The opinion of the court was delivered by: Robert Sweet, Senior District Judge.
The plaintiff Robert Strougo ("Strougo") has moved for approval of the settlement reached with nominal defendant The Brazilian Equity Fund, Inc. (the "Fund"), and defendants BEA Associates (now known as Credit Suisse Asset Management, LLC ("CSAM")), Emilio Bassini, Richard Watt, Daniel Sigg, Dr. Enrique R. Arzac, James J. Cattano, Peter A. Gordon, George M. Landau, and Martin M. Torino (collectively "The Defendants") in these actions. For the reasons set forth below, the motion is granted and settlement is approved, as well as the application for an award of attorneys' fees and compensation to Strougo.
In May 1997, Strougo commenced the first captioned action asserting six causes of action under the Investment Company Act of 1940, as amended (the "ICA"), and common law, including both direct and derivative claims arising from the Rights Offering (the "Bassini Action"). The procedural history and factual background of the Bassini Action are detailed in the Court's opinions reported at 1 F. Supp.2d 268 (S.D.N.Y. 1998); No. 97 Civ. 3579(RWS), 1999 WL 249719 (S.D.N.Y. Apr. 28, 199); and 112 F. Supp.2d 355 (S.D.N.Y. 2000), and the Court of Appeals' opinion reported at 282 F.3d 162 (2d Cir. 2002).
Strougo asserted both class and derivative claims against CSAM and certain of the Fund's directors and alleged that in approving the Rights Offering, the director defendants breached their fiduciary duties of loyalty and due care to the Fund's shareholders. The Bassini Action asserts derivative claims under ICA Section 36(b) against CSAM, ICA Section 36(a) claims against all defendants except the Fund, and class claims under ICA Section 48 against all defendants except the Fund, for breach of fiduciary duty.
On September 15, 1997, defendants moved to dismiss the Bassini Action. The Court granted the motion to dismiss with respect to all the class action claims and the Section 36(b) claim but denied the motion with respect to the remaining derivative claims. Following the Court's decision, the Fund appointed a special litigation committee (the "SLC") to determine whether the remaining claims should be pursued. On December 30, 1998, the SLC recommended that the litigation be discontinued and filed its own motion to dismiss. On September 15, 2002, the Court granted summary judgment and dismissed the remaining claims. By opinion dated February 28, 2002, the Court of Appeals vacated the earlier dismissal of Strougo's direct claims and remanded the Bassini Action to this Court for further proceedings. Strougo did not appeal from this Court's dismissal of his derivative claims.
In May 1998, Strougo commenced an action under the ICA against CSAM alleging, inter alia, that the advisory agreement between CSAM and the Fund was not negotiated at arms'-length (the "CSAM Action"). Strougo alleges that CSAM received improper fees because in negotiating the investment advisory with non-independent directors, CSAM violated its fiduciary duty pursuant to ICA Section 36(b) of the 1940 Act. The procedural history and factual background of the CSAM Action are detailed in the Court's opinions reported at Strougo v. BEA Assocs., No. 98 Civ. 3725(RWS), 1999 WL 147737 (S.D.N.Y. Mar.18, 1999); No. 98 Civ. 3725(RWS), 2000 WL 45714 (S.D.N.Y. Jan. 19, 2000); 199 F.R.D. 515 (S.D.N.Y. 2001); and 188 F. Supp.2d 373 (S.D.N.Y. 2002).
Following the Court of Appeals' decision, the parties engaged in settlement discussions. On September 12, 2002, the parties entered into the settlement stipulation. The settlement stipulation provides for two types of relief. First, it provides that the Fund is to be liquidated not later than 30 days after the effective date of the proposed settlement. Second, upon submission of the requisite proof of claim, all class members who did not exercise their rights and sold their shares prior to the close of business on February 15, 2002, are entitled to receive $1.00 per share. Those class members who exercised their rights and sold such shares prior to the close of business on February 15, 2002, are entitled to receive $0.25 per share. In addition, and following negotiations commenced after completion of negotiations for relief for the Fund shareholders and the class, CSAM agreed to pay Strougo attorneys' fees in the amount of $735,000 and expenses of up to $75,000, subject to Court approval. CSAM also agreed to pay Strougo a compensatory award of $15,000.
On September 17, 2002, the Court ordered that a hearing be held on January 22, 2003 (the "Hearing") to determine the fairness, reasonableness, and adequacy of the proposed settlement (the "Scheduling Order"). Pursuant to the Scheduling Order, a printed Notice of Pendency of Class and Derivative Actions, Settlement, and Hearing Thereon (the "Settlement Notice"), the form of which was approved by the Court, was mailed to all persons and entities who own shares of the Fund or who owned shares of the Fund during the period June 7, 1996 through July 17, 1996. A summary notice (the "Summary Notice"), also in a form approved by the Court, was published in the National Edition of The Wall Street Journal on October 23, 2002. No shareholder has elected to exclude themselves from the class.
The instant motion was heard on January 22, 2003. No objections to the form of the settlement were filed. One objector sought a reduction of counsel fees.
The Settlement Is Fair, Reasonable, And Adequate
The determination of the fairness of a proposed settlement is left to the sound discretion of the trial court. In re Ivan F. Boesky Secs. Litig., 948 F.2d 1358, 1368 (2d Cir. 1991); Newman v. Stein, 464 F.2d 689, 692 (2d Cir. 1972); In re Michael Milken & Assocs. Secs. Litig., 150 F.R.D. 46, 53 (S.D.N.Y. 1993). When exercising its discretion, the Court will review the proposed settlement in light of the strong judicial and public policies that favor settlements. Id.; In re Sumitomo Copper Litig., 189 F.R.D. 274, 280 (S.D.N.Y. 1999).
There is a strong initial presumption that a proposed settlement negotiated during the course of litigation is "fair and reasonable." In re Michael Milken & Assocs., 150 F.R.D. at 54. See also Chatelain v. Prudential-Bache Secs., Inc., 805 F. Supp. 209, 212 (S.D.N.Y. 1992) ("A strong initial presumption of fairness attaches to the proposed settlement when it is shown to be the result of this type of a negotiating process and when the number of objectors is small."). Indeed, "absent evidence of fraud or overreaching, [courts] consistently have refused to act as Monday morning quarterbacks in evaluating the judgment of counsel." Trief v. Dun & Bradstreet Corp., 840 F. Supp. 277, 281 (S.D.N.Y. 1993) (citation omitted). See also In re Warner Communications Sec. Litig., 798 F.2d 35, 37 (2d Cir. 1986) ("[I]t is not a district judge's job to dictate the terms of a class settlement.").
In determining whether a proposed settlement, taken as a whole, is fair, reasonable, and adequate, the Second Circuit has articulated the factors to consider, namely:
(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
Detroit v. Grinnell, 495 F.2d 448, 463 (2d Cir. 1974) (citations omitted); In re Blech Secs. Litig., No. 94 Civ. 7696(RWS), 2002 WL 31720381, at *1 (S.D.N.Y. Dec.4, 2002); In re Michael Milken & Assocs., 150 F.R.D. at 52; Chatelain, 805 F. Supp. at 213. The Grinnell factors support final approval of the proposed settlement here.
The Complexity, Expense, and Duration of Further Litigation
As described above, these actions involve complex issues regarding the responsibilities of directors in mutual funds. Here, although Strougo was successful in reversing dismissal of the direct claims against the defendants, there is certainly no assurance that he would be successful in appealing the dismissal of the CSAM Action.
These factors weigh in favor of the proposed settlement. As the district court concluded in Slomovics v. All for a Dollar, Inc., 906 ...