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In re Advanced Battery Technologies, Inc. Securities Litigation

United States District Court, S.D. New York

March 24, 2014



COLLEEN MEMAHON, District Judge.

Lead Plaintiff Ruble Sanderson, individually and on behalf of all other members of the Settlement Class ("Lead Plaintiff'), has moved for final approval of the Proposed Settlement and Reimbursement of Expenses in these consolidated class actions. The settlement terms originally agreed upon by the parties are set forth in the Stipulation of Settlement, which was preliminarily approved by this Court by Order dated November 26, 2013, and Amendment No. 1 thereto. (Dkt. No. 120.) Since preliminary approval, the agreement has been modified in one respect - Amendment No. 1 to the Stipulation of Settlement delinks this settlement from the settlement of related derivative litigation, which this court has declined to approve. The Court will refer to the terms of the Stipulation of Settlement, as amended by Amendment No. 1, as the "Settlement."

For substantially the reasons advanced by Class Counsel in support of this motion, the Settlement as modified is approved.


On April 1, 2011 and thereafter, several securities class action complaints were filed in the United States District Court for the Southern District of New York against the ABAT Defendants and others. ( See Dkt. No. 1; Burns v. Adv. Battery Techs., Inc., No. 11 Civ. 2354-CM; Cohen v. Adv. Battery Techs., Inc., No. 11 Civ. 2849-CM (the "Cohen Action" ); and Connors v. Advanced Battery Techs., Inc., No. 11 Civ. 3098-CM.) The complaints asserted claims under Sections 10(b) and 20(a) of the Exchange Act, (15 U.S.C. §§ 78j(b), and 78t(a)), and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission, (17 C.F.R. § 240.10b-5), alleging that the ABAT Defendants, among others, made material misstatements and omissions concerning the Company's financial results, and specifically, that the Company reported inflated gross profits, net income, and profit margins, and further, misrepresented the related party nature of certain business transactions. ( See, e.g., Dkt. No. 1, ¶¶ 1-2, 22-36; Cohen Action, Dkt. No. 1, ¶¶ 1-5, 7, 18-46.) On September 9, 2011, the Court consolidated the related securities class actions, appointed Mr. Ruble Sanderson as Lead Plaintiff and approved Lead Plaintiffs choice of Pomerantz LLP as Lead Counsel ("Lead Counsel"). (Dkt. No. 50.)

On September 29, 2011, Lead Plaintiff filed the Corrected First Amended Consolidated Class Action Complaint ("First Amended Complaint"), naming as defendants the ABAT Defendants, as well as ABAT's outside auditors, Bagell, Josephs, Levine & Co., LLC and Friedman LLP (collectively, "Bagell Josephs"), and EFP Rotenberg, LLP ("EFP") (collectively, the "Auditor Defendants"). (Dkt. No. 52.) By Decision and Order dated August 29, 2012, the Court denied the ABAT Defendants' motion to dismiss the First Amended Complaint, but granted the motions to dismiss filed by the Auditor Defendants. (Dkt. No. 90.)

On September 25, 2012, Lead Plaintiff filed a Motion for Leave to File a Second Amended Consolidated Class Action Complaint (Dkt. Nos. 96, 97), which the Auditor Defendants opposed. (Dkt Nos. 100 and 101.) On September 18, 2012, Lead Plaintiff filed a Motion for Class Certification. (Dkt. Nos. 94, 95.)

On October 5, 2012, the ABAT Defendants filed an Answer to the First Amended Complaint. (Dkt. No. 98.) On October 11, 2012, the Court entered a stay of all proceedings. (Dkt. No. 99.)

Thereafter, the Settling Parties commenced settlement negotiations. Counsel for Lead Plaintiff and the ABAT Defendants engaged in extensive negotiations concerning the possible resolution of this Litigation. Such negotiations included extensive correspondence, an exchange of information relevant to the Settlement, telephonic negotiations and in-person negotiation sessions. These negotiations included discussions not only about the merits of the claims, but also about the Company's financial condition and assets.

After difficult negotiations, the Settling Parties reached an agreement to settle this lawsuit. In the course of settlement discussions, the ABAT Defendants produced documents reflecting minimal insurance coverage applied to Lead Plaintiffs claims and that their U.S. assets are not significant enough to withstand a multimillion dollar judgment, that the majority of the Company's assets are located in the People's Republic of China ("China") and that recovery of any judgment against them is unlikely.

These settlement negotiations ultimately resulted in a proposed Settlement which was memorialized in a Stipulation of Settlement dated April 24, 2013. The Stipulation of Settlement was conditioned upon, among other things, dismissal of two derivative actions captioned Blumka v. Fu, (N.Y. Cty. Index No. 651343/2011) and Braun v. Fu, 11 Civ. 4383 (S.D.N.Y.) ("Derivative Actions").

On November 5, 2013, the papers in support of preliminary approval of the Settlement were filed with the Court. (Dkt. Nos. 116, 117.) On November 26, 2013, the Court entered an order preliminarily approving the Settlement, certifying the Settlement Class, certifying Lead Plaintiff as class representative for the Settlement Class, appointing Pomerantz LLP as Lead Counsel for the Settlement Class and providing for notice of the Settlement to all potential Settlement Class members. (Dkt. No. 120.)

Pursuant to the preliminary approval order, notice of the Settlement was sent subsequently to Settlement Class members. See Walsh Deel. at Ex. I, Affidavit of Michael Rosenbaum at ¶¶ 3-4, 9 (the "Rosenbaum Aff.).

On February 21, 2013, this Court held a final settlement hearing with respect to both this Settlement and a settlement in the Derivative Actions. At the hearing, the Court expressed serious reservations concerning the terms of the settlement of the Derivative Actions, and indicated that the Court would not approve that settlement in its current form. Given that approval of the Derivative Actions' settlement was originally a condition of the settlement in the case, the Court requested that the parties advise within fourteen days whether they would be prepared to proceed with the class action settlement. By letter dated March 7, 2013, the parties informed the Court that they were prepared to proceed with this settlement regardless of the status of the Derivative Actions' settlement. The Stipulation of Settlement was subsequently amended by an Amendment No. I to the Stipulation of Settlement, dated March 18, 2014, to remove the condition of the dismissal of the Derivative Actions.



A. The Settlement Is Fair, Adequate and Reasonable.

The law favors settlement, particularly in class actions and other complex cases where substantial resources can be conserved by avoiding the time, cost, and rigor of prolonged litigation. Thus, the procedural and substantive fairness of a settlement should be examined "in light of the strong judicial policy in favor of settlement[]' of class action suits." Aponte v. Comprehensive Health Mgmt., Inc., No. 10 Civ. 4825 JLC, 2013 WL 1364147, at *2 (S.D.N.Y. Apr. 2, 2013) (quoting Wal-Mart Stores. Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 116 (2d Cir. 2005)) (brackets in original); see also Spann v. AOL Time Warner, Inc., No. 02 Civ. 8238(DLC), 2005 WL 1330937, at *6 (S.D.N.Y. Jun. 7, 2005) ("[P]ublic policy favors settlement, especially in the case of class actions."); Newberg on Class Actions § 11.41 (4th ed. 2002) ("The compromise of complex litigation is encouraged by the courts and favored by public policy.").

Due to the presumption in favor of settlement, "[a]bsent fraud or collusion, courts should be hesitant to substitute [their] judgment for that of the parties who negotiated the settlement." In re EVCJ Career Colleges Holding Corp. Sec. Litig., No. 05 Civ. 10240(CM), 2007 WL 2230177, at *4 (S.D.N.Y. Jul. 27, 2007). More explicitly, the Supreme Court has cautioned that, in reviewing a proposed settlement, courts should "not decide the merits of the case or resolve unsettled legal questions." Carson v. Am. Brands, Inc., 450 U.S. 79, 88 n. 14 (1981).

As in this case, a settlement of claims brought as a class action is subject to court approval after reasonable notice and a hearing. See Fed.R.Civ.P. 23(e)(1)-(2). Courts generally approve a settlement if it is "fair, adequate, and reasonable, and not a product of collusion." Wal-Mart, 396 F.3d at 116 (internal quotation omitted). A court determines the fairness of a settlement by looking both at the terms of the settlement and the preceding negotiation process. Id. at 116. With respect to the settlement process, a class action settlement enjoys a strong "presumption of fairness" where it is the product of arm's-length negotiations concluded by experienced, capable counsel after meaningful discovery. Id .; see also In re Global Crossing Sec. & ERISA Litig., 225 F.R.D. 436, 461 (S.D.N.Y. 2004).

B. The Settlement Satisfies the Grinnell Factors.

To determine whether a settlement is fair, reasonable, and adequate, the Court should consider the so-called "Grinnell factors:" (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. City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974), abrogated on other grounds by Goldberger v. Integrated Resources, Inc., 209 F.3d 43, 48 (2d Cir. 2000). "All nine factors need not be satisfied, rather, the court should consider the totality of these factors in light of the particular circumstances." Thompson v. Metro. Life Ins. Co., 216 F.R.D. 55, 61 (S.D.N.Y. 2003) (citing D'Amato v. Deutsche Bank, 236 F.3d 78, 86 (2d Cir. 2001)).

Here, the Settlement substantially satisfies the Grinnell factors and, thus, wholly warrants final approval.

1. Continued Litigation Would Be Complex, Expensive and Protracted.

The Settlement provides the Settlement Class with fair relief, given the delay and expenses of trial and post-trial proceedings, and the likelihood that any judgment recovered would be uncollectible. Courts consistently recognize that the complexity, expense, and likely duration of litigation are critical factors in evaluating the reasonableness of a settlement, especially in a securities class action. See, e.g., In re AOL Time Warner, Inc. Sec. & ERISA Litig., MDL Dkt. No. 1500, 02 Civ. 5575(SWK), 2006 WL 903236, at *8 (S.D.N.Y. Apr. 6, 2006); Hicks v. Stanley, No. 01 Civ. 10071(RJH), 2005 WL 2757792, at *6 (S.D.N.Y. Oct. 24, 2005); In re Alloy, Inc. Sec. Litig., No. 03 Civ. 1597 (WHP), 2004 WL 2750089, at *2 (S.D.N.Y. Dec. 2, 2004) (granting approval and noting that complex securities fraud issues "were likely to be litigated aggressively, at substantial expense to all parties").

Regardless of the ultimate outcome, there is no question that further litigation would have been expensive and complex. With respect to discovery generally, given the complexities of the issues involved in this action, thousands of pages of documents would have been reviewed and numerous depositions taken. Moreover, the ABAT Defendants and key witnesses are located in China, which would add tremendous complication and cost to pursue discovery. See In re China Sunergy Sec. Litig., No. 07 Civ. 7895(DAB), 2011 WL 1899715, at *5 (S.D.N.Y. May 13, 2011) (expense and protracted nature of discovery of Chinese defendants favored settlement); see also Schwartz v. Novo Industri AIS, 119 F.R.D. 359, 363 (S.D.N.Y.1988) (weighing the complications of discovery with a foreign defendant in favor of settlement).

Class certification would have presented additional complexities and obstacles. Lead Plaintiff procured expert opinion(s) on the issue of market efficiency; Defendants would have done the same had the case proceeded. The parties would also have enlisted experts on the issues of loss causation and damages. In addition to full briefing, documents would have been produced and expert depositions would have been taken.

Were plaintiffs to prevail on their motion for class certification, extensive discovery would have ensued, implicating the significant challenges detailed above concerning obtaining documents and other discovery from witnesses in China. Following the close of merits discovery, the parties would engage ...

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