The opinion of the court was delivered by: PIERCE
Counsel for plaintiffs in these consolidated securities class actions petition the Court for an award of fees and disbursements in an amount totalling $553,896.75, to be paid from the Settlement Fund. For the reasons that follow, the application is granted in the amount of $495,615.00.
These actions were commenced following the 1973 merger of defendant Lerner Stores Corporation into defendant McCrory Corporation. The complaints alleged that the registration statement and the prospectus published in connection with the issuance of McCrory 7 3/4% debentures, and the proxy materials employed to achieve consummation of the merger, were false and misleading for their failure to disclose, inter alia, significant increased operating costs in the operation of S. Klein Stores, an anticipated $11,900,000 loss to McCrory due to S. Klein's financial status, plans of certain McCrory directors and officers to increase the percentage control of McCrory held by defendant Rapid American Corp., and certain alleged conflicts of interest between directors of Rapid American and McCrory.
In sum, the complaints alleged violations of Section 14(a) of the Securities Exchange Act and Rule 14(a)-9 thereunder with respect to the proxy materials, of Section 11 of the Securities Act of 1933 with respect to the issuance of the McCrory debentures, and of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder with respect to the exchange of Lerner common stock for the new McCrory debentures, which exchange effected the merger attacked by the actions. The gravamen of the complaints was the claim that the terms of the merger were highly disadvantageous to the Lerner shareholders and to the holders of Lerner warrants. Plaintiffs also claimed violations of various fiduciary duties, including the fiduciary duty of McCrory as a holder (prior to the merger) of a majority of Lerner shares. Finally, the plaintiffs alleged that holders of Lerner warrants were not informed that they could obtain shareholder appraisal by exercising their warrants to purchase Lerner common and then filing appropriate objections to the merger.
In the years following the commencement of the actions, the two cases underwent extensive litigation before the undersigned and before Judge Owen of this Court. As revealed by lead counsel's "Affidavit re Document Discovery" (Ex. 4 to the Petition), this litigation generated many thousands of documents, and the papers submitted on the settlement and on this application are no exception. Well over a year prior to the final submission of the settlement, lead counsel for plaintiffs, Richard Dannenberg, commenced extensive settlement discussions which resulted not only in the settlement approved by the Court, but also contributed significantly to a market purchase by defendant Rapid American in 1975 of some $37,715,000 in principal amount of 7 3/4% McCrory debentures, at a cost to Rapid American of some $18,860,000.
As submitted and certified by the Court on a preliminary basis prior to the consummation of the settlement, the class included all persons except defendants who acquired McCrory 7 3/4% debentures on or before September 18, 1974 (one year after the date of the merger exchange offer) and all persons who owned Lerner common or warrants on or after April 11, 1973 (the date of the announcement of the merger) and on or before September 18, 1973 (the date of the merger exchange offer).
The overall class was divided into two sub-classes. Sub-class One included all persons who were members of the class and who acquired McCrory debentures, in exchange for Lerner securities or otherwise, on or before September 18, 1974. Sub-class Two included all class members who owned Lerner securities at any time between April 11, 1973 and September 18, 1973, and who did not exchange those securities for 7 3/4% McCrory debentures on or before September 18, 1974. Thus, the class included all offerees of the exchange offers and the sub-classes are divided into those who acquired McCrory securities, and those who did not.
On November 28, 1975, the Court ordered the Frankenstein and the Girsh actions consolidated for purposes of considering this settlement. That order provided that the parties would undertake to ascertain identification of putative class members, and the parties did so, identifying approximately 18,000 class members. By stipulation filed January 29, 1976, the parties hereto agreed to a settlement of the actions.
Pursuant to an order dated February 26, 1976, the class was informed of a hearing scheduled May 18, 1976 to consider the proposed settlement. Pursuant to that order, on May 8, 1976, counsel for Herman Gross, one member of the class, filed objections to the settlement, arguing essentially that the structure of the settlement, and particularly the 1975 Rapid American "buying program" operated to favor the class members who held their debentures until late 1975, and that the settlement did not give equal benefit to those class members, such as the objector, who sold their holdings prior to the Rapid American buying program.
After careful consideration of the objections to the settlement, the Court overruled the exceptions at the hearing on May 18, 1976. In brief, the Court ruled that the settlement was quite substantial in amount, and that there was no requirement that all members of the class be treated with mathematical symmetry.
The settlement which was approved included the following items: (1) the reduction in the total amount of class claims produced by the Rapid American buying program; (2) the contribution by McCrory of some $3,550,000 in face amount of 7 3/4% debentures, or cash, or any combination thereof, to a settlement fund; and (3) $600,000 in cash for expenses and fees.
After the Court approved the settlement in May 1976, the objector took an appeal which was later withdrawn. There were no other objectors to the settlement and not more than thirty-five persons among the 18,000 class members elected to exclude themselves from the settlement.
It is not possible to place an exact dollar figure on the value of the settlement. First, the major portion of the settlement fund is comprised of marketable securities; while the market value on the date of the approval of the settlement totalled 2.1 million dollars, that figure is subject to change with the fluctuation of the market. More difficult is the question of the extent to which the 1975 Rapid American "buying program", through the urging of plaintiff's counsel directed towards buying back debentures held by class members, operated to benefit the class. The buying program cost Rapid American over eighteen million dollars. By buying back from the class and others some thirty-seven million dollars in principal amount of McCrory debentures, Rapid American's program substantially decreased the size of the class claims. Further, plaintiffs contend that by ...