The opinion of the court was delivered by: GLEESON
JOHN GLEESON, United States District Judge:
On March 29, 1993, Abraham Slomovics, together with other purchasers of securities of All For a Dollar, Inc. ("Dollar"), brought this class action against that company and three of its officers, V. Martin Effron, Roger A. Slate and Christopher Catjakis (the "Officers"), alleging that they had disseminated materially false and misleading statements and omissions concerning Dollar's business, finances, markets, and present and future prospects, in violation of the Security Exchange Act of 1934 and the Securities Act of 1933. The plaintiffs have moved, pursuant to Rule 23 of the Federal Rules of Civil Procedure, for final approval of the proposed settlement of claims asserted in this securities fraud litigation. Plaintiffs have also moved for the award of attorney's fees and reimbursement of expenses. The terms of the settlement are set forth in the Stipulation and Agreement of Settlement between the parties ("the Settlement Agreement") dated May 15, 1995.
The offering materials stressed certain "selling points" for Dollar but failed to mention other variables, such as the short maturity cycle for each of its stores, which, the plaintiffs allege, caused them to contain materially misleading statements or omissions of material information. Because of these alleged misstatements and omissions, according to the plaintiffs, analysts and purchasers of stock could not engage in realistic and meaningful long-term analysis of Dollar's prospects. As a result, analysts and the plaintiff purchasers of stock were led to believe that Dollar would have higher earnings per share than it announced for its fiscal 1993 earnings, which turned out to be $ 0.42-46 per share, instead of the expected $ 0.65.
The plaintiffs commenced the instant action, alleging that defendants knew, during the period from May 5, 1992 to March 25, 1993, that financial results and trends presented by them were not in fact indicative of Dollar's future performance and, in some instances, materially false. Since these alleged misstatements were contained in Dollar's publicly-issued prospectus and registration statements, quarterly and annual reports filed with the Securities Exchange Commission, and other publicly-disseminated statements, the plaintiffs alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10(b)(5) promulgated under that act, as well as violations of Sections 11 and 15 of the Securities Act of 1933.
The case proceeded as follows:
In April and May 1993, the defendants made a motion pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss the complaint for failure to state a claim upon which relief can be granted. The court heard argument on May 21, 1993 and denied the motion on May 24, 1993. The defendants filed an Answer on June 17, 1993, denying all material allegations, and discovery continued through 1994.
On May 31, 1994, defendants filed a third-party complaint against Ladenburg and against defendants' prior counsel, Christy & Viener, alleging that if Dollar and the Officers were found liable, then such liability was based on the wrongdoing of Ladenburg and prior counsel.
On June 27, 1994 Dollar filed a bankruptcy petition in the United States Bankruptcy Court for the Western District of Massachusetts. As a result of the filing, the proceedings here with respect to Dollar were subject to an automatic stay pursuant to 11 U.S.C. § 362.
Counsel for plaintiffs and counsel for defendants engaged in intensive, arm's-length negotiations beginning in the summer of in 1993 and lasting through early 1995 with respect to the claims against the defendants and the third-party defendants. These negotiations produced the proposed Settlement Agreement.
The parties were encouraged to reach this agreement by the increasing risk that there would be no recovery at trial. First, there were factors which raised doubts about whether liability on the part of the defendants could be established. For example, the plaintiffs could find no "smoking gun" which would establish the element of scienter at trial. Second, the financial condition of the defendants (except for third-party defendant Ladenburg) raised substantial doubt that plaintiffs would be able to fully recover even if liability was established. Third, any recovery after trial would not occur until far in the future, after a complete and lengthy judicial process, since the defendants and third-party defendants vigorously denied liability on all counts. Therefore, the plaintiffs' counsel concluded that it was in the best interest of the plaintiffs and the Class to settle the action for $ 827,500. The general terms pertaining to the Settlement Agreement were contained in a notice mailed to members of the class on May 19, 1995 and a summary notice which was ...