Blanchard v. Edgemark Financial Corp.

175 F.R.D. 293, 1997 U.S. Dist. LEXIS 12887, 1997 WL 534473
CourtDistrict Court, N.D. Illinois
DecidedAugust 25, 1997
DocketNo. 94 C 1890
StatusPublished
Cited by12 cases

This text of 175 F.R.D. 293 (Blanchard v. Edgemark Financial Corp.) is published on Counsel Stack Legal Research, covering District Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Blanchard v. Edgemark Financial Corp., 175 F.R.D. 293, 1997 U.S. Dist. LEXIS 12887, 1997 WL 534473 (N.D. Ill. 1997).

Opinion

MEMORANDUM OPINION AND ORDER

ASHMAN, United States Magistrate Judge.

Three motions are currently before this Court: Plaintiffs’ Objections to Settlement and Motion for Sanctions, Plaintiffs’ Motion to Set Aside and Vacate the Release of Plaintiff Beale’s Claims in this Action and the Related Circuit Court of Cook County Action (Motion to Set Aside and Vacate),1 and Defendants’, EdgeMark Financial Corporation, Roger A. Anderson, Charles A. Bruning, Doe Groups I and II, and Old Kent Financial Corporation (“Defendants”), Motion to Disqualify Reuben L. Hedlund And All Other Attorneys at Hedlund, Hanley & John From Further Representation Of The Plaintiff Class (“Motion to Disqualify”).

I. Background

These motions arise out of series of lawsuits filed by the parties in both state and federal court. Merchandise National Bank (“MNB”), a subsidiary of Old Kent Bank’s predecessor, Defendant EdgeMark Financial Corporation (“EdgeMark”), fired the first shot in this morass of litigation by filing a state court collection action in 1993 against Joseph S. Beale (“Beale”), seeking payment on two promissory notes; the first in the [297]*297principal amount of $1,750,000.00 and the second in the amount of $758,854.00.

Beale then filed a federal class action against EdgeMark Financial Corporation, Roger A. Anderson and Charles A. Bruning on July 15, 1994, wherein he asserted claims on behalf of himself and “all persons who sold, relinquished rights in or were deprived of ownership of shares of EdgeMark common stock on or after April 1, 1993 and on or before November 1, 1993.” In the initial class complaint,2 Beale, as the class representative, essentially alleged that the Board of Directors for EdgeMark deliberately concealed from the shareholders the fact that the company was the target of a friendly takeover bid by Old Kent Financial Corporation (“Old Kent”) and was likely to be sold at a price vastly in excess of the then current per share market price.3 The class was officially certified on August 1, 1995, when Judge Andersen adopted this Court’s Report and Recommendation and granted Beale’s motion for class certification under Fed. R. Civ. P. 23(b)(3).

In connection with the federal class action, Beale also filed a discovery petition in Illinois state court seeking the production of a letter Defendants sent to the National Association of Securities Dealers (“NASD”) in response to NASD’s inquiry into suspicious trading activity which allegedly occurred immediately prior to the announcement of EdgeMark’s sale to Old Kent. While Beale was the only named plaintiff in the discovery petition, the Plaintiffs’ contend that the petition was intended to benefit all of the class members because the document allegedly contained information which may have provided evidence of insider trading by individuals or couples affiliated with EdgeMark. On June 9, 1994, Cook County Circuit Judge Kenneth L. Gillis ordered Defendants to produce the NASD letter. This decision was affirmed by the Illinois Appellate Court on March 29, 1996 and on October 2, 1996, the Illinois Supreme Court denied EdgeMark’s petition for leave to appeal, thereby making Judge Gillis’ decision final.

Throughout the course of the MNB litigation, Beale was represented by Attorney Paul Carroll (“Carroll”) of Gould & Ratner. However, for purposes of the class action and the discovery petition suit, Beale was represented by Reuben L. Hedlund of Hedlund, Hanley & John.

At this point, the problems which resulted in the motions now before the Court commenced. On May 29, 1996, Attorney Carroll apparently approached the Defendants on behalf of Beale in an effort to ascertain the Defendants’ interest in reaching a settlement. After conferring with his clients, Defendants’ counsel, Attorney Gravelyn (“Gravelyn”), informed Carroll that the Defendants would only be interested in entering into settlement negotiations for the purpose of resolving all of the claims between the parties. The negotiations proceeded with Gravelyn acting on Defendants’ behalf and Carroll acting on Beale’s behalf, and, on June 12, 1996, a settlement was executed which resolved all of the claims between Beale and the Defendants.

As a result of the settlement, Beale agreed to pay $100,000.00 and to release all of his claims against the Defendants, including his class claims and his discovery petition claim, in exchange for the Defendants’ forgiveness of his indebtedness on the two notes which were the subject of the MNB litigation and the release of certain collateral.4 Although Beale agreed to release all of his claims against the Defendants, the settlement recognized that the class action would continue and provided for a reasonable time to enable [298]*298Plaintiffs to replace Beale as the class representative.

After it became obvious that the parties were not going to present the settlement to this Court for review and approval, the Plaintiffs filed their Objections to the Settlement and Motion for Sanctions, and later, their Motion to Set Aside and Vacate. Defendants then filed their motion to disqualify Reuben Hedlund and Hedlund, Hanley & John from further representation of the Plaintiff class. The Court addresses each of these motions below, turning first to the Plaintiffs’ Objections to the Settlement and Motion For Sanctions and Plaintiffs’ Motion To Set Aside and Vacate.

II. Discussion

A. Plaintiffs’ Objections To The Settlement and Motion For Sanctions and Plaintiffs’ Motion To Set Aside and Vacate

Plaintiffs contend that, because the settlement was not submitted to the Court for review and approval prior to execution, the Defendants violated Fed. R. Civ. P. 23(e) in procuring the settlement agreement. Further, Plaintiffs object to the settlement agreement on the ground that it was executed without the knowledge and consent of either Reuben Hedlund or the firm of Hedlund, Hanley and John and was therefore obtained in violation of Rule Of Professional Conduct 4.2. The Court addresses each argument in turn.

1. The Defendants’ Conduct Violated Federal Rule Of Civil Procedure 23

Federal Rule Of Civil Procedure 23 governs the certification and administration of federal class actions. Pursuant to subsection (e) of Rule 23, a class action may not be dismissed or compromised without the approval of the court and notice of the proposed dismissal or compromise to all members of the class in whatever manner the court directs. Fed. R. Civ. P. 23(e). Plaintiffs contend that, by failing to submit the settlement prior to execution for judicial review and approval, the Defendants have violated Rule 23(e). We agree.

Class actions impose special duties on the Court, the class representative and class counsel. The Supreme Court, in describing the responsibilities of the class representative, noted:

[h]e sues, not for himself alone, but as a representative of a class comprising all who are similarly situated. The interests of all in the redress of the wrongs are taken into his hands, dependent on his diligence, wisdom and integrity...

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Cite This Page — Counsel Stack

Bluebook (online)
175 F.R.D. 293, 1997 U.S. Dist. LEXIS 12887, 1997 WL 534473, Counsel Stack Legal Research, https://law.counselstack.com/opinion/blanchard-v-edgemark-financial-corp-ilnd-1997.