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In re Hi-Crush Partners L.P. Securities Litigation

United States District Court, S.D. New York

December 19, 2014

In re: Hi-Crush Partners L.P. Securities Litigation

For Shirley Horn, individually and on behalf of all others similarly situated, Plaintiff: Jack Gerald Fruchter, Lawrence Donald Levit, LEAD ATTORNEYS, Abraham Fruchter & Twersky LLP, New York, NY; David Avi Rosenfeld, Edward Y. Kroub, Samuel Howard Rudman, Robbins Geller Rudman & Dowd LLP(LI), Melville, NY.

For John Mulhern, Movant: Phillip C. Kim, LEAD ATTORNEY, The Rosen Law Firm P.A., New York, NY.

For Leona Sesholtz, Alexander W. Thiele, Movants: Gregory Mark Nespole, LEAD ATTORNEY, Wolf Haldenstein Adler Freeman & Herz LLP, New York, NY.

For HITE Hedge LP, HITE MLP LP, Movants: Ira M. Press, Mark Allen Strauss, Peter S Linden, Sarah Graham Lopez, Thomas W. Elrod, LEAD ATTORNEYS, Kirby McInerney LLP, New York, NY.

For Peter A. Luebke, Movant: Gregory Bradley Linkh, LEAD ATTORNEY, Glancy Binkow & Goldberg LLP (NYC2), New York, NY.

For Murray Liebowitz, Movant: David Avi Rosenfeld, Edward Y. Kroub, Robbins Geller Rudman & Dowd LLP(LI), Melville, NY.

For Hi-Crush Partners LP, Robert E. Rasmus, James M. Whipkey, Laura C. Fulton, Jeffries V. Alston, III, Robert L. Cabes, Jr., John R. Huff, Trevor M. Turbidy, Steven A. Webster, Hi-Crush GP, Defendants: Clifford Louis Thau, LEAD ATTORNEY, Steven Robert Paradise, Vinson & Elkins L.L.P., New York; Elizabeth Chinyere Brandon, PRO HAC VICE, Vinson & Elkins LLP, Dallas, TX; Michael Conrad Holmes, PRO HAC VICE, Vinson & Elkins L.L.P., Dallas, TX; Temilola Oluwatosin Sobowale, Vinson & Elkins LLP, New York, NY.

For Barclays Capital Inc., Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC, UBS Securities LLC, Raymond James & Associates, Inc., RBC Capital Markets, LLC, Robert W. Baird & Co. Incorporated, Defendants: Barry G. Sher, Douglas Ira Koff, LEAD ATTORNEYS, Mor Wetzler, Paul Hastings LLP (NY), New York, NY.

DECISION AND ORDER APPROVING SETTLEMENT AND AWARDING ATTORNEY'S FEES AND EXPENSES

Colleen McMahon, United States District Judge.

I. INTRODUCTION

Lead counsel for the plaintiffs having moved for approval of the settlement of this class action, and no class member having either objected or opted out, the court approves the settlement and awards attorney's fees to counsel in the sum of $1, 266, 666.67, plus any accrued interest, together with $106, 451.20 for litigation expenses actually incurred.

II. PROCEDURAL BACKGROUND AND SUBSTANTIVE ALLEGATIONS

A. Procedural Background

Between November 21, 2012 and December 18, 2012, plaintiffs Shirley Horn, Douglas Goodhart, Leona Sesholtz, Alexander W. Thiele, and Peter A. Luebke filed four separate putative class action lawsuits against Hi-Crush, its general partner, certain of its officers and directors, and the underwriters of Hi-Crush's Initial Public Offering (" IPO"): Horn v. Hi-Crush Partners, L.P., et al., 12-CV-8557 (S.D.N.Y.) (the " Horn Action"); Goodhart v. Hi-Crush Partners, L.P., et al., 12-CV-8574 (S.D.N.Y.) (the " Goodhart Action"); Sesholtz, at al. v. Hi-Crush Partners, L.P., et al., 12-CV-8610 (S.D.N.Y.) (the " Sesholtz Action"); and Luebke v. Hi-Crush Partners, L.P., et al., 12-CV-9212 (S.D.N.Y.) (the " Luebke Action"). These lawsuits alleged violations of Sections 11, 12 and 15 of the Securities Act of 1933 (the " Securities Act") in connection with Hi-Crush's IPO, against Hi-Crush Partners LP, the company's investment bankers (Barclays Capital Inc., Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC, RBC Capital Markets, LLC, Raymond James & Associates, Inc., Robert W. Baird & Co. Incorporated, UBS Securities LLC), and Individual Defendants (Jeffries V. Alston, III (" Alston"); Robert L. Cabes, Jr. (" Cabes"), Lattra C. Fulton (" Fulton"), John R. Huff (" Huff"), Robert E. Rasmus (" Rasmus"), Trevor M. Turbidy (" Turbidy"), Steven A. Webster (" Webster"), and James M. Whipkey (" Whipkey")).

Pursuant to the PSLRA (15 U.S.C. § 78u-4(a)(3)(B)), several members of the putative class moved for appointment as lead plaintiff on or before January 22, 2013.

Plaintiffs in the Goodhart Action and Sesholtz Action voluntarily dismissed their lawsuits on December 10, 2012 and February 7, 2013, respectively.

By an order dated February 11, 2013 (the " Order") (Docket #54), the Court consolidated the Horn Action and Luebke Action under the caption In re Hi-Crush Partners, L.P. Securities Litigation, 12 Civ. 8557 (the " Consolidated Action"). In the Order, the Court appointed the HITE Funds as the Lead Plaintiffs, and Kirby McInerney LLP as lead counsel for the putative class in the Consolidated Action. The Court also directed Lead Counsel to file any consolidated or amended complaint on or before February 15, 2013.

On February 15, 2013, Lead Plaintiffs filed a consolidated amended complaint (the " Consolidated Complaint"), adding Hi-Crush GP as a defendant. The Consolidated Complaint alleged violations of Sections 11, 12 and 15 of the Securities Act, and added claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the " Exchange Act") and Rule 10b-5 promulgated under Section 10(b), which had not been asserted in any of the previously filed complaints.

On March 22, 2013, all of the named defendants moved to dismiss the Consolidated Complaint. On April 12, 2013, Lead Plaintiffs filed their Opposition to the defendants' motions to dismiss the Consolidated Complaint. Defendants filed replies in support of their motions to dismiss on April 19, 2013.

On December 2, 2013, the Court issued a Decision and Order Granting in Part and Denying in Part Defendants' Motions to Dismiss (" Decision and Order"). Specifically, the Court dismissed the claims asserted under Sections 11, 12 and 15 of the Securities Act, but denied dismissal as to the claims asserted under Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5, relating to investments in Hi-Crush common units during the period from September 25, 2012 through November 12, 2012. As a result of the Decision and Order, certain defendants, including the named underwriter defendants (who had only been name in the Securities Act claims) and certain of the individual defendants, were dismissed from the Consolidated Action.

On January 13, 2014, the remaining Defendants (Hi-Crush, Hi-Crush GP, Alston, Fulton Rasmus, and Whipkey) filed their answer to the Amended Complaint, denying the allegations therein.

From February to June 2014, the parties engaged in discovery that included the production and exchange of documents, and the taking and defense of deposition testimony.

On April 15, 2014, Lead Plaintiffs filed a Motion for Class Certification and Appointment of Class Representative and Class Counsel (" Class Certification Motion"). On May 15, 2014, Defendants filed their Opposition to Plaintiffs' Class Certification Motion and Plaintiffs filed their reply on June 17, 2014.

During the pendency of Lead Plaintiffs' motion for class certification, the parties agreed to explore a negotiated resolution through mediation. On June 25, 2014, the Settling Parties participated in mediated settlement negotiations before the Mediator. After an intensive day long mediation session, which was attended by Defendants' insurers, the Mediator made a proposal to settle the Action for $3.8 million in cash, subject to the execution of a formal stipulation and the Court's approval. Shortly thereafter, the parties accepted the Mediator's proposal. The Stipulation of Settlement (" Stipulation") together with exhibits and certain other documents referred to herein, has been duly executed and reflects the final and binding agreement between the parties. See Press Decl. Ex. 1.

On September 12, 2014, Lead Plaintiffs moved for preliminary approval of the Settlement, certification of a settlement class and approval of the Settlement. (Docket #100.) On September 16, 2014, the Court granted Lead Plaintiffs' motion. (Docket #104.)

B. Substantive Allegations

The factual allegations of the Complaint have been summarized and discussed at length in the Court's decision on Defendants' motion to dismiss. See In re Hi-Crush Partners L.P. Sec. Litig., No. 12 Civ. 8557 (CM), 2013 WL 6233561, at *1-5 (S.D.N.Y. Dec. 2, 2013). In support of the claims that survived Defendant's motions to dismiss, Lead Plaintiffs pled that, prior to November 13, 2012, Defendants wrongfully concealed that Baker Hughes Inc. (" Baker Hughes") repudiated its Supply Agreement with Hi-Crush in September 2012. Moreover, in public statements following that repudiation, Defendants continued to reference Hi-Crush's relationship with Baker Hughes, and they did not even hint at the possibility that this customer relationship, which comprised a significant proportion of Hi-Crush's revenues; was endangered.

On November 13, 2012, Hi-Crush issued a press release and filed a Form 8-K with the U.S. Securities and Exchange Commission (" SEC"). These filings for the first time publicly disclosed that, on September 19, 2012, Baker Hughes had purported to repudiate its Supply Agreement with Hi-Crush. The release additionally disclosed that, in response to Baker Hughes' purported repudiation, Hi-Crush had formally terminated the Supply Agreement and had filed a lawsuit against Baker Hughes on November 12, 2012.

On the first day of trading following this disclosure, Hi-Crush's common units lost approximately 26% of their value on extremely high trading volume of more than 3.3 million units. The price fell from $20.35 per unit on November 12, 2012 to $15.00 per unit on November 13, 2012.

III. REASONS FOR THE SETTLEMENT

The principal reason advanced for the Settlement is the significant benefit that it provides to the Settlement Class now. This benefit must be weighed against the risk that the Settlement Class would have received no recovery had Plaintiffs elected to continue litigating and been defeated at the class certification or summary judgment phases, trial, or appeal.

IV. THE TERMS OF THE SETTLEMENT

The Settlement resolves all claims of Lead Plaintiffs and the Settlement Class against all Released Parties. The Defendants have agreed to cause $3.8 million in cash to be paid into a Settlement Fund on behalf of Lead Plaintiffs and the Settlement Class. The Settlement Fund will be deposited into an escrow account within thirty days after the entry of the Preliminary Approval Order in accordance with the payment instructions to be provided by Lead Counsel and will then earn interest until distributed to the Settlement Class.

V. THE SETTLEMENT IS FAIR, REASONABLE, AND ADEQUATE

A. The Applicable Standard

The settlement of claims brought by a certified class is subject to court approval after reasonable notice and a hearing. See Fed.R.Civ.P. 23(e)(1)-(2). A court will approve a settlement if it is " fair, adequate, and reasonable, and not a product of collusion." Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 116 (2d Cir. 2005) (internal quotations omitted).

This determination falls within the Court's sound discretion. See Joel A. v. Giuliani, 218 F.3d 132, 139 (2d Cir. 2000); In re Ivan F. Boesky Sec. Litig., 948 F.2d 1358, 1368 (2d Cir. 1991); In re Visa Check/Master Money AntitGCG Litig., 297 F.Supp.2d 503, 509 (E.D.N.Y. 2003). In exercising such discretion, a court should be mindful of the " strong judicial policy in favor of settlements." Wal-Mart, 396 F.3d at 116 (internal quotations omitted); see also In re Sumitomo Copper Litig., 189 F.R.D. 274, 280 (S.D.N.Y. 1999); ABKCO Music, Inc. v. Harrisongs Music, Ltd., 722 F.2d 988, 997 (2d Cir. 1983).

" Courts determine the fairness of a settlement by looking both at the terms of the settlement and the negotiation process leading up to it." In re Telik, Inc. Sec. Litig., 576 F.Supp.2d 570, 575 (S.D.N.Y. 2008); see Wal-Mart, 396 F.3d at 116 (citations omitted). With respect to process, a class action settlement enjoys a strong " presumption of fairness" where it is the product of arm's-length negotiations conducted by experienced, capable counsel after meaningful discovery. See Wal-Mart, 396 F.3d at 116; see also City of Providence v. Aeropostale, Inc., No. 11 Civ. 7132 (CM), 2014 WL 1883494, at *4 (S.D.N.Y. May 9, 2014); 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 Global Crossing Sec. & ERISA Litig., 225 F.R.D. 436, 461 (S.D.N.Y. 2004); Chatelain v. Prudential-Bache Sec., Inc., 805 F.Supp. 209, 212 (S.D.N.Y. 1992). 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). This is particularly true in complex class actions, where " the courts have long recognized that such litigation 'is notably difficult and notoriously uncertain, ' and that compromise is particularly appropriate." In re Union Carbide Corp. Consumer Prods. Bus. Sec. Litig., 718 F.Supp. 1099, 1103 (S.D.N.Y. 1989) (internal citations omitted).

With respect to the substantive terms of a settlement, courts in this Circuit analyze the factors set forth in City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974), which include:

(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 in light of all the attendant risks of litigation.

Wal-Mart, 396 F.3d at 117 (quoting Grinnell, 495 F.2d at 463) (citations omitted)).

In applying the Grinnell factors, a court should not substitute its judgment for those of the parties who negotiated the settlement, or conduct a " mini-trial" on the action's merit. See ...


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