The opinion of the court was delivered by: Spatt, District Judge.
MEMORANDUM OF DECISION AND ORDER
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
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.
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).
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
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 ...