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TEACHERS' RETIREMENT SYSTEM OF LOUISIANA v. A.C.L.N.

May 14, 2004.

TEACHERS' RETIREMENT SYSTEM OF LOUISIANA, individually and on behalf of itself and all others similarly situated, Plaintiff, -v.- A.C.L.N., LIMITED, JOSEPH J.H. BISSCHOPS, ALDO LABIAD A/K/A ABDERRAZAK LABIADH, ALEX DE RIDDER, CHRISTIAN L. PAYNE, MICHAEL S. DOHERTY, EARL GOULD, CHARLES L. BROCK, MARINA SAVVA, YIANNAKIS ECONOMIDES, EDO INTERNATIONAL, EDO INTERNATIONAL ACCOUNTANTS & CONSULTANTS (CYPRUS), EDO SEIDMAN, LLP, and EDO INTERNATIONAL B.V., Defendants


The opinion of the court was delivered by: MILTON POLLACK, Senior District Judge

Partial Settlement Pursuant to Rule 23(e)

DECISION

On January 23, 2004, Lead Plaintiff, acting on behalf of itself and the Class, entered into a Stipulation and Agreement of Settlement (the "Settlement Stipulation") with A.C.L.N, Limited ("ACLN" or the "Company"), and certain of ACLN's officers and directors, namely Aldo Labiad a/k/a Abderrazak Labaidh, Christian L. Payne, Michael S. Doherty, Earl Gould and Charles L. Brock (collectively the "Settling Defendants"). The claims against defendants Joseph J.H. Bisschops (ACLN's chairman and managing director), Alex de Ridder (ACLN's Chief Operating Officer and Chief Financial Officer), and directors Marina Savva and Yiannakis Economides will be released. Not covered by the Settlement are defendants BDO International, BDO International Accountants & Consultants (Cyprus) ("BDO-Cyprus"), BDO Seidman, LLP ("Seidman"), and BDO International B.V. ("BDO B.V."). Plaintiffs' Counsel are continuing to prosecute the Action against these latter defendants, collectively referred to herein as the "BDO Entities."

  The Settlement Stipulation is now before the Court pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, after reasonable notice to all members of the Class, for a determination, after a hearing, that the Settlement is fair, reasonable, and adequate, and incident thereto, for the allowance of counsel fees and expenses and the establishment of a litigation fund to pay additional costs incurred in the continuing prosecution of the Action against the BDO Entities not part of the Settlement.

  The Settlement provides for the payment of $5.5 million in cash plus accrued interest thereon, less certain amounts. The $5.5 million is being maintained in an escrow account (the "Escrow Account") and is earning interest for the benefit of the Class. The money comes from ACLN's $10 million Directors and Officers ("D&O") insurance policy.

  Additional consideration for the Settlement is the agreement of the Settling Defendants to cooperate with Lead Counsel in the continuing prosecution of the Action against the BDO Entities. Finally, in conjunction with the settlement negotiations, Lead Counsel has agreed with the SEC to jointly develop a plan of allocation for the Net Settlement Fund in the Action and any recovery the SEC may obtain in its action against ACLN. The plan provides for a joint distribution of the funds through one claims administrator.

 I. The Settlement

  The standards governing approval of class action settlements are well-established in this Circuit. In evaluating a proposed settlement under Fed R. Civ. P. 23(e), the Court must determine whether the settlement, taken as a whole, is fair, reasonable, and adequate. Maywell v. Parker & Parsley Petroleum Co. 67 F.3d 1072, 1079 (2d Cir. 1995). A proposed class action settlement enjoys a strong presumption that it is fair, reasonable, and adequate if, as here, it was the product of arm's length negotiations conducted by capable counsel experienced in class action litigation arising under the federal securities laws, and if it occurred after meaningful discovery. See, e.g. In re PaineWebber Ltd. P'ships Litig. 171 F.R.D. 104, 124(S.D.N.Y. 1997),aff'd, 117 F.3d 721 (2d Cir. 1997): New York & Maryland v. Nintendo of Am. Inc. 775 F. Supp. 676, 680-81 (S.D.N.Y. 1991): see also Manual for Complex Litigation. Fourth $21.612 (2004) ("Extended litigation between or among adversaries might bolster confidence that the settlement negotiations were at arm's length.")

  In City of Detroit v. Grinnell Corp. 495 F.2d 448 (2d Cir. 1974) ("Grinnell"), the Second Circuit provided a nonexhaustive list of factors to consider in reviewing a settlement proposal:
(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. . . .
495 F.2d at 463 (citations omitted); See also In re Sumitomo Copper Litig., 189 F.R.D. 274, 281-84 (S.D.N.Y. 1999) (following and applying Grinell factors).

  The proposed Settlement is fair, reasonable, and adequate when measured under the foregoing criteria.

 A. The Complexity. Expense and Likely Duration of the Litigation

  Many of the defendants, witnesses and documents are beyond the subpoena power of the Court and many relevant documents have been seized by foreign government authorities and may not be available. The number of defendants with divergent interests is also a factor. Because of the Private Security Litigation Reform Act of 1995 ("PSLRA")'s provision for proportional fault, even as to the Settling Defendants, it was expected that they would present their own "unique" defenses and experts in support thereof.

  While the Action proceeds against the BDO Entities, there would, absent the proposed Settlement, be significant additional resources needed to prosecute the claims against the Settling Defendants throughout the completion of expert discovery, summary judgment motions, the completion of pretrial and trial proceedings, and the post-trial motions and appeals they might file. Moreover, any appeals would substantially delay any payment to Class Members, even if Lead Plaintiff were to prevail.

 B. The Reaction of the Class to the Settlement

  Pursuant to this Court's Order,*fn1 a printed Notice of Pendency of Class Action, Hearing on Partial Settlement and Attorneys' Fee Petition and Right to Share in Settlement Fund (the "Notice"), in form approved by the Court, was mailed to more than 15,000 potential Class Members beginning on March 15, 2004, and a Summary Notice of Pendency of Class Action, Proposed Partial Settlement and Settlement Hearing (the "Publication Notice"), in form approved by the Court, was published in the national edition of The Wall Street Journal on March 25, 2004. The Notice contained a detailed description of the nature and procedural history of the Action, the terms of the Settlement, the average recovery per share and the claims that will be released in the Settlement, and Lead Counsel's fee and expense application. The Notice also advised Class Members of their right to object to the Settlement, and/or the fee and expense application, or to opt out of the Class by no later than April 30, 2004.

  No Class Member has filed an objection to the proposed Settlement and only eleven persons have requested to be and are opted out of the Class. These persons are as follows: Mary Arena; Richard W. Burg; David Freeman; the Freeman Family Partnership, A Texas Limited Partnership composed of David R. Freeman and Margaret Freeman; William Massatis; Thomas S. Pratt; Christopher Scott; Cordia V. Scott; Douglas P. Scott; Jo Ann W. Scott; and Morris Smith.

  The overwhelmingly positive reaction of the Class to the proposed Settlement supports its approval by the Court. See Grinnell, 495 F.2d at 462 (approving settlement where only 20 objectors appeared from group of 14,156 claimants).

 C. The Stage of the Proceedings and the Amount of Discovery Completed

  To approve a proposed settlement "the Court need not find that the parties have engaged in extensive discovery." In re Austrian & German Bank Holocaust Litig., 80 F. Supp.2d 164, 176 (S.D.N.Y. 2000) (citing Plummer v. Chem. Bank, 608 F.2d 654 (2d Cir. 1982)). "Instead, it is enough for the parties to have engaged in sufficient investigation of the facts to enable the Court to `intelligently make. . . an appraisal' of the Settlement." Holocaust Litig., Id.

  This threshold was easily met here. Prior to executing the Stipulation, Lead Counsel investigated the events and transactions alleged in the Action, reviewed and analyzed enormous numbers of documents produced by the Settling Defendants and others, and retained and consulted with expert witnesses in damages and forensic accounting. See Berger Decl. ¶¶ 9, 25, 29, 36-38, 42-44. Lead Plaintiff had a wealth of information at its disposal gleaned from more than two years of investigation and litigation before entering into the Settlement Stipulation. Lead Plaintiff and Lead Counsel engaged in sufficient document discovery and sufficient discussions about the merits of the Action to fully evaluate the merits of the claims and the obstacles to success. Thus the parties "have a clear view of the strengths and weaknesses of their cases." In re Warner Communications Sec. Litig., 618 F. Supp. 735, 745 (S.D.N.Y. 1985) aff'd, 798 F.2d 35 (2d Cir. 1986).

 D. The Risks of Establishing Liability, Damages, and in Maintaining the Class Action Through the Trial

  Grinnell holds that in assessing the fairness, reasonableness, and adequacy of a settlement, courts should consider such factors as the "risks of establishing liability," "the risks of establishing damages," and "the risks of maintaining the class action throughout the trial." Grinnell, 495 F.2d at 463 (citations omitted). Little about litigation ...


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