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Eichenholtz v. Brennan - 52 F.3d 478 (3d Cir. 1995)


The approval of a class action settlement is committed to the sound discretion of the district court. It can endorse a settlement only if the compromise is fair, adequate, and reasonable. Where the rights of third parties are affected, it is not enough to evaluate the fairness of the settlement to the settling parties; the interests of such third parties must be considered.


International Thoroughbred Breeders (ITB) is a Delaware corporation in the business of buying, selling, and leasing interests in thoroughbred horses for breeding. In 1977, Garden State Racetrack (Garden State) burned down. In 1983, ITB proposed a plan to purchase the Garden State grounds, construct a new facility, and operate a thoroughbred and harness racing facility. ITB raised money for this undertaking through the sale of securities in four public offerings. Buyers from those four public offerings sued ITB in a class action alleging that the public offerings were elaborate schemes to generate underwriting fees and to sell ITB securities at an inflated value. They also alleged that they were without knowledge of non-public omissions and material misstatements in ITB's offerings. During the course of trial, there were some efforts to reach a settlement with the parties. The District Court approved a partial settlement. The non-settling securities purchasers elevated the case, contending that the district court judgment, which approved a settlement with some but not all defendants in a securities action, was unfair and prejudicial to them. 


Did the District Court err in approving a partial settlement?




The Third Circuit affirmed the district court's judgment, holding that the partial settlement was fair, reasonable, and adequate. The court held that non-settling defendants did fall within the recognized exception and had standing to object to the partial settlement. The court concluded that the underwriter indemnification agreements ran counter to the policies underlying the securities acts. The court held that although the non-settling defendants had a right to contribution, they did not have a right to indemnification. Therefore, the court held that the district court did not abuse its discretion in barring and extinguishing any causes of action for indemnification. The court held that the district court did not abuse its discretion in imposing the bar order with the proportionate judgment reduction provision.

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