The opinion of the court was delivered by: Arthur D. Spatt, United States District Judge
MEMORANDUM OF DECISION AND ORDER
The detailed factual background of this dispute is set forth in the
Court's decision and order of June 27, 2002, In re Sterling Foster &
Co. Sec. Litig., 222 F. Supp.2d 216 (E.D.N.Y. 2002). Familiarity with the
decision is presumed and it is deemed incorporated in this decision. On
July 25, 2001, the lead plaintiffs and defendants Hartley T. Bernstein,
Steven F. Wasserman, Bernstein & Wasserman, LLP, Embryo Development
Corp. ("Embryo"), and Michael Lulkin (collectively, the "settling
defendants") executed a Stipulation and Agreement of Partial Settlement
("Partial Settlement Agreement"). On October 1, 2002, this Court entered
an order certifying, for settlement purposes, the action as a class
action for persons entities, and their heirs, successors and assigns, who
are members of the following subclasses:
(1) The Advanced Voice Subclass consisting of all
purchasers of Advanced Voice Technologies, Inc.
("Advanced Voice") unites (each unit consisting of one
share of common stock and one Class A Redeemable
Common Stock Purchase Warrant) during the period
February 6, 1995 through October 8, 1996;
(2) The Com/Tech Subclass consisting of all purchasers of
Com/Tech Communications Technologies, Inc. ("Com/Tech")
common stock during the period August 23, 1995 through
October 8, 1996;
(3) The Embryo Subclass consisting of all purchasers of
Embryo Development Corporation common stock during the
period November 17, 1995 through October 8, 1996;
(4) The Applewoods Subclass consisting of all
purchasers of Applewoods, Inc. ("Applewoods") common
stock during the period April 10, 1996 through October
8, 1996; and
(5) The ML Direct Subclass consisting of all purchasers of
ML Direct, Inc. ("ML Direct") units (each unit
consisting of two shares of common stock and one
warrant) during the period September 3, 1996 through
October 8, 1996.
Following the Court's approval, counsel for the plaintiffs ("counsel")
mailed 9,576 notices to the class members. Only two class members
requested to be excluded from the class, and there was one objection to
the Partial Settlement Agreement by a non-settling defendant Michael
Krasnoff ("Kransnoff") on the grounds that, (1) class action treatment is
not superior to other available methods for the fair and efficient
adjudication of the controversy; and (2) the bar order in the Partial
Settlement Agreement improperly extinguishes his rights to
indemnification, contribution, or other offset.
The Partial Settlement Agreement provides for a total cash settlement
of $2,200,000 plus interest which will be paid for (i) the notice and
administration costs, (ii) the attorneys' fee and expense award, and
(iii) the remaining administration expenses. The remainder will be
distributed to the qualified class members. Counsel request an attorneys'
fee of 30% which amounts to $660,000 and seek reimbursement of the
litigation expenses of $100,000.
B. The Partial 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). Furthermore, the court must "eschew any
rubber stamp approval" yet "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).
To determine the fairness of a proposed settlement, the Second Circuit
has identified nine factors (the "Grinnell factors") that courts should
review: (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.
In addition, courts 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 arms-length. See
Chatelain v. Prudential-Bache Sec., 805 F. Supp. 209, 212 (S.D.N.Y.
With respect to the reaction by the class to the settlement, the only
objection to the settlement was made by Krasnoff, a non-settling
defendant. Krasnoff argues that the Partial Settlement Agreement
improperly extinguishes his rights to indemnification, contribution, or
other offset. Krasnoff asserts that if he is held liable on any of the
claims against him, he will seek contribution and/or indemnification from
the settling defendants. Therefore, Krasnoff claims that, if approved,
the proposed settlement agreement harms him because he will be barred
from seeking such contribution.
Courts have upheld orders barring non-settling defendants' claims
against settling defendants for indemnity, breach of fiduciary duty,
fraud and negligence. See Eichenholtz v. Brennan, 52 F.3d 478, 484-85 (3d
Cir. 1995); Franklin v. Kaypro Corp., 884 F.2d 1222, 1232 (9th Cir.
1989); In re: Rite Aid Corp. Sec. litig., 146 F. Supp.2d 706, 727-29
(E.D.Pa. 2001); In re Cendant Corp. Sec. Litig., 109 F. ...