The opinion of the court was delivered by: McMAHON, District Judge.
MEMORANDUM DECISION AND ORDER APPROVING CLASS ACTION SETTLEMENT
AND AWARDING COUNSEL FEES AND EXPENSES
Pursuant to Rule 23(e) of the Federal Rules of Civil Procedure,
Plaintiffs in In re American Bank Note Holographics, Inc.
Securities Litigation, 99 Civ. 0412(CM) (the "Holographics
Action") and Plaintiffs in In re American Banknote Corporation
Securities Litigation, 99 Civ. 0661(CM) (the "ABN Action"), on
behalf of themselves and the Classes (as hereinafter defined) in
each consolidated action (together, the "Actions") move for final
approval of the proposed global settlement (the "Settlement")
with Defendants American Bank Note Holographics, Inc.,
("Holographics"), and American Banknote Corporation ("ABN");
NationsBanc Montgomery Securities LLC ("NationsBanc"), Lazard
Freres & Co. LLC ("Lazard Freres"), Raymond James & Associates,
Inc. ("Raymond James"), and Salomon Smith Barney Holdings, Inc.
("Smith Barney") (collectively, the "Underwriter Defendants");
Morris Weissman ("Weissman"), Joshua C. Cantor ("Cantor"),
Richard P. Macchiarulo ("Macchiarulo"), John T. Gorman
("Gorman"), and Patrick J. Gentile ("Gentile") (collectively, the
"Individual Defendants"); and Deloitte & Touche LLP ("Deloitte")
(the foregoing parties collectively referred
to hereinafter as the "Defendants"), under the terms set forth in
the Global Stipulation and Agreement of Settlement (the
"Stipulation") dated October 24, 2000. Plaintiffs' Counsel in the
Actions have submitted the Settlement on behalf of: (1) all
persons or entities who purchased Holographics common stock
during the period from July 15, 1998 through and including
February 1, 1999 (the "Holographics Class" and the "Holographics
Class Period") for alleged violations of Sections 11, 12(a)(2),
and 15 of the Securities Act of 1933 (the "Securities Act"),
15 U.S.C. § 77(k), 77(1)(a)(2), and 77(o), and Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 ("Exchange Act"),
15 U.S.C. § 78j(b) and 78t(a) and Rule 10b-5 promulgated
thereunder, 17 C.F.R. § 240.10b-5., and (2) all persons or
entities who purchased ABN common stock during the period from
May 2, 1996 through and including January 25, 1999 (the "ABN
Class" and the "ABN Class Period"), (together with the
Holographics Class, the "Classes"),*fn1 for alleged violations
of Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. § 78j
(b) and 78t(a), and Rule 10b-5 promulgated thereunder,
17 C.F.R. § 240.10b-5.
Plaintiffs submit that the proposed Settlement of these Actions
for $14,850,000.00 in cash, 1,460,000 shares of Holographics
common stock, Common Stock Purchase Warrants to purchase 863,647
shares of Holographics common stock at an exercise price of $6.00
per share (the "Holographics Warrants"),*fn2 and certificates
representing forty percent of the Equity Reserve as defined in
Defendant ABN's Plan of Reorganization (the "Gross Settlement
Fund") pursuant to the Global Stipulation and Agreement, is an
excellent recovery for the Classes, thus warranting final
approval by the Court.
Plaintiffs also move for approval of an award of attorneys'
fees and reimbursement of expenses, consisting of 30% of the cash
proceeds of the Settlement, or approximately $4.455 million, and
30% of the securities described below.
The standard for determining whether to approve the Settlement
is whether the Settlement of these Actions is fair, reasonable,
and adequate. Here, the Court finds that the value of the
Settlement, considering the obstacles Plaintiffs and the Classes
would have faced in collecting a substantially higher judgment,
Prior Proceedings Relating to the Settlement
On October 25, 2000, this Court entered an Order preliminary
approving the Settlement and directing that a hearing be held on
December 15, 2000 to determine the fairness, reasonableness, and
adequacy of the proposed Settlement. Pursuant to the Order, more
than 5,000 Notices of Pendency of Class Action, Hearings on
Proposed Settlement and Attorneys' Fee Petition and Right to
Share in Settlement Fund (the "Notice") were mailed to potential
members of the Classes and their nominees. Moreover, a summary
notice was published*fn3 on November 9, 2000 in The New York
Times. See Affidavit of Cheryl Washington, ¶¶ 5, 6, sworn to
December 8, 2000 and filed herewith (the "Washington Aff."). The
Notice contained a detailed description of the history of the
Actions and the Settlement, a statement of the
maximum attorneys' fees and costs to be sought, a description of
the claims that will be released, the deadlines for filing proofs
of claim, and the time and place of the Settlement Fairness
Hearing (the "Hearing"). The Notice further advised members of
the Classes of their right to object to the Settlement by filing
and serving a written objection by December 8, 2000, and of their
right to exclude themselves from participating in the Settlement
by properly submitting a request for exclusion by December 8,
As discussed more fully below, no objections to the proposed
Settlement have been received to date. Washington Aff. ¶ 7.
Negotiations Leading to the Settlement
The proposed Settlement was reached only after a comprehensive
assessment of the results of Plaintiffs' Counsels' investigation
into the facts. Plaintiffs' Counsel represent to the Court,
without contradiction, that they have carefully reviewed and
analyzed thousands of pages of documents produced by Defendants
and certain non-parties and have conducted numerous substantive
interviews of certain non-parties with knowledge of the events
underlying the Actions. They further represent that the proposed
Settlement was reached only after extensive, arm's-length
negotiations with highly experienced and formidable counsel for
Defendants and counsel for their insurer, as well as ABN's
bankruptcy counsel and other counsel involved in the bankruptcy
proceedings, and after extensive discussions regarding the
strengths and weaknesses of the parties' respective positions.
This Settlement was reached against the backdrop of ABN's
pending bankruptcy and pending investigations by both the U.S.
Attorney's Office and the Securities and Exchange Commission. All
of these proceedings had the potential to jeopardize Plaintiffs'
ability to recover on behalf of the class. While Plaintiffs'
Counsel believed that they had constructed a strong liability
case against Defendants, they realized and this Court realizes
that the potential for a larger recovery was threatened by,
inter alia, ABN's bankruptcy and Holographics' weakened
financial condition. With that in mind, the Settlement,
containing a significant cash component, is particularly
Plaintiffs also move for approval of their request for
attorneys' fees in the amount of 30% of the cash recovery, or
approximately $3.45 million, and 30% of the securities described
above. While the Court agrees that plaintiffs' counsel are
deserving of a significant fee award for their diligent efforts
in the face of significant obstacles, I find that a 30% award is
on the high side. Moreover, because it guarantees plaintiff's
counsel that their hourly fees and then some will be paid in
cash, which means that counsel will not be required to take the
same risk with respect to the securities portion of the
settlement that their clients will face, I do not believe is
appropriate. The Court will award fees in the amount of 25% of
the total recovery, together with $280,830.17 for out-of-pocket
History of the Litigation
Beginning in early 1999, a series of class actions was filed
against Holographics, ABN, Weissman, Cantor, Macciarulo, and the
Underwriter Defendants alleging violations of the Securities Act
and the Exchange Act based upon Defendants' false and misleading
statements concerning Holographics' business and financial
condition. Subsequently, separate class actions were filed
against ABN, Weissman, Gorman, and Gentile alleging violations of
the Exchange Act based upon these Defendants' false and
misleading statements concerning ABN's financial condition. On
April 9, 1999, the Court consolidated the ABN class actions for
pretrial purposes and consolidated the Holographics class actions
for pretrial purposes.
On April 6, 2000, the Court issued a Memorandum Order and
Decision granting Defendant ABN's motion to dismiss Plaintiffs'
claim under Section 11 of the Securities Act, but otherwise
denying Defendants' motions. The Court's April 6, 2000 Order
denying Defendants' motions to dismiss both Actions lifted the
stay of discovery mandated by the Private Securities Litigation
Reform Act during the pendency of a motion to dismiss. Plaintiffs
in both Actions then immediately sought Defendants' compliance
with Plaintiffs' discovery demands and sought additional
discovery from certain non-parties.
During the course of the litigation, Defendants provided
several thousand pages of documents which were thoroughly
reviewed by Plaintiffs' Counsel. These documents included, inter
alia: various Holographics and ABN corporate and financial
documents, documents submitted in connection with ABN's
bankruptcy, work papers for the relevant fiscal periods prepared
by Holographics' and ABN's auditors, documents prepared by the
special investigative committees convened by ABN's and
Holographics' respective Boards of Directors to investigate the
improprieties alleged in the Actions, and documents submitted by
third parties, including MasterCard and Crown Roll Leaf, Inc.
As set forth in further detail in the Affidavit of Vincent R.
Capucci, Esq., Plaintiffs' Counsels' efforts also included
detailed responses by certain Plaintiffs to certain Defendants'
discovery requests and the defense of depositions regarding class
certification. Counsel further expended considerable effort in
connection with proceedings before the Bankruptcy Court relating
to ABN's Plan of Reorganization, which resulted in the allocation
of 40% of ABN's Equity Reserve (as defined in ABN's Plan of
Reorganization) to the funds constituting the proposed
Settlement. This discovery informed the negotiations over the
terms of the settlement.
At a time when the parties had almost agreed to the settlement
of these Actions, Deloitte moved for leave to amend its answer
and to assert cross-claims against certain Defendants. This
jeopardized settlement prospects. Eventually, Deloitte decided to
participate in the Settlement, which permitted the approval
process to proceed.
The Standards For Judicial Approval of a Settlement Under Rule
"The law favors settlements of class actions no less than of
other cases." In re Gulf Oil/Cities Serv. Tender Offer Litig.,
142 F.R.D. 588, 590 (S.D.N.Y. 1992) (citing Weinberger v.
Kendrick, 698 F.2d 61, 73 (2d Cir. 1982)); see, also In re
Blech Sec. Litig., No. 94 CIV. 7696, 2000 WL 661680, *1
(S.D.N.Y. May 19, 2000) (Exhibit 1)*fn4; Adair v. Bristol
Technology Systems, Inc., No. 97 CIV. 5874, 1999 WL 1037878, *1
(S.D.N.Y. Nov. 16, 1999) (Exhibit 2). The proposed Settlement
more than satisfies the criteria for final approval set forth by
the Second Circuit. See In re Warner Communications Securities
Litigation, 618 F. Supp. 735, 740-41 (S.D.N.Y. 1985), aff'd,
798 F.2d 35 (2d Cir. 1986); City of Detroit v. Grinnell Corp.,
495 F.2d 448, 463 (2d Cir. 1974).
Approval of the Settlement is within the Court's broad
discretion. See In re PaineWebber Ltd. Partnerships Litig., 171
F.R.D. 104, 124 (S.D.N.Y. 1997), aff'd, 117
424 F.3d 721 (2d Cir. 1997). See also Blech, 2000 WL 661680, at *3.
In its exercise of that discretion, the Court must engage in a
careful balancing act: "The Court must eschew any rubber stamp
approval in favor of an independent evaluation, yet, at the same
time, it must stop short of the detailed and thorough
investigation that it would undertake if it were actually trying
the case." Grinnell, 495 F.2d at 462. Grinnell also
It is not necessary in order to determine whether an
agreement of settlement and compromise shall be
approved that the court try the case which is before
it for settlement. . . . Such procedure would
emasculate the very purpose for which settlements are
made. The court is only called upon to consider and
weigh the nature of the claim, the possible defenses,
the situation of the parties, and the exercise of
business judgment in determining whether the proposed
settlement is reasonable.
Id. (citing Neuwirth v. Allen, 338 F.2d 2 (2d Cir. 1964)).
See also Parker v. Anderson, 667 F.2d 1204, 1209 (5th Cir.
1982) (The "court does not adjudicate the dispute").
Evaluation of The Settlement Demonstrates that it is Fair,
Reasonable And Adequate
The factors that the Court should consider in reviewing the
a) the complexity, expense and likely duration of the
b) the reaction of the class (or classes) to the
c) the stage of the proceedings and the amount of