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February 23, 2002


The opinion of the court was delivered by: Spatt, District Judge.


This class action securities fraud case was brought by purchasers of stock in defendant Twinlab Corp. ("Twinlab") against the corporation, its underwriters, and its directors and officers (collectively, the "defendants"), alleging that the company engaged in fraudulent accounting and business practices in an effort to artificially inflate its stock price. Presently before the Court are motions for final approval of the settlement, plan allocation and the award of attorneys' fees and expenses.


The detailed factual background of this dispute is set forth in the Court's decision and order of July 5, 2000, In re Twinlab Corp. Sec. Litig., 103 F. Supp.2d 193, 196-201 (E.D.N.Y. 2000). Familiarity with this decision is presumed and it is deemed incorporated in this decision. On March 5, 2001, the parties to this action reached a memorandum of understanding to settle this matter. Thereafter, the parties executed the Stipulation and Agreement of Settlement (the "Settlement Agreement") on November 5, 2001, and following the Court's approval, counsel for the plaintiffs ("counsel") mailed 15,200 notices to class members. There were no objections to the settlement and only two class members requested to be excluded from the class.

The Settlement Agreement provides for a total cash settlement of $26,485,893.70 which shall be paid first to the expenses for the administration of the settlement, the attorneys' fees and expenses and the remainder to be distributed to the qualified class members. Counsel request an award of attorneys' fees of 33 1/3%, which amounts to $8,828,543 and seek reimbursement of the litigation expenses of $134,043.36.


A. Class Certification

The requirements for class certification under Rule 23 of the Federal Rules of Civil Procedure are: (1) numerosity; (2) common questions of law or fact; (3) typicality; and (4) fair representation of the plaintiffs by the representative parties. Fed.R.Civ.P. 23(a). In addition to these requirements, a party seeking class certification must show that (a) common questions of law or fact predominate and (b) a class action is a superior means to adjudicate the action. Fed.R.Civ.P. 23(b)(3).

The plaintiffs have demonstrated that the class meets the above mentioned requirements. First, the element of numerosity is met based upon counsel's representation that it sent out 15,200 notices to the class members. Second, the element of common questions of law and fact is met, because the complaint alleges that the defendants engaged in a common course of conduct (the making of false and misleading statements) with respect to each member of the class who purchased or otherwise acquired the common stock of Twinlab on the open market during the class period.

Third, the element of typicality is met because the class members have been allegedly harmed by the same course of conduct (the distribution of false and misleading information which artificially inflated the stock of Twinlab). Fourth, the element of fair representation of other class members is met by the lead plaintiffs' representation that there are no conflicts of interest between the lead plaintiffs and the other members of the class.

Fifth, the element of common questions of law and fact predominate is met because the liability of the defendants arises out of their alleged distribution of false and misleading statements and omission of material facts regarding Twinlab's business operations and financial results. Finally, the sixth element, that a class action is a superior means to adjudicate this matter, is met because of the numerous plaintiffs involved. Accordingly, the Court certifies this action as a class action.

B. The Settlement Agreement

Rule 23(e) of the Federal Rules of Civil Procedure requires that any settlement or dismissal of a class action be approved by the court. In determining whether to approve a class action settlement, the district court must determine whether the settlement is "fair, adequate, and reasonable, and not a product of collusion." Joel A. v. Giuliani, 218 F.3d 132, 138 (2d Cir. 2000). In so doing, the court must "eschew any rubber stamp approval" yet simultaneously "stop short of the detailed and thorough investigation that it would undertake if it were actually trying the case." City of Detroit v. Grinnell Corp., 495 F.2d 448, 462 (2d Cir. 1974). Judicial discretion should be exercised in light of the general policy favoring settlement. See Weinberger v. Kendrick, 698 F.2d 61, 73 (2d Cir. 1982).

The Second Circuit has identified nine factors (the "Grinnell factors") that courts should review in determining the fairness of a proposed settlement: (1) the complexity, expense and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through the trial; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; and (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation. Grinnell, 495 F.2d at 463.

Furthermore, the court should analyze the negotiating process in light of "the experience of counsel, the vigor with which the case was prosecuted, and the coercion or collusion that may have marred the negotiations themselves." Malchman v. Davis, 706 F.2d 426, 433 (2d Cir. 1983) (citations omitted). A strong presumption of fairness attaches to proposed settlements that have been negotiated at armslength. See Chatelain v. Prudential-Bache Sec., 805 F. Supp. 209, 212 (S.D.N.Y. 1992).

The plaintiffs argue that the Grinnell factors weigh in favor of the settlement. In particular, the plaintiffs contend that: (1) the case involves complex legal and factual issues and would require the involvement of expensive experts; (2) no class member objected to the settlement and only two requested to be excluded from the class; (3) the plaintiffs conducted some pretrial discovery (including, they say, reviewing tens of thousands of pages of documents, interviewing three Twinlab officers, including two of the Individual Officer Defendants, reviewing employees' public filings, annual reports, press releases, other public statements, consulting with plaintiffs' experts and agents concerning factual allegations contained in the complaint, damages allegedly sustained by the class and researching other potential defenses asserted in the action); (4) the defendants would assert in the exercise of reasonable diligence that they did not know of any false statements or omissions contained in the Registration Statement or the Prospectus; (5) the plaintiffs must overcome the difficult obstacle in proving that the defendants' misrepresentations caused the stock to decline, as opposed to other market forces; (6) there was some risk that the defendants may successfully defeat the class certification if the litigation were to proceed; (7) the $26.5 million settlement is a substantial recovery for the class in relation to the risks involved in attempting to recover the plaintiffs' range of approximated damages (between $127 million (high end) to $53 million (low end)); (8) the range of the settlement is reasonable given the difficulties and uncertainties of litigating the case; and (9) the settlement is reasonable in light of the risks and uncertainties of litigation in this matter.

Based upon the foregoing, I find that the terms and conditions of the Settlement Agreement are "fair, adequate, and reasonable" and the Settlement Agreement is approved. Accordingly, the Court directs that judgment be entered dismissing the complaint on the merits and with prejudice, subject to the settlement.

C. Approval of the Plan Allocation

The adequacy of an allocation plan turns on whether the proposed allocation is fair and reasonable. In re Painewebber Ltd. P'ship Litig., 171 F.R.D. 104, 133 (S.D.N.Y. 1997). The allocation plan is set forth in the Settlement Agreement. Settlement Agreement at 15-19. The plan requires any member of the class to submit a valid proof of claim before she or he is entitled to receive any proceeds from the Net Settlement Fund. Plaintiffs' co-lead counsel is responsible for supervising ...

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