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U.S. District Judge Lewis A. Kaplan of the U.S. District Court for the Southern District of New York has given conditional approval to the settlement of the price-fixing class action against Christie’s International and Sotheby’s Holdings Inc. Assuming that two significant changes are made by March 1, Kaplan said he was willing to sign off on the $537 million settlement, including its most controversial aspect: the payment of $125 million in coupons that can be applied to sellers’ commissions and other consignment-related costs. Kaplan also adopted the proposal of lead plaintiffs’ counsel Boies Schiller & Flexner to accept its fees in a form that mirrors the ratio of cash-to-coupons to be received by the class members. The firm, which prevailed in an auction to determine lead counsel when it proposed to limit fees to 25 percent of any amount above $405 million recovered for the class, will receive about $21.53 million in cash and $5.22 million worth of the discount certificates. One major sticking point for the judge in In Re Auction House Litigation, 00 Civ. 0648, was the release to be signed by so-called “mixed class members,” those who have claims based on both auctions held in the United States and auctions held abroad. Those class members said the release, as written, gives them no consideration for the surrender of claims based on auctions held in Europe. Judge Kaplan said first that the mixed class members are not being asked to waive “all claims with respect to foreign auctions.” “All that is sought in exchange for the settlement consideration is a release of the right to pursue claims based on foreign auctions in courts in this country and under U.S. law in foreign courts,” Kaplan said. Nonetheless, he said, under 2nd Circuit precedent, “there is no reason why some class members should be forced to give up something of value to enable other class members to benefit from a settlement made richer at their expense.” Here, he said, mixed class members are being given a choice between preserving their right to have a U.S. forum for their foreign auctions claims, no matter how dubious their prospects may be, and accepting money under the settlement. He said the settlement fund has been enhanced, “even if only in a very small way, by the defendants’ perception that they would thereby gain a benefit at the expense of those with foreign auction claims.” Without dictating specific alterations to the form of the settlement, Kaplan said something had to change. But it was not clear, absent altering the scope of the release, whether he was urging the parties to consider reallocating the payouts in the existing settlement to give extra consideration to the mixed class. “In these circumstances, approval of the settlement as long as it contains this objectionable feature of the release would be inappropriate,” he said. Scott T. Kragie of Squire, Sanders & Dempsey, attorney for some of the mixed-class members who objected to the settlement, said he was pleased by the judge’s ruling. “He has conditioned approval of the settlement on a significant change in the agreement,” Kragie said. “The court held that approval would be inappropriate as long as the agreement requires the release of any claims based on foreign auctions.” A second problem was that Kaplan said approval would not be forthcoming unless adjustments are made to ensure there is a fully functioning secondary market for the certificates. Under the plan, holders are entitled to use the certificates to reduce their costs at either of the auction houses or redeem the certificates for cash at the end of four years. But in the meantime, an administrator will be appointed to make a market in the certificates that would enable holders to sell them for cash. Kaplan said the auction houses must make it clear to certificate holders who use their services that sellers’ commissions and other costs can be reduced by the presentation of the certificates. Some objectors to the settlement wanted a greater percentage, if not all, of Boies Schiller’s fee to consist of certificates as opposed to cash. But Kaplan said that, unless the attorneys “collect art,” they would mostly likely sell the certificates, a move that would damage the effectiveness of the secondary market. On the overall fairness of the settlement, Kaplan was skeptical of measuring its adequacy based on the actual damages that could be recovered at trial, before damages are trebled under antitrust law. Noting that there were “few perceivable justifications of the single damages standard for the determination of the fairness of antitrust class actions,” he said the settlement fell comfortably between the “strong likelihood of a recovery of $113 to $255 million at trial,” and the uncertain possibility that an overall recovery of as much as $858 million could be attained after the trebled damages are assessed. And as to the certificates, once the adjustments are made to ensure a functioning secondary market, he said he was confident that the value of certificates “equals or exceeds 80 percent of their face value.” David Boies and Richard Drubel of Boies Schiller & Flexner represented the plaintiffs. Shepard Goldfein and Michael L. Weiner of Skadden, Arps, Slate, Meagher & Flom represented Christie’s International PLC and Christie’s Inc. Richard J. Davis, Steven A. Reiss and Howard B. Comet represented Sotheby’s Holdings Inc. and Sotheby’s Inc.

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