in re: collins & aikman corporation securities litigation...
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UNITED STATES DISTRICT COURTFOR THE EASTERN DISTRICT OF MICHIGAN
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IN RE COLLINS & AIKMAN CORPORATION : Civil Action No. 2:03-cv-71173-GERSECURITIES LITIGATION :
: Hon. Gerald E. Rosen:
THIS DOCUMENT RELATES TO: :ALL ACTIONS :
:
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LEAD PLAINTIFFS’ MOTION FOR (1) PRELIMINARY APPROVAL OFSETTLEMENT, (II) PRELIMINARY CERTIFICATION OF A CLASS FOR PURPOSES
OF SETTLEMENT, (III) APPROVAL OF FORM AND MANNER OF NOTICE, AND(IV) SCHEDULING A FINAL APPROVAL HEARING
Lead Plaintiffs Massachusetts State Carpenters Pension Fund, Massachusetts State
Guaranteed Annuity Fund and Harold Holder (“Lead Plaintiffs”), on behalf of themselves and
the Class (as hereinafter defined) and, by and through their respective counsel, respectfully
submit this motion pursuant to Rule 23 of the Federal Rules of Civil Procedure and in support
thereof state as follows:
1. The Lead Plaintiffs in this action are the Massachusetts State Carpenters Pension
Fund, the Massachusetts State Guaranteed Annuity Fund and Harold Holder
2. The Defendants in this action are Heartland Industrial Partners L.P. (“Heartland”),
David A. Stockman (“Stockman”), J. Michael Stepp (“Stepp”), Thomas E. Evans (“Evans”),
Jerry Mosingo (“Mosingo”) (the “Defendants”) (collectively with Lead Plaintiffs, the “Parties”).
3. After an extensive mediation conducted by the Court-appointed Master,
Honorable Layn R. Phillips, a proposed settlement has been reached resolving all claims in this
action. The settlement calls for the payment of $10.8 in cash. On March 17, 2009 the Parties
memorialized the settlement terms in writing and entered into the Stipulation of Settlement (the
“Stipulation”), attached hereto.
4. As explained more fully in the accompanying Brief in Support of this Motion,
preliminary approval of the Settlement should now be granted.
5. By this Motion, Lead Plaintiffs respectfully request that the Court enter an Order
that:
a. preliminarily approves the proposed settlement of this action as within the range
of possible fairness, reasonableness and adequacy;
b. appoints Lead Plaintiffs as class representatives of the settlement class;
c. appoints Milberg LLP, Lead Counsel, and The Miller Law Firm, P.C., Liaison
Counsel, for the settlement class;
d. preliminarily certifies a settlement class for settlement purposes;
e. approves the form and manner of notice proposed by the Lead Plaintiffs;
f. appoints The Garden City Group as claims administrator to disseminate the class
notices; and
g. sets a date and time for the hearing regarding final approval of the settlement and
Lead Counsel’s application for attorneys' fees and Lead Plaintiffs’ application for
reimbursement for costs and expenses.
6. Defendants do not oppose this Motion.
WHEREFORE, Lead Plaintiffs respectfully request that the Court preliminarily approve
the proposed Settlement, preliminarily certify the Class, approve the forms and methods of
providing notice to the Settlement Class, and set the date and time for the fairness hearing.
Dated: March 20, 2009
THE MILLER LAW FIRM, P.C.
By: /s/ David H. FinkE. Powell Miller (P39487)Marc L. Newman (P51393)David H. Fink (P28235)950 West University Dr., Suite 300Rochester, MI 48307Tel: (248) [email protected]
Liaison Counsel
MILBERG LLPBarry A. WeprinTodd KammermanOne Pennsylvania Plaza, 48th FloorNew York, NY 10119-0165(212) [email protected] Counsel
UNITED STATES DISTRICT COURTFOR THE EASTERN DISTRICT OF MICHIGAN
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IN RE COLLINS & AIKMAN CORPORATION : Civil Action No. 2:03-cv-71173-GERSECURITIES LITIGATION :
: Hon. Gerald E. Rosen:
THIS DOCUMENT RELATES TO: :ALL ACTIONS :
: x
PLAINTIFFS’ MEMORANDUM OF LAW INSUPPORT OF THEIR MOTION FOR PRELIMINARY APPROVAL AND
AGREEMENT OF SETTLEMENT
THE MILLER LAW FIRM, P.C. MILBERG LLPE. Powell Miller (P39487) Barry A. WeprinMarc L. Newman (P51393) Todd KammermanDavid H. Fink (P28235) One Pennsylvania Plaza, 48th Floor950 West University Dr., Suite 300 New York, NY 10119-0165Rochester, MI 48307 Tel: (212) 594-5300Tel: (248) 841-2200 [email protected]@millerlawpc.com
Liaison Counsel Lead Counsel
TABLE OF CONTENTS
Page
Table of Authorities ii
I. INTRODUCTION 1
II. BACKGROUND OF THE LITIGATION 2
III. PRELIMINARY SETTLEMENT APPROVAL 4
A. The Standard for Preliminary Approval of a Settlement Agreement 4
B. The Settlement Agreement Resulted From Arm’s Length Negotiations 6
C. The Settlement Has No Obvious Deficiencies, Such As Preferential Treatment OfClass Representatives Or Segments Of The Class Or Excessive Compensation ForAttorneys 7
D. The Settlement Falls Within The Range Of Possible Approval 7
E. The Proposed Notice Is Adequate 9
IV. PRELIMINARY CERTIFICATION OF THE CLASS UNDER RULE 23 OFTHE FEDERAL RULES OF CIVIL PROCEDURE IS APPROPRIATE 11
A. The Proposed Class Satisfies The Prerequisites Of Rule 23(a) 12
1. The Class Is Sufficiently Numerous 12
2. There Are Common Questions Of Law And Fact 13
3. The Proposed Class Representatives’ Claims Are Typical Of ThoseOf The Class 14
4. The Proposed Class Representatives Will Fairly And AdequatelyProtect The Interests Of The Class 14
B. The Proposed Class Satisfies The Prerequisites Of Rule23(b)(3) 15
1. Common Legal And Factual Questions Predominate 15
2. A Class Action Is Superior To Other Methods Of Adjudication 16
C. Appointment Of Class Representatives And Class Counsel 17
CONCLUSION 18
i
TABLE OF AUTHORITIES
Page
CASES
In re Am. Bank Note Holographics, Inc., Sec. Litig.,127 F. Supp. 2d 418 (S.D.N.Y. 2001) 9
In re Am. Med. Sys., Inc.,75 F.3d 1069 (6th Cir. 1996) 14
Amchem Prods., Inc. v. Windsor,521 U.S. 591 (1997) 15, 16
In re Beef Indus. Antitrust Litig.,607 F.2d 167 (5th Cir. 1979) 12
Bittinger v. Tecumseh Products Co.,123 F.3d 877 (6th Cir. 1997) 13
In re Blech Sec. Litig.,187 F.R.D. 97 (S.D.N.Y. 1999) 17
In re Cardizem CD Antitrust Litig.,218 F.R.D. 508 (E.D. Mich. 2003) 7, 8, 12, 16
Chatelain v. Prudential-Bache Sec., Inc.,805 F. Supp. 209 (S.D.N.Y. 1992) 6
D.E. & J. Ltd. P’ship v. Conaway,133 Fed. Appx. 994 (6th Cir. 2005) 8
In re Delphi Corp. Sec., Derivative & "ERISA" Litig.,248 F.R.D. 483 (E.D. Mich. 2008) 13, 16
Detroit Police Officers Ass’n v. Young,920 F. Supp. 755 (E.D. Mich. 1995) 4
In re Dun & Bradstreet Credit Servs. Customer Litig.,130 F.R.D. 366 (S.D. Ohio 1990) 5
In re Excess Value Ins. Coverage Litig.,No. M-21-84RMB, MDL-1339, 2004 WL 1724980 (S.D.N.Y. July 30, 2004) 6
Franks v. Kroger Co.,
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670 F.2d 71 (6th Cir. 1982) 5
Grunin v. Int’l House of Pancakes,513 F.2d 114 (8th Cir. 1975) 10
Hicks v. Morgan Stanley & Co.,No. 01 Civ. 10071 (RJIT), 2005 U.S. Dist. LEXIS 24890 (S.D.N.Y. Oct. 19,2005) 7
Int’l Union v. Ford Motor Co.,No. 05-74730, 06-10331, 2006 WL 1984363(E.D. Mich. July 13, 2006) 12, 13, 14, 15
In re Inter-Op Hip Prosthesis Liab. Litig.,204 F.R.D. 359 (N.D. Ohio 2001) 6
In re Kmart Corp. Sec. Litig.,No. 95-CS-75584-DT, 1996 U.S. Dist. LEXIS 22609 (E.D. Mich. Dec. 16,1996) 13
In re Livent, Inc. Noteholders Sec. Litig.,210 F.R.D. 512 (S.D.N.Y. 2002) 16
McNamara v. Bre -X Minerals Ltd.,214 F.R.D. 424 (E.D. Tex. 2002) 15
In re Oxford Health Plans, Inc., Sec. Litig.,191 F.R.D. 369 (S.D.N.Y. 2000) 13, 14
In re Prudential Sec. Inc. Ltd. P'ships Litig.,163 F.R.D. 200 (S.D.N.Y. 1995) 5, 6, 12
Rebenstock v. Fruehauf Trailer Corp.,No. 92 CV 77050 DT, 1995 U.S. Dist. LEXIS 22089 (E.D. Mich. Aug. 18,1995) 10
Robinson v. Ford Motor Co.,Nos. 1:04-CV-00844; 1:04-CV-00845, 2005 U.S. Dist. LEXIS 11673(S.D. Ohio June 15, 2005) 5
In re Revco Sec. Litig.,142 F.R.D. 659 (N.D. Ohio 1992) 13
Schaefer v. Tannian (In re Cherry),164 F.R.D. 630 (E.D. Mich. 1996) 9
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Schaefer v. Tannian,No. 73-39943, 1995 U.S. Dist. LEXIS 11816 (E.D. Mich. Apr. 17, 1995) 5, 9
Senter v. Gen. Motors Corp.,532 F.2d 511 (6th Cir. 1976) 15
Sprague v. Gen.l Motors Corp.,133 F.3d 388 (6th Cir. 1998) 13
In re Sumitomo Copper Litig.,189 F.R.D. 274 (S.D.N.Y. 1999) 17
Tenn. Ass’n of Health Maint. Orgs., Inc. v. Grier,262 F.3d 559 (6th Cir. 2001) 4
United States v. Jones & Laughlin Steel Corp.,804 F.2d 348 (6th Cir. 1986) 4-5
Weinberger v. Kendrick,698 F.2d 61 (2d Cir. 1982) 12
Williams v. Vukovich,720 F.2d 909 (6th Cir. 1983) 5, 6
FEDERAL STATUTES
15 U.S.C. § 78u 4(a)(7) 11
Fed. R. Civ. P. 23(a) 12
Fed. R. Civ. P. 23(b)(3) 16
Fed. R. Civ. P. 23(c)(2)(B) 9, 10
Fed. R. Civ. P. 23(e) 4
Fed. R. Civ. P. 23(e)(1) 9
MISCELLANEOUS
2 Herbert Newberg & Alba Conte, Newberg on Class Actions § 11.41 (3d ed.1992) 6
Manual for Complex Litigation (Fourth) § 13.14 (2004) 4
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Manual for Complex Litigation (Fourth) § 21.312 (2004) 10
Manual for Complex Litigation (Fourth) §§ 21.632-21.633 (2004) 1
Manual for Complex Litigation (Third) § 30.41 (1995) 2, 5, 6
Manual for Complex Litigation (Third) § 30.42 (1995) 6
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CONTROLLING OR MOST APPROPRIATE AUTHORITYFOR RELIEF SOUGHT
In re Cardizem CD Antitrust Litig.,218 F.R.D. 508 (E.D. Mich. 2003)
Detroit Police Officers Ass’n v. Young,920 F. Supp. 755 (E.D. Mich. 1995)
Int’l Union v. Ford Motor Co.,No. 05-74730, 06-10331, 2006 WL 1984363 (E.D. Mich. July 13, 2006)
Tenn. Ass’n of Health Maint. Orgs., Inc. v. Grier,262 F.3d 559 (6th Cir. 2001)
Manual for Complex Litigation (Fourth) §§ 13.14, 21.312, 21.632-21.633 (2004)
Manual for Complex Litigation (Third) §§ 30.41-30.42 (1995)
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CONCISE STATEMENT OF THE ISSUES PRESENTED
1. Whether the proposed settlement is within the range of what might be found fair,
reasonable and adequate.
2. Whether the proposed notice is adequate.
3. Whether the proposed Class can be preliminarily certified for settlement purposes.
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I. INTRODUCTION
Lead Plaintiffs Massachusetts State Carpenters Pension Fund, Massachusetts State
Guaranteed Annuity Fund and Harold Holder (“Lead Plaintiffs”) respectfully submit this motion
pursuant to Federal Rule of Civil Procedure 23(e) for preliminary approval of the proposed
settlement in this securities class action. 1 The proposed settlement, as set forth in a Stipulation
and Agreement of Settlement, dated March 17, 2009 (the “Settlement Stipulation” filed
contemporaneously herewith), represents an excellent result for the Class. Under the terms of
the settlement, a settlement fund of $10.8 million in cash will be created. Settlement Stipulation
¶ 1b.
In determining whether to approve preliminarily the Settlement Stipulation, the issue
before the Court is whether the settlement is within the range of what might be found fair,
reasonable and adequate and whether the Class can be preliminarily certified for settlement
purposes, so that notice of the settlement should be given to Class members, and a hearing
scheduled to consider final settlement approval. The Court is not required at this point to make a
final determination as to the fairness of the settlement. As stated in the Manual for Complex
Litigation (Fourth):
Review of a proposed class action settlement generally involvestwo hearings. First, counsel submit the proposed terms of thesettlement and the judge makes a preliminary fairness evaluation.. . . Once the judge is satisfied as to the certifiability of the classand the results of the initial inquiry into the fairness,reasonableness, and adequacy of the settlement, notice of a formalRule 23(e) fairness hearing is given to the class members.
§§ 21.632-21.633, at 320-21 (2004) (the “Manual”).
1 Defendant parties to this settlement are: Heartland Industrials L.P., David A. Stockman, J. Michael Stepp, ThomasE. Evans, Jerry Mosingo, Daniel P. Tredwell, W. Gerald McConnell, Samuel Valenti, III, Cynthia Hess, Marshall A.Cohen and Timothy D. Leuliette.
The Manual for Complex Litigation (Third) defines the Court’s duty at the preliminary
approval stage as follows:
If the preliminary evaluation of the proposed settlement does notdisclose grounds to doubt its fairness or other obvious deficiencies,such as unduly preferential treatment of class representatives or ofsegments of the class, or excessive compensation for attorneys, andappears to fall within the range of possible approval, the courtshould direct that notice under Rule 23(e) be given to the classmembers of a formal fairness hearing, at which arguments andevidence may be presented in support of and in opposition to thesettlement.
§ 30.41, at 237 (1995).
Since the settlement meets the foregoing criteria and is well within the range of what
might be approved as fair, reasonable and adequate, Lead Plaintiffs ask this Court to enter an
Order: (1) granting preliminary approval of the proposed settlement; (2) granting preliminary
certification of the Class for settlement purposes; (3) directing that the Class be given notice of
the pendency of this action and the settlement, in the form and manner proposed by the parties;
and (4) scheduling a hearing at which the Court will consider the parties’ motion for final
approval and entry of their proposed final judgment, and Plaintiffs’ Counsel’s application for an
award of attorneys’ fees and reimbursement of costs.
II. BACKGROUND OF THE LITIGATION
This case primarily concerns Collins & Aikman Corporation’s (“C&A” or “Collins &
Aikman”) massive attempt to cover up the failure of its strategy to become a “Mega Tier 2”
supplier. Lead Plaintiffs have alleged that in order to achieve this “Mega Tier 2” position, C&A
undertook a risky acquisition strategy. However, C&A had no viable plan to integrate these
acquisitions. It was unable to handle the size of its new business and disarray erupted at many of
its plants. When it became apparent that its integration strategy was failing, the C&A and
Defendants deceived the market by reporting that the integration strategy was successful.
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Beginning on or about March 24, 2003, several putative class actions alleging violations
of the federal securities laws were filed in this Court on behalf of shareholders of Collins &
Aikman and subsequently consolidated under the caption above (the foregoing actions and the
consolidated action are collectively referred to as the “Action”).
On or about August 4, 2003, the Massachusetts State Carpenters Pension Fund, the
Massachusetts State Guaranteed Annuity Fund and Harold Holder were appointed Lead
Plaintiffs, Milberg Weiss Bershad Hynes & Lerach LLP (now known as Milberg LLP) was
appointed Plaintiffs’ Lead Counsel, and Miller Shea, P.C. (now known as The Miller Law Firm,
P.C.) was appointed as Liaison Counsel.
Lead Plaintiffs filed the Second Amended Complaint (the “Complaint”) in the Action on
February 14, 2008. It generally asserts, among other things, that Defendants violated Section
10(b) and/or Section 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated
thereunder, by allegedly issuing materially false and misleading press releases and other
statements regarding the financial condition of C&A during the putative Class Period — August
7, 2001 through and including August 5, 2002. The Complaint further alleges that Lead
Plaintiffs and other Class Members purchased the common stock of C&A during the Class
Period at prices artificially inflated as a result of the Defendants’ alleged violations of the federal
securities laws.
Plaintiffs’ Counsel has conducted an investigation relating to the claims and the
underlying events and transactions alleged in the Complaint and have researched the applicable
law with respect to the claims of Lead Plaintiffs and the Class against the Defendants and the
potential defenses thereto. They have reviewed hundreds of thousands of pages of documents in
the possession of Defendants. With the assistance of retired United States District Judge Layn R.
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Phillips acting as a mediator, Lead Plaintiffs, by their counsel, have conducted discussions and
arm’s length negotiations with Defendants’ Insurers and/or certain counsel for Defendants with
respect to a compromise and settlement of the Action with a view to settling the issues in dispute
and achieving the best relief possible consistent with the interests of the Class. As a result of the
mediation, the parties entered into the Settlement Stipulation.
III. PRELIMINARY SETTLEMENT APPROVAL
A. The Standard for Preliminary Approval of a Settlement Agreement
Federal Rule of Civil Procedure 23(e) provides that any compromise of a class action
must receive court approval. Approval of a proposed settlement of a class action suit is within
the court’s discretion. See Detroit Police Officers Ass’n v. Young, 920 F. Supp. 755, 761 (E.D.
Mich. 1995) (“[a]pproval of a proposed settlement is committed to the sound discretion of the
trial court.”).
When considering a proposed class action settlement, courts routinely apply a three-step
approach: “(1) the court must preliminarily approve the proposed settlement, i.e., the court
should determine whether the compromise embodied in the decree is illegal or tainted with
collusion; (2) members of the class must be given notice of the proposed settlement; and (3) a
hearing must be held to determine whether the decree is fair to those affected, adequate and
reasonable.” Tenn. Ass’n of Health Maint. Orgs., Inc. v. Grier, 262 F.3d 559, 565-66 (6th Cir.
2001); see also Manual at § 13.14 (“First, the judge reviews the proposal preliminarily to
determine whether it is sufficient to warrant public notice and a hearing. If so, the final decision
on approval is made after the hearing.”).
At the preliminary approval stage, courts should determine whether the settlement is
sufficiently within the range of what might be approved at the final stage of approval as fair,
reasonable, and adequate, and consistent with the public interest. See United States v. Jones &
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Laughlin Steel Corp., 804 F.2d 348, 351 (6th Cir. 1986); Williams v. Vukovich, 720 F.2d 909,
921 (6th Cir. 1983); see also In re Prudential Sec. Inc. Ltd. P’ships Litig., 163 F.R.D. 200, 210
(S.D.N.Y. 1995) (“ [a]t this stage of the proceeding, the Court need only find that the proposed
settlement fits ‘within the range of possible approval’”) (citation omitted). At the final approval
stage, a formal fairness hearing is held where arguments and evidence may be presented in
support of, and in opposition to, the settlement. Manual for Complex Litigation (Third) § 30.41.
The district court bases its preliminary approval of a proposed settlement upon its
“familiarity with the issues and evidence of the case as well as the arms-length nature of the
negotiations prior to the settlement,” ensuring that the “settlement is neither illegal nor
collusive.” Robinson v. Ford Motor Co., Nos. 1:04-CV-00844; 1:04-CV-00845, 2005 U.S. Dist.
LEXIS 11673 at *10 (S.D. Ohio June 15, 2005) (citing Williams v. Vukovich, 720 F.2d 909, 921
(6th Cir. 1983)); In re Dun & Bradstreet Credit Servs. Customer Litig., 130 F.R.D. 366, 369
(S.D. Ohio 1990)).
Settlements of class actions are favored under the law and will be encouraged whenever
possible. See Franks v. Kroger Co., 670 F.2d 71, 73 (6th Cir. 1982) (finding in a discrimination
class action that, “settlement of disputes is favored”); Schaefer v. Tannian, No. 73-39943, 1995
U.S. Dist. LEXIS 11816, at *16-17 (E.D. Mich. Apr. 17, 1995) (“The policy in federal court
favoring the voluntary resolution of litigation through settlement is particularly strong in the
class action context.”). As explained by the Court in Prudential:
If the preliminary evaluation of the proposed settlement does notdisclose grounds to doubt its fairness or other obvious deficiencies,such as unduly preferential treatment of class representatives or ofsegments of the class, or excessive compensation for attorneys, andappears to fall within the range of possible approval, the courtshould direct that notice under [Federal] Rule 23(e) be given to theclass members of a formal fairness hearing, at which arguments
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and evidence may be presented in support of and in opposition tothe settlement.
Prudential, 163 F.R.D. at 209 (quoting Manual for Complex Litigation (Third) § 30.41).
B. The Settlement Agreement Resulted From Arm’s Length Negotiations
There is an initial presumption that a proposed settlement is fair and reasonable when it is
the result of arm’s-length negotiations. See Vukovich, 720 F.2d at 922-923 (“[t]he court should
defer to the judgment of experienced counsel who has competently evaluated the strength of his
proofs.”); In re Excess Value Ins. Coverage Litig., No. M-21-84RMB, MDL-1339, 2004 WL
1724980, at * 10 (S.D.N. Y. July 30, 2004) (“[w]here ‘the Court finds that the Settlement is the
product of arm’s length negotiations conducted by experienced counsel knowledgeable in
complex class litigation, the Settlement will enjoy a presumption of fairness.’”); In re Inter-Op
Hip Prosthesis Liab. Litig., 204 F.R.D. 359, 380 (N.D. Ohio 2001) (granting preliminary
settlement approval) (“[W]hen a settlement is the result of extensive negotiations by experienced
counsel, the Court should presume it is fair”); see also 2 Herbert Newberg & Alba Conte,
Newberg on Class Actions § 11.41 at 11-88 (3d ed. 1992); Manual For Complex Litigation
(Third) § 30.42.
Absent collusion, a court should give significant weight to the judgment of counsel:
The settlement must be the result of arm’s length negotiations, andplaintiffs’ counsel must be experienced and have engaged inadequate discovery necessary to represent the class effectively. Astrong initial presumption of fairness attaches to the proposedsettlement when it is shown to be the result of this type of anegotiating process and when the number of objectors is small.
Chatelain v. Prudential-Bache Sec., Inc., 805 F. Supp. 209, 212 (S.D.N.Y. 1992) (citations
omitted).
The proposed settlement here was the product of discussions and arm’s length
negotiations between Plaintiffs’ Counsel and counsel for Defendants. Plaintiffs’ Counsel has
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extensive experience in securities class actions and conducted these negotiations with a view to
the issues in dispute and achieving the best relief possible consistent with the interests of the
Class. Moreover, these negotiations were conducted as part of a mediation under the supervision
of Layn R. Phillips, Esq., a respected former federal judge. See Hicks v. Morgan Stanley & Co.,
No. 01 Civ. 10071 (RJH), 2005 U.S. Dist. LEXIS 24890, at *14-15 (S.D.N.Y. Oct. 19, 2005)
(“ [t]he participation of a respected and neutral mediator gives [the court] confidence that [the
negotiations] were conducted in an arms-length, non-collusive manner”) (internal citations
omitted). Accordingly, the settlement should be preliminarily approved.
C. The Settlement Has No Obvious Deficiencies, Such As PreferentialTreatment Of Class Representatives Or Segments Of The Class OrExcessive Compensation For Attorneys
The proposed settlement has no “obvious deficiencies.” The settlement provides no
preferential treatment to Lead Plaintiffs or other Class members. Lead Plaintiffs will receive
distributions from the settlement proceeds calculated in the same manner as the distributions to
other Class members. Additionally, the settlement does not mandate excessive compensation for
Plaintiffs’ Counsel. The Settlement Stipulation (¶ 11) provides that Plaintiffs’ Counsel will
apply for an award of attorneys’ fees of up to thirty percent (30%) of the Gross Settlement Fund,
plus reimbursement of reasonable costs and expenses. See In re Cardizem CD Antitrust Litig.,
218 F.R.D. 508, 532 (E.D. Mich. 2003) (stating that the “range of reasonable attorneys’ fees
generally awarded in this Circuit” is between 20-30%).
D. The Settlement Falls Within The Range Of Possible Approval
Plaintiffs’ Counsel have carefully evaluated the merits of this case and the proposed
settlement. Under the terms of the settlement, Defendants have agreed to create a fund
consisting of $10.8 million. Although Plaintiffs’ Counsel believes this is a strong case, the
strength of Lead Plaintiffs’ case is no guarantee that the Complaint will survive Defendants’
7
Motions to Dismiss, or if it survives, that Lead Plaintiffs will prevail at the summary judgment
phase or trial. This is especially the case because Defendants are represented by sophisticated
counsel. One obstacle to surviving the motions to dismiss faced by Lead Plaintiffs is
Defendants’ attack on the Complaint’s loss causation allegations under Sixth Circuit law. See
D.E. & J. Ltd. P’ship v. Conaway, 133 Fed. Appx. 994 (6th Cir. 2005). In fact, when the Court
granted Lead Plaintiffs’ motion to amend the complaint, the Court specifically mentioned the
“heavy burden” loss causation as an issue that might present a problem for Plaintiffs.
Furthermore, even if a judgment were obtained against Defendants, the recovery might be
no greater, and indeed might be substantially less, than the proposed settlement. See Cardizem
CD, 218 F.R.D. at 523 (“the prospect of a trial necessarily involves the risk that Plaintiffs would
obtain little or no recovery”). Given the fact that the C&A is bankrupt, Defendants would have
no ability to pay an award in excess of amounts available from their insurance. Moreover, if this
case proceeded deep into discovery and went to trial, the amounts available under Defendants’
insurance policies would be depleted. Therefore, despite the strengths of this case, when the
inherent risks of the motions to dismiss, possible summary judgment motions, trial and
subsequent appeals, and resulting delays are weighed against a $10.8 million recovery, it is
readily apparent that this settlement is within the range that can be found to be fair, reasonable
and adequate at the final approval stage.
The proposed Plan of Allocation also falls within the range of possible approval. All
cash distributions to authorized claimants shall be from the Net Cash Settlement Amount
pursuant to a Plan of Allocation set forth in the proposed Notice. The proposed Plan of
Allocation is based on Lead Plaintiffs’ theory of the case and reflects Lead Plaintiffs’ contention
that the prices of C&A common stock was artificially inflated by reason of the allegedly false
8
and misleading statements made by Defendants during the Class Period by various amounts as
various disclosures were made. The Plan of Allocation appropriately allocates the recovery to
Class Members by taking into account the strengths and weaknesses of their claims depending on
when they purchased C&A securities. There is no reason to doubt the fairness of the proposed
Plan of Allocation for purposes of preliminary approval. Even at the final-approval stage, “[a]n
allocation formula need only have a reasonable, rational basis [to warrant approval], particularly
if recommended by ‘experienced and competent’ class counsel.” In re Am. Bank Note
Holographics, Inc., Sec. Litig., 127 F. Supp. 2d 418, 429-30 (S.D.N.Y. 2001).
In light of the above considerations, the proposed settlement as a whole falls within the
range of possible final approval. The Court should therefore grant preliminary approval of the
settlement and direct that notice of it be given to members of the Class.
E. The Proposed Notice Is Adequate
Federal Rule of Civil Procedure 23(c)(2)(B) states, “[f]or any class certified under Rule
23(b)(3), the court must direct to class members the best notice practicable under the
circumstances, including individual notice to all members who can be identified through
reasonable effort.” Rule 23(e)(1) similarly states, “[t]he court must direct notice in a reasonable
manner to all class members who would be bound by the proposal.”
Notice of a settlement must be as directed by the district court, Federal Rule of Civil
Procedure 23(e), and reasonable enough to satisfy due process. See Schaefer, 1995 U.S. Dist.
LEXIS 11816, at *16. The standards encompassed under the notice requirement of Rule 23(e)
require that notice be “reasonably calculated, under all the circumstances, to apprise absent class
members of the pendency of the action and its settlement.” Schaefer v. Tannian (In re Cherry),
164 F.R.D. 630, 637 (E.D. Mich. 1996). The notice may “consist of a very general description
of the proposed settlement, including a summary of the monetary or other benefits that the class
9
would receive and an estimation of attorneys’ fees and other expenses.” Grunin v. Int’l House of
Pancakes, 513 F.2d 114, 122 (8th Cir. 1975); see also Manual at § 21.312 (settlement notice
“should announce the terms of a proposed settlement and state that, if approved, it will bind all
class members”). Additionally, the notice should describe the essential terms of the settlement,
provide information regarding the plaintiffs’ attorney’s fees and expenses; set forth the time and
place of the final approval hearing; describe the procedures for objecting to the settlement and
state the address and telephone number of the plaintiff’s counsel and how to make inquiries
regarding the settlement. Manual at § 21.312.
Here, the Settlement Stipulation provides for a form of notice (the “Notice” -- attached as
Exhibit 1 to Exhibit A to the Settlement Stipulation) to be disseminated to all people who fall
within the definition of the Class and whose names and addresses can be identified from C&A’s
shareholder lists and transfer records. Despite the fact that C&A’s transfer agent from the Class
Period is no longer in business, Plaintiffs have arranged to obtain the transfer records from their
successors. The parties further propose to supplement the mailed notice with a summary notice
(the “Publication Notice” – attached as Exhibit 3 to Exhibit A to the Settlement Stipulation),
published in the national edition of The Wall Street Journal. Thus, the proposed method of
notice comports with Rule 23 and the requirements of due process. See, e.g., Rebenstock v.
Fruehauf Trailer Corp., No. 92 CV 77050 DT, 1995 U.S. Dist. LEXIS 22089, at *2-3, *6 (E.D.
Mich. Aug. 18, 1995) (approving settlement where notice was sent by mail to identified class
members and publication in the national edition of The Wall Street Journal and the Sunday
edition of The Detroit News & Free Press, and such notice “fully satisfied the requirements of
due process”).
As for the content of the notice, Rule 23(c)(2)(B) provides:
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The notice [to a Rule 23(b)(3) class] must concisely and clearlystate in plain, easily understood language: the nature of the action;the definition of the class certified; the class claims, issues, ordefenses; that a class member may enter an appearance through anattorney if the member so desires; that the court will exclude fromthe class any member who requests exclusion; the time and mannerfor requesting exclusion; and the binding effect of a class judgmenton class members under Rule 23(c)(3).2
The proposed form of Notice satisfies all of these requirements. Therefore, in granting
preliminary settlement approval, the Court should also approve the proposed form and method of
giving notice to the Class.
IV. PRELIMINARY CERTIFICATION OF THE CLASS UNDER RULE 23 OFTHE FEDERAL RULES OF CIVIL PROCEDURE IS APPROPRIATE
The proposed Class consists of all those who purchased C&A common stock during the
period from August 7, 2001 through and including August 5, 2002. Excluded from the Class
are the Defendants, past or present directors and officers of C&A, members of their immediate
families, parents, subsidiaries and affiliates of C&A, and their legal representatives, heirs,
successors or assigns and any entity in which any Defendant has or has had a controlling interest.
Also excluded from the Class are any putative Class Members who exclude themselves by filing
a request for exclusion in accordance with the requirements set forth in the Notice.
2 Furthermore, the notice complies with requirements of the Private Securities Litigation Reform Act , whichrequires the notice to state: (1) “[t]he amount of the settlement proposed to be distributed to the parties to the action,determined in the aggregate and on an average per share basis”; (2) “[i]f the parties do not agree on the averageamount of damages per share that would be recoverable if the plaintiff prevailed on each claim alleged under thistitle, a statement from each settling party concerning the issue or issues on which the parties disagree”; (3) “astatement indicating which parties or counsel intend to make . . . an application [for attorneys’ fees or costs], theamount of fees and costs that will be sought (including the amount of such fees and costs determined on an averageper share basis), and a brief explanation supporting the fees and costs sought”; (4) “[t]he name, telephone number,and address of one or more representatives of counsel for the plaintiff class who will be reasonably available toanswer questions from class members . . . “; and (5) “[a] brief statement explaining the reasons why the parties areproposing the settlement.” 15 U.S.C. § 78u 4(a)(7). In addition, the proposed notice has, as required, a cover pagesummarizing the above information. See id.
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Courts have long acknowledged the propriety of certifying a class solely for purposes of a
class action settlement. See Weinberger v. Kendrick, 698 F.2d 61, 73 (2d Cir. 1982) (certifying
class for purposes of settlement of securities fraud class action); Cardizem-CD, 218 F.R.D. at
517 (certifying class for purposes of settlement of antitrust class action). In the case of partial
settlements, “tentative or temporary settlement classes are favored when there is little or no
likelihood of abuse, and the settlement is fair and reasonable and under the scrutiny of the trial
judge.” Prudential, 163 F.R.D. at 205 (quoting In re Beef Indus. Antitrust Litig., 607 F.2d 167,
174 (5th Cir. 1979)). Here, there is no likelihood of abuse of the class action device, and the
settlement is fair and reasonable and is subject to approval by the Court.
A class action must meet each of the four requirements set forth in Federal Rule of Civil
Procedure 23(a) and at least one of three requirements set forth in Rule 23(b). Int'l Union v.
Ford Motor Co., No. 05-74730, 06-10331, 2006 WL 1984363, at * 18 (E.D. Mich. July 13,
2006). Class certification for settlement purposes is appropriate here because this action easily
meets the requirements of Rule 23(a) and Rule 23(b)(3).
A. The Proposed Class Satisfies The Prerequisites Of Rule 23(a)
Certification is appropriate under Rule 23(a) if: (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 representative parties are typical of the claims or defenses of the
class; and (4) the representative parties will fairly and adequately protect the interests of the
class. Fed. R. Civ. P. 23(a).
1. The Class Is Sufficiently Numerous
Class certification under Rule 23(a)(1) is appropriate where a class contains so many
members that joinder of all would be “impracticable.” “A court may assume that the numerosity
requirement has been met in class action suits involving purchasers or sellers of nationally traded
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securities.” In re Kmart Corp. Sec. Litig., No. 95-CS-75584-DT, 1996 U.S. Dist. LEXIS 22609,
at * 12 (E.D. Mich. Dec. 16, 1996). Here, during the Class Period there were more than 57
million shares traded on the New York Stock Exchange. Thus, the Class is sufficiently
numerous to satisfy Rule 23(a)(1). See, e.g., In re Delphi Corp. Sec., Derivative & “ERISA”
Litig., 248 F.R.D. 483, 493 (E.D. Mich. 2008); Bittinger v. Tecumseh Prods. Co., 123 F.3d 877,
884 n.1 (6th Cir. 1997) (objection based on numerosity frivolous where class consisted of 1,000
members).
2. There Are Common Questions Of Law And Fact
“Federal securities cases easily satisfy the commonality requirement of Rule 23(a)(2).”
Delphi, 248 F.R.D. at 494; see also In re Revco Sec. Litig., 142 F.R.D. 659, 661-62 (N.D. Ohio
1992). These cases are “essentially course of conduct cases because the nub of plaintiffs’ claims
is that material information was withheld from the entire putative class in each action, either by
written or oral communication.” In re Oxford Health Plans, Inc., Sec. Litig., 191 F.R.D. 369, 374
(S.D.N.Y. 2000) (finding commonality of claims where plaintiffs alleged a scheme and common
course of conduct by the defendants to misrepresent and conceal from the investing public
material facts concerning the company’s business and financial condition) (citation and internal
quotation marks omitted). In the Sixth Circuit, the existence of even just one common question
may be sufficient to meet the commonality requirement. See Sprague v. Gen. Motors Corp., 133
F.3d 388, 397 (6th Cir. 1998); Int’l Union, 2006 WL 1984363, at * 19.
Lead Plaintiffs have asserted claims against Defendants for violations of the Securities
Exchange Act. These claims present questions of law and fact common to all members of the
Class, including:
• whether the federal securities laws were violated by Defendants’ acts as alleged herein;
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• whether statements made by Defendants to the investing public during the Class Periodmisrepresented material facts about the business and operations of C&A; and
• to what extent the members of the Class have sustained damages and the proper measureof damages.
Therefore, there are questions of law and fact common to all members of the Class, and
the resolution of which would advance the litigation.
3. The Proposed Class Representatives’ Claims Are Typical OfThose Of The Class
Rule 23(a)(3) requires that “the claims or defenses of the representative parties are typical
of the claims or defenses of the class.” The typicality requirement “is not onerous.” Int’l Union,
2006 WL 1984363, at * 19. Typicality ensures that class representatives “have the incentive to
prove all the elements of the cause of action which would be presented by the individual
members of the class were they initiating individualized actions.” See In re Oxford Health
Plans, 191 F.R.D. at 375. “A plaintiff’s claim is typical if it arises from the same event or
practice or course of conduct that gives rise to the claims of other class members, and if his or
her claims are based on the same legal theory.” In re Am. Med. Sys., Inc., 75 F.3d 1069, 1082
(6th Cir. 1996).
Here, the injuries to Lead Plaintiffs and the members of the Class are unquestionably
attributable to the same misrepresentations and omissions by Defendants, and liability for this
conduct is predicated on the same legal theories. As such, the Rule 23(a)(3) typicality
requirement is satisfied.
4. The Proposed Class Representatives Will Fairly AndAdequately Protect The Interests Of The Class
Rule 23(a)(4) is satisfied if “the representative parties will fairly and adequately protect
the interests of the class.” The Court must measure the adequacy of representation by the
following two standards: “(1) the representatives must have common interests with unnamed
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members of the class, and (2) it must appear that the representatives will vigorously prosecute
the interests of the class through qualified counsel.” Senter v. Gen. Motors Corp., 532 F.2d 511,
525 (6th Cir. 1976).
Here, Lead Plaintiffs and the Class share the common goal of maximizing recovery, and
there is no conflict between them. See Int’l Union, 2006 WL 1984363, at * 19-20; McNamara v.
Bre -X Minerals Ltd., 214 F.R.D. 424, 428-29 (E.D. Tex. 2002) (finding no conflict between
named plaintiff and class members where both groups sought maximum recovery). Moreover,
Plaintiffs’ Counsel has extensive experience and expertise in complex securities litigation and
class action proceedings throughout the United States and are qualified and able to conduct this
litigation. Therefore, Rule 23(a)(4) is satisfied.
B. The Proposed Class Satisfies The Prerequisites Of Rule23(b)(3)
Rule 23(b)(3) authorizes class certification if “the court finds that the questions of law or
fact common to class members predominate over any questions affecting only individual
members, and that a class action is superior to other available methods for fairly and efficiently
adjudicating the controversy.” Rule 23(b)(3) is “designed to secure judgments binding all class
members save those who affirmatively elect[] to be excluded,” where a class action will “achieve
economies of time, effort, and expense, and promote ... uniformity of decision as to persons
similarly situated, without sacrificing procedural fairness or bringing about other undesirable
results.” Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 614-15 (1997) (citation omitted).
Certification of the Class under Rule 23(b)(3) will serve these purposes.
1. Common Legal And Factual Questions Predominate
“Class-wide issues predominate if resolution of some of the legal or factual questions that
qualify each class member’s case as a genuine controversy can be achieved through generalized
proof, and if these particular issues are more substantial than the issues subject only to
15
individualized proof.” In re Livent, Inc. Noteholders Sec. Litig., 210 F.R.D. 512, 517 (S.D.N.Y.
2002) (common issues predominate where “each class member is alleged to have suffered the
same kind of harm pursuant to the same legal theory arising out of the same alleged course of
conduct [and] the only individualized question concerns the amount of damages”). The Rule
23(b)(3) predominance test is “readily met” in securities fraud cases. Amchem, 521 U.S. at 625;
Delphi, 248 F.R.D. at 495.
Here, the same course of conduct by Defendants forms the basis for the allegations in the
Complaint. There are numerous common issues relating to Defendants’ liability, as detailed
above, and they would predominate over any individualized issues that may arise. Therefore, the
predominance requirement of Rule 23(b)(3) is satisfied.
2. A Class Action Is Superior To Other Methods Of Adjudication
Rule 23(b)(3) sets forth the following non-exhaustive factors to be considered in making
a determination of whether class certification is the superior method of litigation: “(A) the class
members’ interests in individually controlling the prosecution ... of separate actions; (B) the
extent and nature of any litigation concerning the controversy already begun by ... class
members; (C) the desirability ... of concentrating the litigation of the claims in the particular
forum; and (D) the likely difficulties in managing a class action.” 3
Considering these factors, this consolidated class action is clearly “superior to other
available methods for the fair and efficient adjudication” of the claims of the vast number of
purchasers of C&A securities. Lead Plaintiffs are unaware of any other litigation already
commenced by individual Class members, which is not surprising given the tremendous costs
3 On a request for class certification only for purposes of settlement, the Court need not inquire as to whether thecase, if tried, would present management problems. Cardizem-CD, 218 F.R.D. at 517.
16
associated with such litigation. Indeed, courts have concluded that the class action device in
securities cases is usually the superior method by which to redress injuries to a large number of
individual plaintiffs:
In general, securities suits such as this easily satisfy the superiorityrequirement of Rule 23. Most violations of the federal securitieslaws, such as those alleged in the Complaint, inflict economicinjury on large numbers of geographically dispersed persons suchthat the cost of pursuing individual litigation to seek recovery isoften not feasible. Multiple lawsuits would be costly andinefficient, and the exclusion of class members who cannot affordseparate representation would neither be “fair” nor an adjudicationof their claims. Moreover, although a large number of individualsmay have been injured, no one person may have been damaged toa degree which would induce him to institute litigation solely onhis own behalf.
In re Blech Sec. Litig., 187 F.R.D. 97, 107 (S.D.N.Y. 1999).
The scope and complexity of Lead Plaintiffs’ claims against Defendants, together with
the massive cost of individualized litigation, make it unlikely that the vast majority of the Class
Members would be able to seek relief without class certification. See In re Sumitomo Copper
Litig., 189 F.R.D. 274, 279 (S.D.N.Y. 1999). Moreover, it is clearly desirable to concentrate the
claims of all Class Members in this forum, and Lead Plaintiffs do not foresee any difficulties in
the management of this Action as a class action. Accordingly, the requirements of Rule 23(b)(3)
are satisfied.
C. Appointment Of Class Representatives And Class Counsel
For the reasons stated above, Lead Plaintiffs respectfully request that they be appointed
Class Representatives and that their counsel, Milberg LLP as Lead Counsel and The Miller Law
Firm, P.C. as Liaison Counsel, be appointed Class Counsel for the Settlement Class.
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CONCLUSION
For the foregoing reasons, Lead Plaintiffs request that the Court grant their motion for
preliminary approval of the settlement and preliminarily certify the Class for settlement
purposes.
Dated: March 20, 2009
THE MILLER LAW FIRM, P.C.
By: /s/ David H. FinkE. Powell Miller (P39487)Marc L. Newman (P51393)David H. Fink (P28235)950 West University Dr., Suite 300Rochester, MI 48307Tel: (248) [email protected]
Liaison Counsel
MILBERG LLPBarry A. WeprinTodd KammermanOne Pennsylvania Plaza, 48th FloorNew York, NY 10119-0165(212) [email protected]
Lead Counsel
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on March 20, 2009, I electronically filed the foregoing paperwith the Clerk of the Court using the ECF System which will send notification to the followingECF attorneys of record:
• Michael I. [email protected]
• Lynn M. [email protected],[email protected]
• David H. [email protected],[email protected],[email protected]
• Raymond W. [email protected],[email protected]
• Fred K. [email protected],[email protected],[email protected]
• Scott M. [email protected]
• Robert S. [email protected]
• Lea Margaret Haber [email protected],[email protected]
• Thomas G. [email protected] ,[email protected]
• E. Powell [email protected],[email protected],[email protected]
• Marc L. [email protected],[email protected],[email protected]
• A. Michael [email protected],[email protected]
• William A. [email protected],[email protected]
• Bradley J. [email protected]
• Justin M. [email protected]
• Lisa C. [email protected]
• Joanne G. [email protected],[email protected]
• Joseph G. [email protected],[email protected],[email protected]
• Andrew B. [email protected] ,[email protected],[email protected]
• Barry A. [email protected]
• Brian [email protected],[email protected]
And via first class mail to the following non-ecf attorneys:
Guri AdemiShpetim AdemiP. Kevin CastelKristina E. FindikyanDavid G. JanuszewskiCahill, Gordon,80 Pine StreetNew York, NY 10005
Pamela Rogers ChepigaAndrew R. DaviesAllen and Overy1221 Avenue of the AmericasNew York, NY 10020
Stacey R. FriedmanSullivan & Cromwell125 Broad StreetNew York, NY 10004-2498
Marc S. Henzel273 Montgomery AvenueSuite 202Bala Cynwyd, PA 19004
Howard B. Kaplan19830 W. Twelve Mile Rd.Southfield, MI 48076
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Robert O'ReillyAdemi & O'Reilly3620 E. Layton AvenueCudahy, WI 53110
Steven G. SchulmanPeter E. SeidmanMilberg, Weiss,One Pennsylvania Plaza49th FloorNew York, NY 10119-0165
Richard A. Spehr - NOT ADMITTEDMayer, Brown,1675 BroadwayNew York, NY 10019
By: /s/ David H. FinkDavid H. Fink (P28235)The Miller Law Firm, PC950 West University Drive, Suite 300Rochester, Michigan 48307(248) [email protected]
3