United States District Court, S.D. New York
THE CITY OF PROVIDENCE, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
AÉROPOSTALE, INC., THOMAS P. JOHNSON and MARC D. MILLER, Defendants.
MEMORANDUM OPINION AND ORDER GRANTING LEAD PLAINTIFF'S MOTIONS FOR FINAL APPROVAL OF CLASS ACTION SETTLEMENT, PLAN OF ALLOCATION, AND ATTORNEYS' FEES AND EXPENSES
COLLEN McMAHON, District Judge.
This Action was commenced on October 11, 2011 by the filing of an initial complaint alleging that Defendants violated the federal securities laws. ECF No. 1. On January 29, 2014, after more than two years of litigation, the Parties signed a settlement Stipulation resolving Lead Plaintiffs and the Class' claims for fifteen million dollars ($15, 000, 000). Under the terms of the proposed Settlement, these funds will be allocated to all eligible Class Members allegedly impacted by Defendants' alleged violations of the federal securities laws.
The Court concludes that the Settlement should be approved. As set forth in detail in the Declaration of Jonathan Gardner in Support of (A) Lead Plaintiff's Motion for Final Approval of Class Action Settlement and Plan of Allocation and (B) Lead Counsel's Motion for Attorneys' Fees and Payment of Litigation Expenses, dated April 4, 2014 (the "Gardner Declaration" or "Gardner Decl."), when viewed in light of the risks that Lead Plaintiff would not prevail on Defendants' likely summary judgment motion or at trial, the Settlement is a very favorable result for the Class. In addition, the Settlement also saves the Class the delay posed by continued litigation through summary judgment, trial, and any subsequent appeals.
The Parties reached the Settlement only after aggressively, extensively, and thoroughly litigating this Action. Lead Plaintiffs efforts are detailed in the Gardner Declaration and include, inter alias (i) a detailed pre-filing investigation that included the review and analysis of documents filed publicly by Aeropostale with the SEC as well as other publicly available information about Aeropostale and the retail industry and interviewing 40 former Aeropostale employees-a number of whose accounts were included in the Complaint as confidential witness ("CW") accounts; (ii) responding to and defeating Defendants' motion to dismiss; (iii) fact discovery that involved, among other things, numerous meet and confer sessions to ensure the efficient production of relevant material, the collection and review of over 1.3 million pages of documents from Defendants and third parties, and five weeks of depositions, including a 30(b)(6) deposition and those of 12 current or former employees of Aeropostale; (iv) negotiation of a stipulation with Defendants regarding class certification after Lead Plaintiff had filed its motion for class certification, Providence and its investment advisors produced over 20, 000 pages of documents, and after Defendants took the deposition of Providence as well as two representatives of its investment manager; and (v) a protracted mediation session before Judge Weinstein preceded by the exchange of detailed mediation statements and verbal presentations by counsel that culminated in an arm's-length agreement in principle to settle the claims against Defendants. See Gardner Decl. ¶¶6-7, 19-75, 93-95.
In short, this case presents a near-ideal set of circumstances that give the court confidence that the Settlement as proposed is fair and reasonable. It is approved.
I. NOTICE TO THE CLASS SATISFIED RULE 23 AND DUE PROCESS
On January 30, 2014, the Court entered its Preliminary Approval Order (ECF No. 55), which directed that a hearing be held on May 9, 2014 to determine the fairness, reasonableness, and adequacy of the Settlement (the "Settlement Hearing"). The Notice provided to the Class satisfied the requirements of Rule 23(c)(2)(B), which requires "the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort." Fed.R.Civ.P. 23(c)(2)(B). The Notice also satisfied Rule 23(e)(1), which requires that notice must be provided in a "reasonable manner"-i.e., it must fairly apprise the prospective members of the class of the terms of the proposed settlement and of the options that are open to them in connection with the proceedings.'" Wal-Mart Stores, Inc. v. VISA U.S.A. Inc., 396 F.3d 96, 114 (2d Cir. 2005) (quoting Weinberger v. Kendrick, 698 F.2d 61, 70 (2d Cir. 1982)).
Pursuant to the Preliminary Approval Order, the Notice was mailed to all known potential Class Members on February 20, 2014 and Summary Notice was published in Investor's Business Daily and transmitted over PR Newswire on March 6, 2014. See Declaration of Adam D. Walter on Behalf of A.B. Data, Ltd. Regarding Mailing of Notice to Potential Class Members and Publication of Summary Notice ("Mailing Declaration" or "Mailing Decl."), Ex. 3 ¶¶ 2-11. The Notice contains a detailed description of the nature and procedural history of the Action, as well as the material terms of the Settlement, including, inter alia: (i) the total recovery under the Settlement; (ii) the manner in which the Net Settlement Fund will be allocated among eligible Class Members; (iii) a description of the claims that will be released in the Settlement; (iv) the right and mechanism for Class Members to opt out or exclude themselves from the Class; and (v) the right and mechanism for Class Members to object to the Settlement, the Plan of Allocation, or the request for attorneys' fees and expenses.
One objection was received to the sufficiency of notice. It came from an attorney, Forrest S. Turkish, who has apparently filed similar objections in at least 12 other recent class actions. He is, as we say in the trade, a "professional objector." When his objections are overruled, he files a notice of appeal. As far as this court is aware, every one of those appeals has either been dismissed for failure to perfect or voluntarily dismissed. This pattern of litigiousness from a single attorney-objector without more seriously undermines the credibility of the objection in the eyes of this court. I have little time for "professional objectors, " who, as one of my colleagues has noted, "undermine the administration of justice by disrupting settlement in the hopes of extorting a greater share of the settlement for themselves and their clients." In re Initial Public Offering Sec. Litig., 728 F.Supp.2d 289, 295 (S.D.N.Y. 2010). They are a throwback to the days when this court was practicing law, and when the filing of securities fraud class actions by certain attorneys was chalked up as a "cost of doing business" by corporations - leading to the passage of the Private Securities Litigation Reform Act.
Furthermore, the objection is patently without merit. Indeed, it is patently frivolous. Responding to it has wasted the time of Lead Plaintiff's counsel, and dealing with it has wasted the time of this Court.
Mr. Turkish is hereby ordered to show cause why he should not be sanctioned by this court, in the amount of the costs incurred by Lead Plaintiff in responding to his objection, for filing a patently frivolous objection. An affidavit explaining why that sanction ought not be imposed must be filed with this court by Friday, May 16, 2014.
II. THE SETTLEMENT IS FAIR, REASONABLE AND ADEQUATE
A. The Standard for Evaluating Class Action Settlements
Rule 23(e) requires review and approval by the Court for any class action settlement to be effective. A settlement should be approved if the Court finds it "fair, reasonable, and adequate." Fed.R.Civ.P. 23(e)(2); In re Sony Corp SXRD, 448 Fed.App'x. 85, 86 (2d Cir. 2011). This evaluation requires the court to consider "both the settlement's terms and the negotiating process leading to settlement." Wal-Mart Stores, 396 F.3d at 116; Wright v. Stern, 553 F.Supp.2d 337, 343 (S.D.N.Y. 2008); In re Merrill Lynch & Co. Research Reports Sec. Litig., 246 F.R.D. 156, 165 (S.D.N.Y. 2007).
While the decision to grant or deny approval of a settlement lies within the broad discretion of the trial court, a general policy favoring settlement exists, especially with respect to class actions. Wal-Mart, 396 F.3d at 116 ("We are mindful of the strong judicial policy in favor of settlements, particularly in the class action context.") (citation omitted); see also In re WorldCom, Inc. ERISA Litig., No. 02 Civ. 4816 (DLC), 2004 WL 2338151, at *5 (S.D.N.Y. Oct. 18, 2004).
Recognizing that a settlement represents an exercise of judgment by the negotiating parties, the Second Circuit has cautioned that, while a court should not give "rubber stamp approval" to a proposed settlement, it must "stop short of the detailed and thorough investigation that it would undertake if it were actually trying the case." Detroit v. Grinnell Corp., 495 F.2d 448, 462 (2d Cir. 1974); In re Veeco Instruments Inc. Sec. Litig., No. 05 MDL 01695 (CM), 2007 WL 4115809, at *5 (S.D.N.Y. Nov. 7, 2007) (McMahon, J).
In addition to a presumption of fairness that attaches to a settlement reached as a result of arm's-length negotiations, the Second Circuit has identified nine factors that courts should consider in deciding whether to approve a proposed settlement of a class action:
(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 (citations omitted). "[N]ot every factor must weigh in favor of settlement, rather the court should consider the totality of these factors in light of the particular circumstances." In re Global Crossing Sec. & ERISA Litig., 225 F.R.D. 436, 456 (S.D.N.Y. 2004); In re Merrill Lynch & Co., Inc. Research Reports Sec. Litig., No. 02 MDL 1484 (JFK), 2007 WL 4526593, at *13 (S.D.N.Y. Dec. 20, 2007).
Here, the Settlement satisfies the criteria for approval articulated by the Second Circuit.
B. The Settlement Is Procedurally Fair
A strong initial presumption of fairness attaches to a proposed settlement if it is reached by experienced counsel after arm's-length negotiations. See Shapiro v. JPMorgan Chase & Co., Nos. 11 Civ. 8831(CM)(MHD), 11 Civ. 7961(CM), 2014 WL 1224666, at *7 (S.D.N.Y. Mar. 24, 2014) (McMahon, J.); In re Luxottica Grp. S.p.A. Sec. Litig., 233 F.R.D. 306, 315 (E.D.N.Y. 2006). A court may find the negotiating process is fair where, as here, "the settlement resulted from arm's-length negotiations and that plaintiffs' counsel have possessed the experience and ability... necessary to effective representation of the class's interests.'" D Amato v. Deutsche Bank, 236 F.3d 78, 85 (2d Cir. 2001) (quoting Weinberger, 698 F.2d at 74); In re PaineWebber P'ships Litig., 171 F.R.D. 104, 125 (S.D.N.Y. 1997) ("So long as the integrity of the arm's length negotiation process is preserved... a strong initial presumption of fairness attaches to the proposed settlement."), aff'd, 117 F.3d 721 (2d Cir. 1997) (citation omitted).
This initial presumption of fairness and adequacy applies here because the Settlement was reached by experienced, fully-informed counsel after arm's-length negotiations and, ultimately, with the assistance of Judge Daniel Weinstein, one of the nation's premier mediators in complex, multi-party, high stakes litigation, and one in whom this court reposes considerable confidence as a result of past experience. See In re Flag Telecom Holdings, Ltd. Sec. Litig No. 02-CV-3400 (CM) (PED), 2010 WL 4537550, at *14 (S.D.N.Y. Nov. 8, 2010) (McMahon, J.) (noting that the "presumption in favor of the negotiated settlement in this case is strengthened by the fact that settlement was reached in an extended mediation supervised by Judge Weinstein"); In re Wachovia Equity Sec. Litig., No. 08 Civ. 617 (RJS), 2012 WL 2774969, at *3 (S.D.N.Y. June 12, 2012) (noting the procedural fairness of settlement mediated by Judge Weinstein); see also Silverman v. Motorola, Inc ., No. 07 C 4507, 2012 WL 1597388, at *3 (N.D. Ill. May 7, 2012), affd sub nom. Silverman v. Motorola Solutions, Inc., 739 F.3d 956 (7th Cir. 2013) (approving settlement and describing Judge Weinstein as "a nationally-recognized and highlyrespected mediator"); Gardner Decl. ¶5.
Moreover, the recommendation of Lead Plaintiff, a sophisticated institutional investor, also supports the fairness of the Settlement. A settlement reached "under the supervision and with the endorsement of a sophisticated institutional investor... is entitled to an even greater presumption of reasonableness." Veeco, 2007 WL 4115809, at *5 (internal citation omitted). "Absent fraud or collusion, the court should be hesitant to substitute its judgment for that of the parties who negotiated the settlement.'" Id. at *5 (citation omitted). Lead Plaintiff Providence is a sophisticated institutional investor managing approximately $300.8 million in retirement fund assets. See Declaration of Jeffrey Padwa, Ex. 2 ¶1. Lead Plaintiff took an active role in all aspects of this Action, as envisioned by the PSLRA, including extensive efforts in discovery and participation in settlement negotiations. Id. ¶¶3-4. Lead Plaintiff approves of the Settlement without reservation. Id. ¶5.
Lead Counsel, who has extensive experience prosecuting complex securities class actions and is intimately familiar with the facts of this case, believes that the Settlement is not just fair, reasonable, and adequate, but is an excellent result for Lead Plaintiff and the Class. See Gardner Decl. ¶8. This opinion is entitled to "great weight." PaineWebber, 171 F.R.D. at 125 (citation omitted); see also Veeco, 2007 WL 4115809, at *12.
All of these considerations confirm the reasonableness of the Settlement and that the Settlement is entitled to the presumption of procedural fairness.
C. Application of the Grinnell Factors Supports Approval of the Settlement
1. The Complexity, Expense and Likely Duration of the Litigation Support Final Approval of the Settlement
"This factor captures the probable costs, in both time and money, of continued litigation." Shapiro, 2014 WL 1224666, at *8. Here, the litigation was complex and likely would have lasted for quite some time in the absence of settlement. Indeed, securities class actions are by their very nature complicated and district courts in this Circuit have "long recognized" that securities class actions are "notably difficult and notoriously uncertain" to litigate. In re Bear Stearns Cos. Inc. Sec., Derivative & ERISA Litig., 909 F.Supp.2d 259, 266 (S.D.N.Y. 2012); In re Sumitomo Copper Litig., 189 F.R.D. 274, 281 (S.D.N.Y. 1999).
Lead Plaintiffs claims raise numerous complex legal and factual issues concerning the retail industry, inventory account, and loss causation. See generally Gardner Decl. ¶¶76-92. It would be costly and time-consuming to pursue this litigation all the way through to trial, with no guarantee of success. Even if the Class could recover a judgment at trial, the additional delay through trial, post-trial motions, and the appellate process could prevent the Class from obtaining any recovery for years. See Strougo ex rel. Brazilian Equity Fund, Inc. v. Bassini, 258 F.Supp.2d 254, 261 (S.D.N.Y. 2003) ("[E]ven if a shareholder or class member was willing to assume all the risks of pursuing the actions through further litigation... the passage of time would introduce yet more risks... and would in light of the time value of money, make future recoveries less valuable than this current recovery."). Furthermore, even winning at a trial does not guarantee a recovery to the Class, because there is always a risk that the verdict could be reversed on appeal. See, e.g., Robbins v. Koger Props., Inc., 116 F.3d 1441, 1449 (11th Cir. 1997) (reversing $81 million jury verdict and dismissing case with prejudice in securities action). Thus, this factor weighs strongly in favor of approval of the Settlement.
2. The Reaction of the Class to the Settlement Supports Final Approval of the Settlement
The reaction of the Class to the Settlement is a significant factor in assessing its fairness and adequacy, and "the absence of objections may itself be taken as evidencing the fairness of a settlement.' PaineWebber, 171 F.R.D. at 126 (citation omitted); see also Luxottica Grp., 233 F.R.D. at 311-12. This Court has previously noted that the reaction of the class to a settlement "is considered perhaps the most significant factor to be weighed in considering its adequacy." Veeco, 2007 WL 4115809, at *7 (citation omitted).
Here, pursuant to the Preliminary Approval Order, a total of 39, 429 copies of the Notice have been mailed to potential Class Members and the Summary Notice was published in Investor's Business Daily and issued over the PR Newswire. See Ex. 3 ¶¶10-1. Only two requests for exclusion were received, representing 40.43 shares of Aeropostale's common stock. ( see id. ¶16).
The only objection to the Settlement itself was filed by a Mr. Opp, who takes issue with the start date of the Class Period and the fact that only purchasers of stock during the Class Period are member of the class. (Mr. Opp also objected to the request for attorneys' fees; that will be taken up separately at the end of this opinion). For the reasons set forth at pages 9-10 of the Reply Brief filed by Lead Plaintiff, neither of those objections has the slightest merit, and I reject them.
That almost no Class Member objected to the Settlement or chose to exclude himself from it is indeed the strongest indication that ...