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Roth v. The Phoenix Companies Inc.

Supreme Court, New York County

March 24, 2017

Kenneth Roth, on behalf of himself and all all similarity-situated bondholders, Plaintiff,
v.
The Phoenix Companies, Inc. and U.S. Bank National Association, in its capacity as Indenture Trustee, Defendants.

          For Plaintiff and the class: Chimicles & Tikellis LLP and Wolf Haldenstein Adler Freeman & Herz LLP.

          For Defendants: Simpson Thacher & Bartlett LLP and Bryan Cave LLP.

          Shirley Werner Kornreich, J.

         Before the court is plaintiff's unopposed motion for final approval of the parties' class action settlement agreement (the Settlement) (see Dkt. 35), [1] certification of the settlement class, and an award of $440, 000 in attorneys' fees and expenses for the two class counsel law firms, Chimicles & Tikellis LLP (C & T) and Wolf Haldenstein Adler Freeman & Herz LLP (WHAFH). [2] The court granted final approval on the February 2, 2017 record and reserved on the attorneys' fees award pending supplemental submissions. See Dkt. 56 (2/2/17 Tr. at 7). For the reasons that follow, the court further elaborates on the basis for approving the Settlement in light of a recent change in controlling First Department law, certifies the settlement class, and awards $440, 000 in attorneys' fees to class counsel.

         This case concerned the reduction of a company's reporting obligations by virtue of a going private transaction and the allegedly inadequate disclosure of the transaction's implications to the company's bondholders. The relevant underlying facts are set forth succinctly in plaintiff's moving brief:

This Action arose in connection with [The Phoenix Companies, Inc.'s (Phoenix)] consent solicitation launched on January 7, 2016 (the "Consent Solicitation"). Phoenix, a then-publicly traded company on the New York Stock Exchange ("NYSE"), had entered into a merger agreement (the "Transaction") whereby [Nassau Reinsurance Group Holdings, L.P. (Nassau)] agreed to purchase 100% of Phoenix's common stock in exchange for cash consideration. The merger agreement provided that Nassau would assume the existing obligation to Bondholders, but required Phoenix to use its best efforts to amend the Company's existing reporting obligations to Bondholders set forth in § 704 of the governing Indenture. The amendment was designed to eliminate almost all of those reporting obligations. Among other rights governed by the Indenture, § 704 provided Bondholders the right to receive annual and quarterly financial statements and other company and financial information. [] However, as contemplated by the Transaction agreement, on January 7, 2016, Phoenix disseminated a Consent Solicitation statement filed with the Securities and Exchange Commission ("SEC") attached to a Form 8-K ("Solicitation Statement") that sought the Bondholders' consent to a proposed Fourth Supplemental Indenture (in exchange for a payment of $0.06 per $25 increment). This proposal would have amended § 704 to require the Company to issue financial and company reports solely to the Trustee, which owed no duty to examine these reports. However, as alleged, the Solicitation Statement did not adequately inform Bondholders that following consummation of the Transaction, Phoenix had planned on delisting the Bonds and seeking a reporting exemption, thereby ceasing all financial reporting to Bondholders and placing Bondholders (and the market) in the dark. Plaintiff also alleged that the Solicitation Statement failed to disclose how this amendment would impact the value and market for the Bonds, and thus Bondholders were unable to appreciate the consequences of their consenting to the amendment. Plaintiff's counsel, after rigorous review of the SEC and insurance regulatory filings, concluded that if no action was taken, the amendment would have significantly harmed Bondholders' rights and interests.

         Dkt. 46 at 7-8.

         Plaintiff, one of Phoenix's bondholders, commenced this putative class action on February 8, 2016. The parties settled quickly, executing a memorandum of understanding on February 24, 2016, pursuant to which agreed-upon supplemental disclosures were promptly provided to the class. [3] After receiving the requisite regulatory approvals, the Transaction closed on June 20, 2016. See id. at 10. The Settlement was executed on September 14, 2016. See Dkt. 35. "The salient terms of the proposed Settlement are summarized" in plaintiff's brief, and they provide, inter alia, for Bondholders to "receive ongoing, timely and accurate financial and corporate reports, " that "The Fourth Supplemental Indenture was amended to secure for Bondholders the right to receive the financial and company reports identified in § 704 of the Indenture, " and that "[p]rospective purchasers, market makers and securities analyst will be given timely access to reports of Phoenix's financial and corporate information." See Dkt. 46 at 11.

         Plaintiff moved for preliminary approval of the Settlement on September 20, 2016. By order dated November 18, 2016, the court granted the motion, approved the proposed class notice, and scheduled a final approval hearing for February 2, 2017. See Dkt. 30. After providing notice to the class, plaintiff filed the instant motion for final approval on December 16, 2016. No objections were filed, nor did any class member appear at the hearing or request to opt out. As noted earlier, the court granted final approval on the hearing record and reserved on the attorneys' fees application pending supplement submissions.

         As an initial matter, as noted on the record, the Settlement is outstanding. It provides for expeditious beneficial relief for the class that affords them material remedial disclosures without the need for protracted, costly litigation. While disclosure-only settlements resolving pre-merger lawsuits are the subject of much controversy and often properly viewed with a fair degree skepticism [ see Gordon v Verizon Commc'ns, Inc., 2017 WL 442871, at *1, *9 (1st Dept Feb. 2, 2017), citing In re Trulia, Inc. Stockholder Lit., 129 A.3d 884, 890 (Del Ch 2016)], this case lacks the pernicious indicia of a frivolous "strike suit" seeking a "merger tax". Here, the gravamen of plaintiff's complaint is a challenge to the disclosure implications of the merger, which the court finds to have been well-founded. The terms of the Settlement sufficiently remedy plaintiff's concerns. Thus, under the five traditional class action settlement approval factors [ see In re Colt Indus. S'holder Lit., 155 A.D.2d 154, 160 (1st Dept 1990), aff'd as mod. 77 N.Y.2d 185 (1991)], as well as the two new factors recently announced by the First Department [ see Gordon, 2017 WL 442871, at *7], the Settlement in this case easily passes muster.

         With respect to the first factor, settling for complete remedial material disclosure easily satisfies the requisite merits balancing inquiry. See Gordon, 2017 WL 442871, at *5. [4] The second factor is satisfied because no class member objected. See id. at *6. The third factor is satisfied given counsels' experience and their exemplary and expeditious resolution of this case. See id. "With regard to the fourth factor, the presence of bargaining in good faith, negotiations are presumed to have been conducted at arm's length and in good faith where [as here] there is no evidence to the contrary." Id. The fifth factor is satisfied due to the clear sufficiency of the remedial disclosures provided by the Settlement. See id. The two new factors announced in Gordon, are clearly met it this case. "[T]he proposed settlement is in the best interests of the putative settlement class" because it affords them all of the disclosure they could reasonably have expected to obtain without the need for protracted and expensive litigation. See id. at *7. Likewise, "the settlement is in the best interest of the corporation" because "the proposed settlement would resolve the issues in this case" without the company incurring any monetary liability and by providing disclosure similar to that made available prior to the Transaction; and, of course, "by agreeing to the settlement, [the company] avoided having to incur the additional legal fees and expenses of a trial." See id. at *9. The Settlement is approved.

         Next, the court certifies the settlement class. "CPLR 901(a) sets forth five prerequisites to class certification:

1. the class is so numerous that joinder of all members, whether otherwise required or permitted, is impracticable;
2. there are questions of law or fact common to the class which predominate over any questions affecting ...

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