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Vaccaro v. New Source Energy Partners L.P.

United States District Court, S.D. New York

December 14, 2017

ENRICO VACCARO, F.GREGORY DENEEN, and WILLIAM SLATER, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
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

          KIMBA M. WOOD, UNITED STATES DISTRICT JUDGE.

         This 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.

         I. Introduction and Procedural History

         On 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").[1] 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.)

         On 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.)

         On June 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 follows:

[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 21, 2015.

         (Stipulation of Settlement, ECF No. 52 ¶ 1.29; Order, ECF No. 57 ¶ 2.)

         The 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.

         The 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.

         II. Certification of the Settlement Class is Appropriate Under Rule 23

         Courts 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).

         A. Requirements of Rule 23(a)

         Certification 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.

Id.

         1. Numerosity

         Because 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 . . . .").

         2. Commonality

         "Commonality 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.").

         3. Typicality

         Lead 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 cases).

         4. Adequacy

         Rule 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 case.").

         B. The Requirements of Rule 23(b)(3) Are Satisfied

         Rule 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.").

         III. Final Approval of the Settlement

         "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. Fed.R.Civ.P. 23(e)(1).

         "A 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).

         A. Adequacy of Notice

         Under 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 citation omitted).

         The 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 ...

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