Opinion
MASTER FILE NO. 21 MC 92 (SAS).
July 7, 2010
For Plaintiffs' Executive Committee: Stanley D. Bernstein, Esq., Rebecca M. Katz, Esq., Christian Siebott, Esq. Bernstein Liebhard LLP, New York, New York, David Kessler, Esq., Barroway Topaz Kessler Meltzer Check LLP, Radnor, Pennsylvania, Howard B. Sirota, Esq., Sirota Sirota LLP, New York, New York, Robert A. Wallner, Esq., Ariana J. Tadler, Esq., Peter G.A. Safirstein, Esq., Neil Fraser, Esq., Milberg LLP, New York, New York, Jules Brody, Esq., Stull, Stull Brody LLP, New York, New York, Fred Taylor Isquith, Esq., Thomas H. Burt, Esq., Wolf Haldenstein Adler Freeman Herz LLP, New York, New York. Liaison Counsel for Underwriter Defendants: Gandolfo V. DiBlasi, Esq., Penny Shane, Esq., David M.J. Rein, Esq., Richard J.L. Lamuscio, Esq., Sullivan and Cromwell LLP, New York, New York.
Liaison Counsel for Issuer Defendants: Jack C. Auspitz, Esq., Joel C. Haims, Esq., Hilary M. Williams, Esq., Angela T. Rella, Esq., Reema S. Abdelhamid, Esq., Morrison and Foerster LLP, New York, New York.
For the Greene Objectors: Leland L. Greene, Esq., Garden City, New York.
For the Siegel Objectors: Edward F. Siegel, Esq., Cleveland, Ohio. For the Pentz Objectors: John J. Pentz, Esq., Class Action Fairness Group, Maynard, Massachusetts.
For the Weinstein Objectors: Jeffrey L. Weinstein, Esq., The Weinstein Law Firm, Athens, Texas.
For the Bechtold Objectors:, Theodore A. Bechtold, Esq., Brooklyn, New York.
James J. Hayes (Pro Se), Annandale, Virgnia.
MEMORANDUM OPINION AND ORDER
Theodore A. Bechtold, counsel for approximately forty class members, has advised the Court that he believes the Garden City Group ("GCG") and the Plaintiffs' Executive Committee are improperly administering the settlement fund in this action. Bechtold urges the Court to order an audit by an unaffiliated third party to examine GCG's process of sending mailings, evaluating documentation, and reviewing and rejecting claims. For the reasons stated below, Bechtold's request is denied.
All of Bechtold's clients — as well as a number of others — have filed objections to the settlement of these actions. They are now appealing this Court's approval of the settlement.
On October 5, 2009, this Court granted final approval of a $586 million Stipulation and Agreement of Settlement, providing closure to almost ten years of litigation involving 309 consolidated actions, fifty-five investment banks, thousands of individual defendants, and more than seven million potential class members. On May 7, 2010, Bechtold notified the Court that a significant number of his clients had encountered problems with regard to GCG's administration of the settlement fund and expressed concern for the low percentage of filed claims. Specifically, Bechtold asserted that a number of his clients had not received a Claim Packet — i.e., Notices and Proof of Claim Forms — and that GCG was not taking the appropriate steps to assist potential class members in filing their claims.
See In re Initial Public Offering ("IPO") Sec. Litig., 671 F. Supp. 2d 467 (S.D.N.Y. 2009).
See 5/7/10 Letter to Court from Bechtold.
See id.
Counsel for the Plaintiffs' Executive Committee responded with a comprehensive explanation for each of Bechtold's concerns. Bechtold then provided specific examples of the issues his clients had encountered, citing a spreadsheet that had been provided to him by GCG at his request (the "Spreadsheet"). The Spreadsheet indicates that Frontispieces were never mailed to some of Bechtold's clients and that the claims of others had been rejected for unspecified reasons. The Spreadsheet also demonstrates that GCG has the wrong mailing address for some clients.
See 5/17/10 Letter to Court from Christian Siebott, Plaintiffs' Executive Committee's counsel.
See 6/1/10 Letter to Court from Bechtold ("6/1 Bechtold Letter"); GCG Spreadsheet for clients of T.A. Bechtold, Ex. A to 6/1/10 Letter ("Spreadsheet").
Frontispieces are single-page documents printed on yellow paper that are customized to contain specific information for each of the 309 subject securities. See Affidavit of Stephen J. Cirami Regarding: (A) Distribution of the Settlement Notice and Proof of Claim Forms; (B) Publication of the Summary Notice, and (C) Report on Exclusion Requests Received, submitted in response to the Court's June 11, 2009 preliminary order in connection with settlement proceedings, ¶¶ 11-13. Each contains, among other things, the name and address of the Class Member as listed in GCG's database as having been a purchaser of the subject security, the name of the subject security, the applicable Class Period, the designated settlement amount for that security, the average estimated recovery, and the average per share estimated fees and expenses as well as the name notifications specific to each of the 309 issuers of the securities that are the subject of this litigation. See id.
See Spreadsheet.
See id.
In response to Bechtold's complaints, an evidentiary hearing was held on June 17, 2010. Stephen Cirami, Senior Vice President of GCG, testified at the hearing regarding GCG's settlement administration procedures. Cirami explained that while GCG is responsible for mailing the vast majority of the Claim Packets, a small percentage of Claim Packets are distributed to potential claimants through their nominees. Although GCG cannot monitor whether nominees are forwarding the Claim Packets, GCG has no reason to believe that the nominees are not doing so. Cirami also testified that while some Claim Packets are returned to GCG as undeliverable, GCG regularly searches the United States Postal Services's Notice of Change of Address ("NCOA") database for updated mailing addresses.
See 6/17/10 Hearing Transcript ("Hr'g Tr.").
As of June 18, 2010, GCG had mailed a total of 7,093,235 Claim Packets. See 6/21/10 Letter to Stanley Bernstein, Plaintiffs' Executive Committee counsel, from Cirami, attached to the 6/23/10 Letter from Siebott to the Court ("6/21 Cirami Letter"). Of these, GCG mailed 158,579 Claim Packets to forty-two nominees for forwarding to their clients whom the nominees identified as potential Class Members. See id. In these instances, the nominee had refused to provide GCG with their clients' direct contact information, citing privacy concerns. See id. Mailings by nominees represented approximately 2.24 percent of the total mailings conducted in this case. See id.
See Hr'g Tr. at 61:11-62:6.
See id. at 14:25-5 (testifying that the NCOA database was searched more than once a week). Seven hundred thousand Claim Packets of the nearly 7.2 million mailed were returned as undeliverable. See id. at 16:6-11. By searching the NCOA database, GCG was able to obtain correct mailing addresses for approximately fifteen thousand potential claimants. See id. at 17:6-13. Bechtold suggested at the hearing that GCG should be required to search the Internet for updated addresses if searching the NCOA database had been unsuccessful. However, Cirami explained that such Internet searches would not provide reliable data and would be unduly burdensome. See id. at 66:19-69:18.
As of June 18, 2010, GCG has received 384,103 claims, representing a 5.5% response rate. Cirami testified that while response rates vary greatly depending on a variety of factors, he has seen response rates range from less than five percent to more than twenty percent. Thus, the 5.5% response rate in this action is not outside the norm.
See 6/21 Cirami Letter.
See Hr'g Tr. at 63:5-12.
Of the 384,103 responses, 25,659 claims were submitted by unidentified claimants — i.e., possibly through a nominee mailing — representing approximately 6.7 percent of all claims received. Although GCG cannot determine exactly how these 25,659 claimants learned of the Settlement, GCG can confirm that it did not directly mail Claim Packets to these potential claimants.
See 6/21 Cirami Letter.
See id.
Finally, at the June 17 hearing, Cirami submitted a separate document summarizing GCG's findings based on its investigation of the claims raised by Bechtold. That document comports with Cirami's testimony and provides a legitimate explanation for nearly every one of Bechtold's complaints. In particular, Cirami testified that the notation that some potential claimants had not been mailed Frontispieces did not mean that the claimant was not mailed a Claim Packet. Instead, such a notation indicated that GCG was unable to determine which of the 309 securities at issue that potential claimant purchased. In those instances, GCG mailed a Claim Packet without a Frontispiece. The inability to send a Frontispiece with every Claim Packet is unique to this action and stemmed from the fact that the settlement included 309 different issuers.
See Ex. 1 to June 17 hearing.
See Hr'g Tr. at 30:21-31:13.
See id.
See id.
See id. at 31:9-20.
As for the alleged rejection of claims, Cirami testified that GCG has no authority to accept or reject claims. Instead, GCG makes recommendations to the Plaintiffs' Executive Committee, which then makes the final decision to accept or reject a claim. In essence, the indication on the Spreadsheet that a claim has been "rejected," is not a final determination. In addition, Cirami testified that those claimants whose claims are ultimately rejected will be notified of the deficiencies in their claims and given the opportunity to supplement their documentation. Cirami also testified that because all potential claimants' trading records are private and are ordinarily maintained by the potential claimant's broker, GCG has no ability to provide the claimant with his or her documentation. However, GCG has a website and hotline devoted to assisting potential claimants with submitting and supplementing their claims.
See id. at 26:6-11.
See id.
See id. at 26:23-27:12.
See id.
See id. at 20:9-22:24.
In sum, I find that Cirami credibly testified that GCG is complying with its typical procedures for claims administration and is going above and beyond its usual practices due to the size of the class in this action. Having carefully considered the facts as testified to by Cirami and each of Bechtold's arguments, I am satisfied that GCG and the Plaintiffs' Executive Committee are taking all necessary and reasonable steps to notify class members of their potential claims. No audit is necessary at this time. Accordingly, Bechtold's request is denied.
SO ORDERED: