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TRIEF v. DUN & BRADSTREET CORP.

December 28, 1993

JACK TRIEF, et al., Plaintiffs,
v.
THE DUN & BRADSTREET CORPORATION, CHARLES W. MORITZ, and ROBERT N. WEISSMAN, Defendants.


Edelstein


The opinion of the court was delivered by: DAVID N. EDELSTEIN

EDELSTEIN, District Judge:

 On September 30, 1993, this Court held a hearing, pursuant to Federal Rule of Civil Procedure 23(e), to determine whether the proposed settlement of this class action is fair, reasonable, and adequate. In addition, on September 30, 1993, this Court heard argument on class counsels' application for fees and expenses. For the reasons discussed below, the settlement of this action is approved. Class counsel is awarded attorney's fees in the amount of $ 2,187,031.20, and reimbursement of their litigation expenses, totalling $ 305,000.00.

 BACKGROUND

 I. Plaintiffs' Claims

 Plaintiffs brought the above-captioned suit pursuant to Federal Rule of Civil Procedure ("Rule") 23 on behalf of a class consisting of all persons who purchased Dun & Bradstreet Corporation common stock between October 2, 1986 and November 15, 1989 (the "Class Period"). Plaintiffs asserted that defendants Dun & Bradstreet Corporation ("D&B"), Charles W. Moritz, and Robert B. Weissman violated Sections 20(a) and 10(b) of the Securities Exchange Act of 1934 (the "1934 Act"), Securities and Exchange Commission ("SEC") Rule 10b-5, and committed common law fraud and negligent misrepresentation.

 Plaintiffs' suit is based on the alleged unlawful practices of D&B Credit Services. D&B Credit Services supplies credit information to approximately 62,000 customers. It maintains an extensive data base containing financial, credit, and marketing information on more than thirteen million companies located in the United States and abroad. Through this data base, which is the largest of its kind in the world, D&B Credit Services controls approximately ninety percent of the market for corporate credit information.

 During the Class Period, D&B's SEC filings, other publicly available documents, and statements to the public stated that D&B's earnings were growing and that D&B expected that its earnings would continue to grow. Meanwhile, according to plaintiffs, D&B developed a sales plan (the "Sales Plan") designed to defraud its customers. Plaintiffs contend that this Sales Plan led to an artificially inflated price for D&B stock.

 The Sales Plan required those who wished access to D&B's credit reports to purchase and prepay for an annual subscription of "units" from D&B. The prepaid units were then traded for D&B credit reports. Plaintiffs allege that D&B deliberately encouraged customers to over-order units. For example, the Sales Plan allegedly placed a substantial premium on additional units ordered by a customer after the customer exhausted its initial allotment of units.

 After inducing its customers to purchase more units than they might need, plaintiffs allege that D&B limited refunds and credits for those prepaid units that remained unused at the end of the year. Moreover, according to plaintiffs, D&B had full knowledge of every customer's unit usage, but as a matter of company policy it misled or failed to inform customers as to the amount of units they had consumed. Plaintiffs aver that, as a result of this scheme, customers were led to believe that they had used more units than they actually did, which induced them to renew their annual subscription of units in amounts greater than they would have had D&B provided accurate information.

 Plaintiffs allege that as a consequence of the Sales Plan, D&B obtained hundreds of millions of dollars from defrauded customers, which artificially inflated D&B's earnings and revenues. Plaintiffs assert that, absent this scheme, D&B's net earnings during the Class Period would have been materially lower or nonexistent. The increased revenues resulting from the fraudulent activities had the concomitant effect of artificially inflating the price of D&B's common stock. As a result of this scheme, plaintiffs claim that they were fraudulently induced to purchase D&B stock and were subsequently economically harmed when the stock price fell.

 In 1989, dissatisfied D&B customers began to complain that they had been charged for services that they had neither ordered nor received. On March 2, 1989, The Wall Street Journal published a front-page investigative article detailing allegations made by former D&B salesmen concerning misconduct in connection with the sale of units to customers. A number of D&B customers filed lawsuits against D&B. Defendants denied any wrongdoing. On June 23, 1989, D&B agreed to pay $ 18 million to settle a number of the lawsuits brought by D&B customers alleging fraud in connection with D&B Credit Services.

 Plaintiffs further allege that throughout the Class Period, D&B successfully withheld from the public the depth and nature of the consumer fraud scandal. Moreover, plaintiffs contend that D&B failed to reveal the true costs and impact that customer suits would impose upon D&B. On November 15, 1989, D&B disclosed for the first time that its earnings per share would fall; D&B blamed the fall on, inter alia, The Wall Street Journal's March 2, 1989 article. After D&B's November 15, 1989 announcement, D&B's common stock traded at a substantially lower price than it had prior to the announcement.

 Following this series of events, numerous suits were filed by D&B shareholders against D&B in courts throughout the country. By order of the Judicial Panel on Multi-District Litigation dated August 14, 1989, related actions against D&B, pending in other federal district courts, were consolidated in this Court. A single consolidated complaint was filed in this Court on August 24, 1989. In an Opinion & Order, dated September 22, 1992, this Court certified a class "comprised of all persons (other than the defendants, or any officer, director, or partner of any defendant, members of their immediate families or entities controlled by them) who ...


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