United States District Court, S.D. New York
ENRICO VACCARO, F.GREGORY DENEEN, and WILLIAM SLATER, on behalf of themselves and all others similarly situated, Plaintiffs,
NEW SOURCE ENERGY PARTNERS L.P., KRISTIAN B. KOS, TERRY L. TOOLE, DIKRAN TOURIAN, RICHARD D. FINLEY, V. BRUCE THOMPSON, JOHN A. RABER, STIFEL, NICOLAUS & COMPANY, INC., ROBERY W. BAIRD & CO. INC., JANNEY MONTGOMERY SCOTT LLC, OPPENHEIMER & CO. INC., AND WUNDERLICH SECURITIES, INC., Defendants.
ORDER AND ORDER
M. WOOD, UNITED STATES DISTRICT JUDGE.
Opinion considers the Motion for Final Approval of the Class
Action Settlement ("Approval Motion") and Motion
for an Award of Attorneys' Fees and Expenses
("Attorneys' Fees Motion"), both filed by Lead
Plaintiffs Enrico Vaccaro, F. Gregory Deneen, and William
Slater ("Lead Plaintiffs"). The Court GRANTED both
Motions at the Settlement Fairness Hearing held on November
20, 2017 for reasons stated at the hearing and elaborated
more fully herein.
Introduction and Procedural History
October 21, 2015, Plaintiffs filed this lawsuit in connection
with an offering of $40 million worth of Series A Preferred
Units (the "Offering") from New Source Energy
Partners, L.P. ("New Source"). Plaintiffs sued
New Source, along with certain individuals who were officers
or directors of New Source at the time of the Offering
("Individual Defendants"), and certain firms that
were underwriters to New Source in connection with the
Offering ("Underwriter Defendants") (collectively,
"Defendants"). Plaintiffs allege that Defendants
made materially false and misleading statements in various
financial reports, including by allegedly failing to disclose
issues regarding the incompetency, fraudulent conduct, and
unreliability of New Source's contract operator,
resulting in millions of dollars in damages and
"curtailed" efforts to drill new oil wells. (Second
Am. Compl., ECF No. 38 ¶¶ 1-12.) On March 29, 2016,
this Court appointed Enrico Vaccaro, F. Gregory Deneen, and
William Slater as Lead Plaintiffs, and approved Wolf
Haldenstein Adler Freeman & Herz LLP and The Rosen Law
Firm, P.A. as Co-Lead Counsel. (Order, ECF No. 15). The next
day, New Source and its affiliate, New Source GP, LLC, filed
bankruptcy petitions, which automatically stayed the case as
against New Source. (Stipulation and Order, ECF No. 18.) Just
shy of three months later, on June 20, 2016, Plaintiffs filed
an Amended Class Action Complaint. (ECF No. 19.)
December 19, 2016, the Court granted Defendants' Motion
to Dismiss the Amended Complaint. (Order, ECF No. 37). After
further analysis and investigation, Lead Plaintiffs filed a
Second Amended Class Action Complaint in January 2017. (ECF
No. 38.) Defendants filed two motions to dismiss this Second
Amended Complaint, (ECF Nos. 40, 43), both of which
Plaintiffs opposed. (ECF Nos. 45, 46.)
19, 2017, after approximately one month of arm's-length
negotiations, the parties informed the Court that they had
reached an agreement and submitted a stipulation of
settlement. (ECF No. 52.) On July 27, 2017, the Court
preliminarily approved the settlement and approved a Claims
Administrator. (ECF No. 57.) The Court preliminarily
certified a Class (the "Settlement Class") as
[A]ll Persons (including, without limitation, their
beneficiaries) who purchased Series A Preferred Units of New
Source pursuant and/or traceable to its May 5, 2015 public
offering prior to the commencement of this action on October
of Settlement, ECF No. 52 ¶ 1.29; Order, ECF No. 57
proposed settlement resolves all claims against Individual
Defendants Kristian B. Kos, Terry L. Toole, Dikran Tourian,
Richard D. Finley, V. Bruce Thompson and John A. Raber, and
Underwriter Defendants Stifel, Nicolaus & Company, Inc.,
Robert W. Baird & Co. Inc., Janney Montgomery Scott LLC,
Oppenheimer & Co. Inc., and Wunderlich Securities, Inc.
(collectively, the "Settling Defendants"), in
exchange for $2.85 million, plus interest. Co-Lead Counsel
requested attorneys' fees in the amount of $950, 000.00
(representing 33.33% of the settlement amount). The requested
fees are 1.24 times the lodestar amount of $763, 998.25.
Court granted final approval of the settlement, the plan of
allocation, and the application for attorneys' fees and
reimbursement of litigation expenses at the November 20, 2017
Settlement Fairness Hearing, for the reasons that follow.
Certification of the Settlement Class is Appropriate Under
in this Circuit may certify a class for settlement purposes.
See Weinberger v. Kendrick, 698 F.2d 61, 73 (2d Cir.
1982). "Classes certified for settlement purposes, like
all other classes, must meet the requirements of Rule 23(a)
and at least one of three requirements set forth in Rule
23(b)." In re Marsh ERISA Litig, 265 F.R.D.
128, 142 (S.D.N.Y. 2010) (McMahon, J.) (citation omitted).
Requirements of Rule 23(a)
is warranted under Rule 23(a) where, as here,
(1) the class is so numerous that joinder of all members is
impracticable; (2) there are questions of law or fact common
to the class; (3) the claims or defenses of the class
representatives are typical of the claims or defenses of the
class; and (4) the class representatives will fairly and
adequately protect the interests of the class.
there are thousands of class members, the numerosity
requirement is satisfied. See Consol. Rail Corp. v. Town
of Hyde Park, 47 F.3d 473, 483 (2d Cir. 1995)
("[N]umerosity is presumed at a level of 40 members . .
does not demand that every question of law or fact be common
to every class member, but instead merely requires that the
claims arise from a common nucleus of operative facts."
Marsh, 265 F.R.D. at 142. Here, there are questions
of law and fact common to the Settlement Glass, the most
significant of which are whether the Defendants made material
misrepresentations or omissions. See Fogarazzo v. Lehman
Bros., 232 F.R.D. 176, 180 (S.D.N.Y. 2005) (Scheindlin,
J.) ("In general, where putative class members have been
injured by similar material misrepresentations and omissions,
the commonality requirement is satisfied.").
Plaintiffs' claims are typical of the claims of the
Settlement Class because they arise from the same allegedly
wrongful conduct by the Defendants. See In re NASDAQ
Mkt.-Makers Antitrust Litig., 169 F.R.D. 493, 511
(S.D.N.Y. 1996) (Sweet, J.) ("Rule 23(a)'s
typicality requirement is established where, as here, the
claims of the representative Plaintiffs arise from the same
course of conduct that gives rise to the claims of the other
Class members, where the claims are based on the same legal
theory, and where the class members have allegedly been
injured by the same course of conduct as that which allegedly
injured the proposed representatives.") (collecting
23(a)(4) requires that "the representative parties . . .
fairly and adequately protect the interests of the
class." In evaluating adequacy, courts in this Circuit
consider, "(1) whether the claims of the lead plaintiffs
conflict with those of the class; and (2) whether the lead
plaintiffs' counsel is qualified, experienced and
generally able to conduct the litigation."
Marsh, 265 F.R.D. at 143. Lead Plaintiffs and
Co-Lead Counsel have fairly and adequately represented the
interests of the Settlement Class. First, there is no
"divergence of interests" between Lead Plaintiffs
and the other Settlement Class Members. See Kelen v.
World Fin. Network Nat. Bank, 302 F.R.D. 56, 65
(S.D.N.Y. 2014) (Broderick, J.) (holding that this element of
the adequacy requirement is met where "no divergence of
interests between Plaintiffs and the other class members has
been identified"). Second, Co-Lead Counsel are adequate
because they have litigated dozens of class actions in the
United States, and "have recouped billions of
dollars" in securities class action cases. (Wolf
Haldenstein Firm Resume, ECF No. 63-1, at 3; The Rosen Law
Firm P. A. Biography, ECF No. 63-2.) Because of their
considerable experience, the Court also finds that Rule 23(g)
is satisfied. See D.S. ex rel. S.S. v. New York City
Dep't of Educ., 255 F.R.D. 59, 74 (E.D.N.Y.2008)
(internal quotation marks and citation omitted) (noting that
Rule 23(g) is satisfied where "the class attorneys are
experienced in the field or have demonstrated professional
competence in other ways, such as by the quality of the
briefs and the arguments during the early stages of the
The Requirements of Rule 23(b)(3) Are Satisfied
23(b)(3) is satisfied where, as here, "questions of law
or fact common to class members predominate over any
questions affecting only individual members, and ... a class
action is superior to other available methods for fairly and
efficiently adjudicating the controversy." Here,
questions of law or fact common to Class Members predominate
over any questions affecting only individual members, because
every Class Member would be required to prove the same
misrepresentations in order to establish liability. See
In re Deutsche Telekom AG Sec. Litig., 229 F.Supp.2d
277, 282 (S.D.N.Y. 2002) (Stein, J.) ("Courts have
recognized that class actions are generally appropriate when
plaintiffs seek redress for violations of the securities
laws."). A class action is superior to other available
methods for fairly and efficiently adjudicating these claims
because it spares Plaintiffs costly individual litigation.
See id ("Class actions are generally
well-suited to securities fraud cases such as this one
because they avoid the time and expense of requiring all
class members to litigate individually.").
Final Approval of the Settlement
approval is within the Court's discretion, which should
be exercised in light of the general judicial policy favoring
settlement." In re Sumitomo Copper Litig., 189
F.R.D. 274, 280 (S.D.N.Y. 1999) (Pollack, J.) (internal
quotation marks and citation omitted). "In a class
action settlement, there is a presumption of fairness,
reasonableness and adequacy when the settlement is the
product of arms-length negotiations between experienced,
capable counsel after meaningful discovery."
Marsh, 265 F.R.D. at 138 (quoting Sumitomo,
189 F.R.D. at 280). Adequate notice of the proposed
settlement must be provided to potential class members.
court may approve a class action 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
quotation marks and citation omitted). To evaluate the
settlement's fairness, a court should consider "both
the settlement's terms and the negotiating process
leading to settlement." Id. (internal quotation
marks and citation omitted).
Adequacy of Notice
Rule 23(e)(1), the Court "must direct notice in a
reasonable manner to all class members who would be bound by
the proposal." "A notice program must provide the
'best notice practicable under the circumstances
including individual notice to all members who can be
identified through reasonable effort." In re
Advanced Battery Techs., Inc. Sec. Litig., 298 F.R.D.
171, 182 (S.D.N.Y.2014) (McMahon, J.). If the average class
member understands "the terms of the proposed settlement
and of the options that are open to them in connection with
[the] proceedings, " then the notice is adequate.
Weinberger v. Kendrick, 698 F.2d 61, 70 (2d Cir.
1982) (alteration in original) (internal quotation marks and
Court's July 27, 2017 Preliminary Approval Order
appointed a claims administrator who sent notice of the
settlement to potential Class Members. Notice was mailed to
over 2, 200 potential class members and nominees and over 1,
400 banks, brokerage companies, mutual funds, insurance
companies, pension funds, and money managers; published in
Investor's Business Daily; transmitted over Globe
Newswire; and transmitted to the Depository Trust Company on
the Legal Notice System. The notice provided:
(i) an explanation of the Action;
(ii) the definition of the settlement class;
(iii) the amount of the settlement and the ...