes that Class Members' claims that they are entitled to prize money by virtue of their receipt of and response to AFE's sweepstakes mailings do not have a sufficient probability of success to be assigned any value in weighing the fairness of the proposed settlement. Curtiss-Wright Corp. v. Helfland, 687 F.2d 171, 174-75 (7th Cir. 1981) ("Not only is the class action procedure equitable in origin, but the allocation of an inadequate fund among competing complainants is a traditional equitable function - using `equity' to denote not a particular type of remedy, procedure, or jurisdiction but a mode of judgment based on broad ethical principles rather than narrow rules. To make an equitable allocation in this case the judge did not have to resolve trial-type issues of liability and therefore did not have to conduct a trial. He had only to weigh the relative deservedness of Curtiss-Wright and the other class members, and he could do this on the basis of the undisputed facts before him." (citations omitted)).

30. The same sweepstakes mailings on which these objecting Class Members base their assertion of unique claims or entitlement to preferential treatment were also sent to millions of other Class Members, many of whom also responded by ordering magazines or merchandise within the time allowed. Accordingly, to the extent these claims have any value, they do not belong exclusively to the objectors, but belong to the entire Subclass, and the Subclass Representatives have asserted these claims on their behalf, both in the Master Complaint filed in these MDL proceedings, and in a number of other complaints filed at the inception of this litigation in early 1998. By dividing the limited settlement fund in proportion to these purchases, the proposed settlement fairly allocates the available funds among the holders of these claims as well. 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"). *fn3

B. Objections to the Amount of the Proposed Settlement.

31. A number of Class Members object to the amount of the proposed settlement on various grounds. Several complain that Class Members will receive little or nothing under the proposed settlement. In fact, as set forth above, Subclass Members who filed eligible claims with the Settlement Administrator will receive average refunds of over $500, representing approximately 90% of their eligible claims. This is a significant sum.

32. Several Class Members object that the $33 million settlement fund constitutes only a fraction of the revenues or profits earned by AFE during the Class Period. However, AFE's revenues or profits are not the appropriate measure of damages. See Memorandum Opinion and Order, Vollmer v. Publishers Clearing House, No. 99-CV-434-GPM (S.D. Ill. Feb. 18, 2000) ("Vollmer,"), at 37-38.

33. Several Class Members complain that AFE has convinced them that they had won or were about to win the sweepstakes, causing them varying degrees of mental anguish, for which a number of them seek additional compensation. Such claims of emotional distress are governed by an objective, "reasonable person" standard. See Restatement (Second) of Torts, § 46, com. j ("The distress must be reasonable and justified under the circumstances, and there is no liability where the plaintiff has suffered exaggerated and unreasonable emotional distress, unless it results from a peculiar susceptibility to such distress of which the actor has knowledge."). All of the members of the Class and Subclass received substantially similar mailings from AFE, and it is reasonable to assume that those Class Members who became "obsessed" with the sweepstakes were among AFE's most frequent and loyal customers. Accordingly, allocating the available settlement funds in proportion to each Class Member's purchases is the fairest method of distributing compensation for these claims as well.

C. Objections Based on Alleged Misconduct of AFE.

34. A number of Class Members focus on the egregiousness of AFE's alleged misconduct, for which a number of Class Members object that AFE should be required to pay punitive damages. However, single damages, not treble or punitive damages, are the appropriate yardstick by which the fairness of a proposed class action settlement should be measured. See In re Dennis Greenman Sec. Litig., 622 F. Supp. 1430, 1441 (S.D. Fla. 1985) ("potential treble recovery (or, for the same reason, punitive recovery) should not be superimposed as a yardstick for measuring the adequacy of a settlement, lest the settlement negotiation process be derailed before leaving the station"), rev'd on other grounds, 829 F.2d 1539 (11th Cir. 1987); Fisher Bros. v. Phelps Dodge Ind., Inc., 604 F. Supp. 446, 451 (E.D. Pa. 1985) (reasonableness of settlement should be evaluated based on single, rather than treble damages).

35. Similarly, several Class Members would like to see defendants criminally prosecuted. This is a civil matter, and the Class Representatives do not have the power to institute criminal proceedings. It is also worth noting that the Attorneys General of 45 States and the District of Columbia, who do have that power, and who have closely scrutinized the business practices of AFE, have also elected to pursue civil, rather than criminal remedies. One Class Member objects that the proposed settlement and/or Plan would give Defendants immunity from criminal prosecution. It does not. See Hanlon v. Chrysler Corp., 150 F.3d 1011, 1028 (9th Cir. 1998) ("The attorneys general remain free to act as they see necessary to enforce the consumer laws of their state. Chrysler and Class counsel cannot prohibit state enforcement and never argued they could.").

36. Similarly, a number of Class Members object that AFE should be denied bankruptcy protection because of its alleged misconduct. *fn4 Issues related to the Defendant Parties' bankruptcy will be addressed in a separate order concerning their proposed plan of reorganization. However, the Court notes here that past misconduct is not a ground for denying a business relief under Chapter 11. See In re Jake's on the Pike, 78 B.R. 461, 462 (Bkrtcy. E.D. Va. 1987) (exceptions to discharge do not apply to corporations, partnerships, or other non-individuals).

D. Objections to the Allocation Formula.

37. Several Class Members object to the allocation formula, under which the $32 million Refund Pool will be divided among Subclass Members in proportion to their purchases during the Class Period which exceed the greater of $40 per year or the percentage of their total purchases influenced by the belief that a purchase was either necessary to win or enhanced their chances of winning a sweepstakes prize, as reported on their Claim Forms.

38. AFE contends that Class Members have not suffered any damages, because they received the magazines they paid for. See Miller, 284 N.J. Super. At 87-88, 90-91, 663 A.2d at 654-55 ("Plaintiffs here claim that [they] suffered `ascertainable loss' because they relied on defendant's misleading sales material when they purchased magazine subscriptions. They say they paid money because they were told, and believed, that for their money they would receive two things: first, a magazine subscription; and second, the ability to remain a part of defendant's sweepstakes . . . and an enhanced likelihood of winning the sweepstakes. They acknowledge that they received the first. They say that they did not receive the second."). The Class Representatives contend that many Class Members were induced by AFE's sweepstakes mailing to make excessive purchases. According to official U.S. Census figures, of which the Court takes judicial notice, adults in the United States spent an average of approximately $40 per year during the Class Period on consumer magazines, which are what AFE sells. Accordingly, the Court finds that the allocation formula is fair, adequate, and reasonable, because it takes into account a reasonable value received by Class Members for their purchases (based on an objective reference point), which is one of AFE's principal defenses. See also Vollmer, at 38-39 (fact "that only a fraction of Defendants' customer base purchased more than the national average in magazines during the Class Period" indicates that "only a fraction of PCH's customers made purchases for the `wrong' reasons").

39. One Class Member complains that the $40 threshold discriminates against low income individuals. There is no evidence in the record that lower income Class Members will be disproportionately affected by the $40 threshold. For example, the Class Representatives have provided the Court with information indicating that a number of elected officials apparently believe that the poor account for a disproportionate number of ticket sales in state-run lotteries. See G. Lucas, Lottery Says People of All Incomes Play, But Legislators Suspect Disproportionate Buying by Poor Residents, San Francisco Chronicle, Dec. 15, 1999, at A9, 1999 WL 2702969. If this perceived phenomenon extends to sweepstakes purchases, then lower income individuals made more purchases, have higher claims, and will receive larger refunds under the settlement. Even assuming, arguendo, that the $40 threshold has a disparate impact on lower income Class Members, it would not constitute a denial of equal protection, as the threshold has a rational basis, as set forth above. See Black v. Sec. of Health & Human Services, 93 F.3d 781, 787-89 (Fed. Cir. 1996) (threshold of $1,000 in unreimbursable expenses for benefits under National Childhood Vaccine Injury Act did not deny indigent persons equal protection despite disparate impact, because there was a rational basis for the eligibility test, and "[w]hile the statute contains an express expense requirement, it does not classify petitioners based on their ability to pay").

40. One Class Member objects that there will be no distributions to Class Members of less than $5. This is a de miminis amount. See Fed. R. Bankr. P. 3010 ("In a chapter 7 case no dividend in an amount less than $5 shall be distributed by the trustee to any creditor unless authorized by local rule or order of the court."). The parties have also submitted evidence that it is the usual custom and practice in class action settlements to have a similar threshold below which checks will not be issued, because the administrative cost of doing so exceeds the benefit.

E. Objections to the Scope of Injunctive Relief.

41. Two Class Members object to the scope of the injunctive relief contained in the proposed settlement. One Class Member objects that AFE needs to be clear that its contests span a number of years, *fn5 and that the chances of winning are infinitesimal. The proposed settlement addresses both of these concerns, by: (1) requiring that AFE award its grand prizes annually, rather than bi-annually, for a period of three years; and (2) requiring that the Official Rules contained in all AFE solicitations include (a) the sweepstakes end dates, and (b) the estimated odds of winning each prize.

42. One Class Member requests that the Official Rules contain a prominent statement that all entries must be returned by U.S. Mail, and wants all promotional materials dated so that Class Members can determine the date their entries must be postmarked. The proposed settlement addresses these concerns, by requiring that AFE solicitation materials provide a clear description of the entry process, and clear directions for determining the date that entries must be postmarked.

F. Objections to the Special Sweepstakes.

43. Several Class Members object to the special sweepstakes component of the proposed settlement, under which ten Class Members selected at random will each receive cash prizes of $100,000. These objectors question the purpose of the special sweepstakes; argue that it is a "lure," "bait, "bribe," or "gimmick" to attract claimants; is inconsistent with the basis of the case; and/or are suspicious that the prizes will not be awarded randomly.

44. Many Subclass Members have stated on their Claim Forms that they ordered magazines and/or merchandise from AFE in the mistaken belief that such purchases were either necessary to win or enhanced their chances of winning a sweepstakes prize. The purpose of the special sweepstakes is to give such Subclass Members the "benefit of the bargain" they thought they had made, by awarding a number of special sweepstakes prizes, with the winners selected at random from among the members of the Subclass. See Miller 284 N.J. Super. at 88, 663 A.2d at 654 (plaintiffs "say they paid money because they were told, and believed, that for their money they would receive two things: first, a magazine subscription; and second . . . an enhanced likelihood of winning that sweepstakes. . . . They say they did not receive the second."). As the Court explained in rejecting objections to a similar component of the Publishers Clearing House settlement:

The Automatic Sweepstakes Entries relief, also known as the "benefit of the bargain" relief, . . . also confers a benefit on the Settlement Class. The relief provides a specific remedy for a specific claim that is central to this litigation, namely, that people bought items from PCH because they thought that purchasing the items would give them a better chance to win the Sweepstakes. By giving each member of the Subclass additional entries over and above any entries he or she may already have in future Sweepstakes, members of the Subclass are getting what they thought they were getting by making purchases.

Offering additional entries to PCH's sweepstakes does not promote PCH. Entries are automatic and do not require Class Members to conduct any business with PCH or indeed take any action at all. Vollmer, at 49-50.

45. Neither is there any basis for objectors' suspicions that the drawing may not be random. The Settlement Agreement expressly provides that the winners will be selected in a random drawing conducted by an independent judging company, and that the Class Representatives may have an independent monitor review the conduct of the special sweepstakes.

G. Objection to the Release of the Non-Settling Defendants.

46. Several Class Members object that the proposed settlement would release parties other than the Defendant Parties, AFE, MA, TAF, and AFPA. AFE and MA are insolvent, and TAF and AFPA have no significant assets other than their interests in the insolvent entities. The proposed settlement is being funded entirely by defendant Time, Inc. and AFP Partners, LLC (an entity affiliated with AFPA), acting on behalf of themselves, their affiliated entities, and defendants McMahon and Clark, who are the beneficiaries of longstanding indemnification agreements with AFE. *fn6

47. The amounts being contributed by and on behalf of these additional released parties are sufficient to reimburse Subclass Members for approximately 90% of their ascertainable losses, which is a fair and reasonable compromise irrespective of the "limited fund" nature of the proposed settlement. Courts have consistently held that so long as the total compensation paid to the plaintiff class is fair, it does not matter that even noncontributing parties are released by a settlement:

In evaluating the fairness of a settlement, this court must determine only that sufficient compensation is being paid to the class, and need not speculate as to the appropriate contribution of each defendant. The release of noncontributing defendants through a settlement agreement is no reason for disapproving the compromise. Duban v. Diversified Mortgage Investors, 87 F.R.D. 33, 40 (S.D.N.Y. 1980) (citations omitted) (overruling objections that settlement was not fair because "corporation contributed largest share of settlement fund while individually named defendants . . . contributed nothing"). See also Percodani v. Riker-Maxson Corporation, 50 F.R.D. 473, 477 (S.D.N.Y. 1970) ("the primary interest of the court should be to see that plaintiffs receive what is rightfully owed them in return for relinquishing of legal claims by them. Accordingly, the release of noncontributing defendants through a settlement agreement is no reason for disapproving the compromise"); Glicken v. Bradford, 35 F.R.D. 144 (S.D.N.Y 1964) (overruling objections to release of noncontributing shareholders, noting that "the primary interest of the court in approving a settlement resides in" what the plaintiff receives, not in which of the defendants compensates the plaintiff). *fn7 If the release of even noncontributing parties is permissible, then a fortiori, the release of additional parties here, who are contributing the entire amount of the settlement, poses no obstacle to its approval.

H. Objection Based on North Carolina Law.

48. One Class Member argues that AFE's solicitations violate North Carolina General Statutes §§ 75-32, 75-33, and 75-34, and that under § 75-16, the penalty for these violations is three times the amount of AFE's $11 million grand prize. That is not the remedy these statutes provide. Section 75.16 prescribes the remedy for violations of these other sections, but it is treble the damages suffered, not treble the prize. See N.C. Gen. Stat. § 75-16 ("If any person shall be injured . . . by reason of any . . . violation of the provisions of this Chapter, such person . . . shall have a right of action on account of such injury done, and if damages are assessed in such case judgment shall be rendered . . . for treble the amount fixed by the verdict."); Ellis v. Smith-Broadhurst, Inc., 268 S.E.2d 271, 274 (N.C. App. 1980) ("[a]s an essential element of plaintiff's cause of action, plaintiff must prove . . . that plaintiff has suffered actual injury as a proximate result of defendants' misrepresentations"). Accordingly, the damages recoverable by this Class Member under North Carolina law are no different than the damages recoverable by all Class Members on their claims under the New Jersey Consumer Fraud Act. See N.J.S.A. § 56:8-19 (providing treble damages for violations).

I. Other Objections.

49. A number of Class Members have objected to the proposed settlement and/or plan of reorganization without stating any basis for their objection. A number of other Class Members have objected on grounds not specifically addressed above, including, without limitation, Class Members expressing concern that the settlement will deprive past grand prize winners of their prizes; alleging that AFE has used their name without permission for promotional purposes; unsupported allegations that the independent judging organization which selects the winners of AFE sweepstakes falsified the winning numbers to deprive a Class Member of their prizes; numerous objections concerning Publishers' Clearing House mailings; and other objections that are either unclear or unintelligible. The Court has considered these other objections and finds that they are without merit, and are therefore overruled.

VI. APPROVAL, IMPLEMENTATION, AND ENFORCEMENT OF SETTLEMENT

50. The Court hereby approves the terms and provisions of the Settlement Agreement, and finds that it has been entered into in good faith and is fair, adequate, and reasonable as to, and in the best interests of, each of the Parties, the Class Members, and the Subclass Members pursuant to Rule 23 of the Federal Rules of Civil Procedure, and approves the Settlement Agreement pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure. All objections that have been made to the proposed settlement are overruled.

51. In light of the Defendant Parties' inability to satisfy the claims asserted against them, the Court finds that the funds available to Subclass Members from this settlement are substantially greater than the funds, if any, that would be available to Subclass Members in the absence of this settlement. The Parties and Class Members are hereby directed to implement and consummate the Settlement Agreement according to its terms and provisions. Without limiting the generality of the following -

a. The means for the allocation among Claimants, and the distribution to them, of the Refund Pool are found to be fair, adequate, and reasonable, and the Parties are hereby directed to implement them in accordance with the Settlement Agreement;

b. The Automatic Special Sweepstakes is found to be a lawful, reasonable and appropriate means to distribute a portion of the Consumer Fund to Subclass Members, and the Defendant Parties are hereby directed to implement it in accordance with the Settlement Agreement;

c. The injunctive relief provided in the Settlement Agreement is found to be reasonable, appropriate, and of substantial continuing benefit to the members of the Class, and to the public at large, to reform and correct the practices that the plaintiffs in the MDL Litigation and the Attorneys General have alleged to be deceptive or misleading, and the Defendant Parties are hereby directed to comply with it; and

d. The Claims Administrator is directed to pay all otherwise eligible claims received by the Claims Administrator after May 5, 2000 but on or before August 9, 2000.

52. As set forth in Article VII, Section C of the Settlement Agreement, at the sole discretion of the Defendant Parties and without further approval of this Court, the Defendant Parties may implement the provisions of Article VII of the Settlement Agreement at any time after entry of this Final Order and Judgment, but reserve the right to refrain from doing so until after all conditions to the effectiveness of Article VII have been satisfied.

53. The Claims Completion Date for purposes of determining AFE's liability for certain guaranteed amounts due to the residents of various States pursuant to agreements with State Attorneys General shall be the first business day that is at least thirty (30) days after the commencement of distribution of the Refund Pool.

54. The terms of the Settlement Agreement and of this Final Order and Judgment shall be forever binding on, and shall have res judicata and preclusive effect in, all pending and future lawsuits maintained by the Class Representatives and all other Class Members and Releasing Parties as set forth in Article IX of the Settlement Agreement.

55. The Release which is set forth in Article IX of the Settlement Agreement is incorporated herein in all respects and is effective as of the date of this Final Order and Judgment to forever release and discharge the Released Persons (as defined below) from all Released Claims (as defined below) of the Releasing Persons (as defined below) and bar the Releasing Persons from commencing, continuing, maintaining or asserting any of the Released Claims against any of the Released Persons in any judicial, arbitral, regulatory, administrative or other forum in any jurisdiction. Such Release is an essential, non-severable term of the Settlement Agreement.

As used herein -

a. "Affiliate," as to AFE, means Mailist Associates, MA and Merchandise Associates. "Affiliate," as to TAF or AFPA, means any Person which, directly or indirectly, controls, is controlled by or is under common control with, or ever controlled, was controlled by or was under common control with, TAF or AFPA, respectively. For purposes of this definition, a Person (a "Controlled Person") shall be deemed to be controlled by another Person (a "Controlling Person") if the Controlling Person possesses, directly or indirectly, power to direct or cause the direction of the management and policies of the Controlled Person whether by contract or otherwise. As to AFPA, "Affiliate" also includes the lineal descendants of Nicholas J. Pritzker, deceased, trusts for their benefit and Persons controlled by such descendants and/or such trusts.

b. "Defendants" means the following persons or entities, or certain of them: AFE; MA; TAF; AFPA; Time, Inc., a Delaware corporation; Time Warner, Inc., a Delaware corporation; Warner Communications, Inc., a Delaware corporation; Time Customer Service, Inc., a Delaware corporation; AFP Associates, a Delaware general partnership; Richard Clark, an individual; Olive Enterprises, Inc., a Pennsylvania corporation; Ed McMahon, an individual; and any other Released Person that is a defendant in the Litigation.

c. "Person" means any natural person, corporation, division of a corporation, partnership, trust, joint venture, association, company, estate, unincorporated organization, government or any agency or political subdivision thereof.

d. "Released Claims" means all actions, obligations, liabilities, causes of action, suits, counterclaims, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims and demands whatsoever, in law, admiralty or equity, including (without limitation) claims of the kind mentioned in the footnote hereto and claims for compensatory, special, statutory or punitive damages and for costs, expenses and fees, whether known or unknown, suspected or unsuspected, choate or inchoate, which any of the Releasing Persons ever had, now has or hereafter can, shall or may have, for, upon or by reason of any matter, cause or thing whatsoever from the beginning of the world to the date of the entry of the Preliminary Approval Order which (a) relate directly or indirectly to, or arise from or in connection with, the conduct, promotion, techniques, solicitations, mailings, and practices and administration of AFE-related sweepstakes, including the AFP Solicitation Materials, or the marketing, billing, refunding and other financial and business practices of AFE and/or any of its Affiliates and/or their predecessors or any of the other Released Persons relating to AFE and/or its Affiliates or (b) were asserted in any Litigation.

e. "Released Persons" means any or all of the following Persons: all of the Defendants; AFE and all of its Affiliates; TAF and all of its Affiliates; AFPA and all of its Affiliates; the past, present and future officers, directors, partners, shareholders, members, employees, agents, trustees, legal representatives, insurers and attorneys of all of the foregoing; and the heirs, executors, administrators, successors and assigns of all of the foregoing.

f. "Releasing Persons" means, collectively, any or all of the following Persons: the Class Representatives; the Class Members; the past, present and future officers, directors, partners, shareholders, members, employees, agents, trustees, legal representatives, insurers and attorneys of all of the foregoing; and the heirs, executors, administrators, legal representatives, successors and assigns of all of the foregoing, in each case whether such Person is acting as an individual, a member or representative of a class or as a private attorney general.

56. Unknown Claims Released.

a. Class Representatives, acting on behalf of themselves and each Class Member hereby, have expressly waived and released any and all provisions, rights and benefits conferred by California Civil Code § 1542 (or by similar legal provisions in other states), which reads:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR;

or by any law of any state or territory of the United States, or principle of common law, which is similar, comparable or equivalent to California Civil Code § 1542. Class Representatives and each Class Member may hereafter discover facts other than or different from those which he or she knows or believes to be true with respect to the Released Claims and, if known by him or her, might have affected his or her decision to grant the Release contained in the Settlement Agreement, but Class Representatives and each Class Member have expressly waived and fully, finally and forever settled and released any known or unknown, suspected or unsuspected, contingent or non-contingent claim with respect to the Released Claims, whether or not concealed or hidden, without regard to the subsequent discovery or existence of such different or additional facts.

b. Class Representatives, acting on behalf of themselves and each Class Member, have specifically waived any rights they may have under Louisiana Civil Code Article 3083 (or any other comparable federal or state law), including but not limited to any purported right to challenge the validity or seek the rescission of, or to vitiate, the Settlement Agreement on the ground that any information was kept concealed from any of the Class Representatives or Class Members by any of the Released Persons, any right to rescind the Settlement Agreement having been expressly waived.

57. All Class Members are permanently barred and enjoined from, directly or indirectly, filing, commencing, prosecuting, maintaining, intervening in, or participating in (as class members or otherwise) any lawsuit, claim, demand, or proceeding in any jurisdiction that is based on or related to the Released Claims, or the facts and circumstances related thereto, or the Master Complaint; and all persons are permanently barred and enjoined from organizing or soliciting the participation of Class Members into a separate class for purposes of filing, commencing or prosecuting a lawsuit as a class action in any jurisdiction (including by seeking to amend a pending complaint to include class allegations, or seeking class certification in a pending action) that is based on or related to the Released Claims, or the facts and circumstances related thereto, or the Master Complaint.

58. This Final Order and Judgment, the Settlement Agreement, any document referred to herein, any action taken to carry out this Final Order and Judgment, any negotiations or proceedings related to any such documents or actions, and the execution and implementation of the Settlement Agreement, shall not be construed as, or deemed to be evidence of, an admission or concession with regard to any fault, wrongdoing or liability whatsoever, and shall not be offered or received in evidence in any action or proceeding in any court, administrative agency or other tribunal for any purpose whatsoever, other than as evidence of the settlement or to enforce the provisions of this Final Order and Judgment and the Settlement Agreement; provided, however, this Final Order and Judgment and the Settlement Agreement may be filed only by any of the Released Persons in any action against or by any of the Released Persons to support a defense of res judicata, collateral estoppel, release, good faith settlement, or judgment bar or any theory of claim preclusion or issue preclusion or similar defense or counterclaim.

59. This Court hereby dismisses on the merits and with prejudice, without attorneys' fees or costs to any party except as provided herein, all of the individual claims, class claims, and private attorney general claims alleged in the Master Complaint and other actions pending before the Court as part of the MDL Litigation (a list of which is attached hereto as Exhibit A), and each of those actions are hereby dismissed on the merits and with prejudice.

60. The enforcement of the injunctive relief set forth in Article VII of the Settlement Agreement shall be governed by an objective "reasonable person" standard. Accordingly, for the purposes of the interpretation and enforcement of such provisions, the Court shall apply the standard of review adopted by the Federal Trade Commission in In Re Cliffdale Assoc., Inc., 103 FTC 110, 165 (1982); 1983 Policy Statement, 4 Trade Reg. Rep. (CCH) & 13,205 at 20,913 (i.e., whether the challenged conduct, under the circumstances, is likely to mislead reasonable consumers).

61. The provisions of this Final Order and Judgment may be enforced on motion by any Class Member; provided, however, that prior to filing such a motion, the Class Member or his or her counsel must confer with Lead Counsel (or other such counsel as may be appointed by the Court) regarding the alleged violation, as set forth below:

a. If Lead Counsel determine that the Class Member's allegations have sufficient merit, Lead Counsel shall provide written notice of any alleged violation of this Settlement Agreement to Defendant Parties' counsel, as provided below. The written notice shall set forth with reasonable specificity the conduct alleged to be in violation of this Settlement Agreement, and the specific provision which is alleged to be violated. Upon receipt of the written notice by Defendant Parties' counsel, Defendant Parties shall have a period of thirty (30) days from their receipt of the notice within which to respond to the notice and/or attempt to resolve the violation;

b. If Lead Counsel determine that the Class Member's allegations lack sufficient merit, they shall so inform him or her in writing, and the Class Member may thereafter present the dispute to the Court or a mediator, as provided herein, through other counsel or pro se. A determination by Lead Counsel that the Class Member's allegations lack sufficient merit shall not be discoverable, admissible, or entitled to any weight in any such proceedings before the Court or a mediator, except that on request of the Class Member, Defendant Parties, or the Court or a mediator, Lead Counsel shall certify to the Court or a mediator that the prerequisites to the initiation of such proceedings by the Class Member have been satisfied. In this circumstance, the Class Member shall follow the procedures set forth for Lead Counsel in paragraph (a), above;

c. If Defendant Parties have not responded to the written notice within thirty (30) days of its receipt, and/or have not within this period resolved the alleged violation to the satisfaction of Lead Counsel or the Class Member, as the case may be, the dispute may be submitted to non-binding mediation upon the request of either party. The parties shall agree on a mutually acceptable mediator. The mediator shall make no findings, but rather, try to facilitate a settlement and then report that a settlement has or has not been reached. If a Class Member pursuing his or her own claim of a violation demonstrates that he or she cannot afford to pay the fees and expenses of a mediator, Defendant Parties have the option of paying the costs of a mediator. Otherwise, the Class Member may file the claim of violation with the Court;

d. If Lead Counsel or the Class Member, as the case may be, and Defendant Parties' counsel cannot resolve the alleged violation of this Settlement Agreement by way of the procedures outlined above in paragraphs (a) and (c), Lead Counsel may represent the Class Member, or the Class Member pursuing his or her own claim may act, in presenting the dispute to the Court upon thirty (30) days notice to Defendant Parties' counsel;

e. The Court, in its discretion, may award attorneys' fees and costs to the prevailing party.

62. The Claims Administrator is hereby authorized to perform the tax-related functions set forth in Article XIV, Setion E of the Settlement Agreement.

63. The Parties shall return or destroy documents designated as "Confidential Information" in accordance with the terms of the Court's October 21, 1998 Protective Order.

64. In the event that the settlement does not become effective in accordance with the terms of the Settlement Agreement or in the event that the Settlement Agreement terminates in accordance with Article XI thereof, then this Final Order and Judgment and the order of class certification and other terms herein, shall be rendered null and void and be vacated, and the fact of its existence shall not be offered or accepted into evidence in any court for any reason.

IT IS SO ORDERED.


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