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December 9, 1997

JASON LYONS, Plaintiff, against SCITEX CORP., et al., Defendants.

The opinion of the court was delivered by: BAER

 HAROLD BAER, JR., District Judge:

 Plaintiff brings this putative class action based on alleged violations of the Securities Exchange Act of 1934 on behalf of himself and all others who purchased Scitex stock from May 12, 1994 through November 9, 1995 (the "Class Period"). Plaintiff and defendants have reached a settlement and seek this Court's approval pursuant to Fed. R. Civ. P. 23(e). Plaintiff's counsel also makes an application for attorney's fees. For the reasons discussed below, the settlement is approved and the application for attorney's fees is granted in part.


 Plaintiff alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10-b(5) promulgated thereunder by failing to disclose to the public expected losses attributable to the Company's third-party financing arrangements. Specifically, plaintiff alleges that toward the end of 1993, defendant Igal Kohavi, a Scitex director, presented to the Board an analysis indicating suspected financial difficulties; that nonetheless the Company and the defendants continued to issue optimistic press releases; that the Company made a partial disclosure of the problems on July 19, 1995; and that the Company did not fully disclose the extent of its financial difficulty until November 9, 1995, when it reported a third quarter loss of $ 26.4 million.

 Defendants moved to dismiss the complaint and for judgment on the pleadings. By Memorandum and Order dated August 21, 1996, I denied the motions with leave to renew following discovery. Specifically, I found that the complaint was sustained "by only the barest of margins," ordered defendants to produce relevant documents and permitted the deposition of Mr. Kohavi and one additional defendant. Following the production of documents and the depositions, the parties reached a settlement and are here now to seek Court approval pursuant to Fed. R. Civ. P. 23(e).

 The proposed settlement would establish a fund of $ 2.875 million, to be funded by the defendants. From this fund, plaintiff's counsel's expenses and fees would be paid, as would expenses incurred in administering the settlement. The remainder would be distributed to class members who file valid proofs of claim. The proposed methodology for calculating each class member's loss is as follows. For class members who sold their shares during the class period, loss is calculated as the difference between the net purchase price of the shares and the net sales price (but no lower than the lowest price at which shares traded in November 1995). See Stipulation P 8.6(a). *fn1" For class members who did not sell their shares during the Class Period, loss is calculated as the purchase price minus $ 16. That is, those class members who purchased Scitex shares during the class period for less than $ 16 would receive no recovery for those shares. The theory behind this loss calculation methodology is that $ 16 represents the correct "uninflated" value of Scitex shares during the class period. See Pl. Mem. at 31. The $ 16 figure was chosen because it reflects the approximate value of Scitex shares at the close of the class period, i.e. after the loss became public.

 On May 14, 1997 I entered an order (the "hearing order") scheduling a hearing to determine the fairness, reasonableness and adequacy of the proposed settlement. The hearing order preliminarily approved the settlement as fair, without prejudice to the Court's final decision on this motion. The order also conditionally certified the class for purposes of settlement, "in accordance with Article II of the Stipulation" entered into by the parties. Article II of the Stipulation, in turn, provides that "Plaintiff will submit any documentation that may be necessary to support the entry of an order of Class certification."

 The settlement hearing was held on August 21, 1997. In addition to counsel for plaintiff and defendants, two objectors were present: Solomon Borg, on behalf of various family members, and Robert Weinberg, on behalf of himself and his wife, Patricia. The objectors objected to the (i) the definition of the class period; (ii) the formula for determining loss pursuant to the proposed settlement; (iii) the adequacy of notice given to the class as to the details of the proposed settlement and (iv) the excessiveness of plaintiff's counsel's fee request. After hearing from counsel and the objectors, the Court expressed concern with the fact that plaintiff had failed to address the question of class certification, and particularly the Supreme Court's recent decision in Amchem Products, Inc. v. Windsor, 138 L. Ed. 2d 689, 117 S. Ct. 2231 (1997). The Court also expressed concern with the lack of documentation supporting plaintiff's counsel's attorney's fee request; the lack of information regarding plaintiff's damage analysis; and the lack of information regarding the number of shares traded during the Class Period and what the proposed settlement would actually mean for class members in terms of return on each dollar of alleged loss--i.e., what share of each class member's loss they would recover pursuant to the parties' proposed loss calculation methodology.

 As a consequence of these concerns, the plaintiff filed an affidavit and an additional memorandum of law addressing the appropriateness of class certification and an affidavit by plaintiff's counsel providing more detail as to the damage analysis, loss calculation and attorney's fees application. Plaintiff's counsel also provided, after repeated requests, information regarding the number of claimants and their total calculated losses. *fn2" Defendants and objectors also filed supplemental papers, with objectors picking up on the Court's concerns and objecting to plaintiff's standing to represent the class.


 Although this case is not governed by the recently-enacted Private Securities Litigation Reform Act ("PSLRA" or the "Act"), *fn3" the Court's consideration of the settlement agreement and application for attorney's fees is nonetheless informed by the public policy principles underlying certain of the Act's provisions. Three provisions are of particular importance: the Act's requirements (i) that the "most adequate plaintiff" be appointed as lead plaintiff, (ii) that certain notice be given to class members regarding any proposed settlement and (iii) that attorney's fees requests be considered in light of the total benefit to plaintiffs, as opposed to the total settlement fund. I address each of these provisions in the discussion below.

 I. Class Certification

 The first hurdle that plaintiff must overcome is the issue of class certification. Pursuant to Rule 23, class actions can be maintained only if:

(1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.

 Fed. R. Civ. P. 23(a). Furthermore, the court must find that:

questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.

 Fed. R. Civ. P. 23(b)(3). The Supreme Court has recently held that when a class is certified for settlement purposes only, the "specifications of [Rule 23]--those designed to protect absentees by blocking unwarranted or overbroad class definitions--demand undiluted, even heightened, attention." Amchem, 117 S. Ct. at 2248. The class at issue in Amchem purported to bind all current and future asbestos claimants and was deemed too unwieldy to satisfy Rule 23.

 Clearly, most of the requirements of Rule 23 are met in this case. See, e.g., Amchem, 117 S. Ct. at 2250 ("predominance is a test readily met in certain cases alleging consumer or securities fraud"). What is not as clear is that plaintiff Jason Lyons' claims are "typical of the claims . . . of the class" or that he "will fairly and adequately protect the interests of the class." Rule 23(a)(3)-(4). As noted above, plaintiff failed to address this issue, or any other aspect of the Rule 23 language, in his initial submission to the Court. In their subsequent submissions, plaintiff and defendants contend that Lyons is an adequate class representative whose claims are typical of the class.

 Objectors argue to the contrary, pointing out that Lyons purchased Scitex shares only near the end of the Class Period, when he purchased 1,000 shares for $ 16.00 per share. *fn4" Lyons is thus non-representative in two respects. First, he purchased no shares in the period before July 19, 1995, that is prior to the partial disclosure. Second, he purchased no shares for more than the $ 16.00 cutoff price. Objector Weinberg, who both purchased shares prior to July 19, 1995 ...

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