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approving the release of "all of the class plaintiffs' claims against the defendants arising out of or related to the purchase of KPNQwest securities during the class period," on the basis that the "release is . . . limited to claims that share the same factual predicate as the settled claims"
Summary of this case from Gascho v. Global Fitness Holdings, LLCOpinion
02 Civ. 7951 (PKL).
January 31, 2007
KIRBY MCINERNEY SQUIRE, LLP, New York, NY, Ira M. Press, Esq., Pamela E. Kulsrud, Esq., Liaison Counsel for Plaintiffs.
SCHIFFRIN BARROWAY TOPAZ KESSLER LLP, Radnor, PA, David Kessler, Esq., Kay Sickles, Esq., GLANCY BINKOW GOLDBERG LLP, Los Angeles, CA, Lionel Z. Glancy, Esq., Robin B. Howald, Esq., Robert M. Zabb, Esq., Co-Lead Counsel for Plaintiffs.
LAW OFFICES OF BRIAN BARRY, Los Angeles, CA, Brian Barry, Esq., Jill Levine Betts, Esq., LAW OFFICES OF KWASI ASIEDU, Torrance, CA, Kwasi Asiedu, Esq., Attorneys for Plaintiffs.
WILLKIE FARR GALLAGHER LLP, New York, NY, Richard L. Posen, Esq., James C. Dugan, Esq., Nisha Menon, Esq., Attorneys for Defendant Willem Ackermans.
BOIES, SCHILLER FLEXNER LLP, Washington, DC, Alfred Philip Levitt, Esq., Jonathan H. Sherman, Esq., Attorneys for Defendant Qwest Communications International.
SWIDLER BERLIN SHEREFF FRIEDMAN LLP, New York, NY, Neil A. Steiner, Esq., DECHERT LLP, New York, NY, Andrew J. Levander, Esq.,Attorneys for Defendant Koninklijke KPN N.V. a/k/a Royal KPN N.V..
HARNICK WILKER FINKELSTEIN LLP, New York, NY, Ira A. Finkelstein, Esq., Attorneys for Defendant John A. McMaster.
STERN KILCULLEN, Roseland, NJ, Herbert J. Stern, Esq.,Attorneys for Defendant Joseph P. Naccio.
COOLEY GODWARD KRONISH LLP, New York, NY, Steven M. Cohen, Esq., Jeffrey Gross, Esq., Attorneys for Defendant Robert Woodruff.
DEBEVOISE PLIMPTON LLP, New York, NY, Robert N. Schwartz, Esq., Carl W. Oberdier, Esq., Eric. O. Grosz, Esq., Attorneys for Defendants Joop Drechsel, Martin Pieters, and Eelco Blok.
DEWEY PEGNO KRAMARSKY LLP, New York, NY, Thomas E.L. Dewey, Esq., Ariel P. Cannon, Esq., Attorneys for Defendants Jeffrey Von Deylen and Brendan Keating.
SONNENSCHEIN NATH ROSENTHAL LLP, New York, NY, Richard M. Zuckerman, Esq., Jacob Inwald, Esq., Attorneys for Defendant Rhett Williams.
COMMINS WEBSTER, P.C., San Francisco, CA, David R. Commins, Esq., Attorneys for Objectors Jeffrey Goshay, Headwaters Capital, LLC, Gargoyle Strategic Investments, LLC, Botta Capital Management, LLC, and Rumson Capital, LLC.
OPINION AND ORDER
Clyde Witham, the lead plaintiff ("Lead Plaintiff") in this securities class action, petitions the Court for (a) final certification of the settlement class for the purposes of settlement, (b) approval of proposed settlement of the action, (c) approval of the proposed plan of allocation, and (d) an award of attorneys' fees and expenses. A settlement fairness hearing was held on January 4, 2007. By two separate judgments issued today, and for the reasons set forth below, the class is certified, the settlement and the plan of allocation are approved, and attorneys' fees and reimbursement of expenses are awarded.
BACKGROUND
This class action arises out of the bankruptcy of KPNQwest N.V. ("KPNQwest"), a telecommunications company based in the Netherlands. The Lead Plaintiff claims that the defendants violated sections 11 and 15 of the Securities Act of 1933 in connection with KPNQwest's initial public offering, and sections 10(b) and 20(a) of the Securities Exchange Act of 1934 through a concerted fraud continuing after the initial public offering.
I. Procedural History
Plaintiff Paula Taft filed this suit in this Court on October 4, 2002, against defendant Willem Ackermans. On November 1, 2002, Steven Hinnenkamp filed a substantially similar suit. On February 20, 2003, the Court consolidated the actions, appointed Clyde Witham as Lead Plaintiff, and approved the appointment of Schiffrin Barroway, LLP and Glancy Binkow LLP (now Glancy Binkow Goldberg LLP) as co-lead counsel for the class and Kirby McInerney Squire, LLP as liason counsel for the class. On January 9, 2004, the Lead Plaintiff filed a Consolidated Amended Class Action Complaint against the corporate parents of KPNQwest and various directors and officers of KPNQwest. On October 15, 2004, plaintiffs filed a 242 page Consolidated Second Amended Class Action Complaint, adding an additional defendant. On December 15, 2004, all defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6). Before those motions were decided, the parties reached a proposed settlement.
II. The Proposed Settlement
The proposed settlement takes the form of two separate stipulations of partial settlement. Together, the two stipulations provide for a total settlement fund of $15.175 million in exchange for the release of the class plaintiffs' claims against all of the defendants. The first Stipulation of Partial Settlement (the "Qwest Stipulation") dated as of February 3, 2006 releases the claims against Qwest Communications International Inc. ("Qwest") and several individual defendants and provides for a settlement fund consisting of $5.5 million in cash and another $5.5 million worth of common stock of Qwest. The escrow agent managing the settlement fund is to sell the shares and hold the proceeds for distribution to the members of the settlement class. The second Stipulation of Partial Settlement (the "KPN Stipulation") dated as of June 20, 2006 releases the claims against Koninklijke KPN N.V. ("KPN") and the remaining individual defendants and provides for a deposit of an additional $4.175 million in cash into the settlement fund.
These individual defendants are Brendan Keating, Joseph Nacchio, Drake Tempest, Jeffrey Von Deylen, John McMaster, and Robert Woodruff.
They are Willen Ackermans, Eelco Blok, Joop Drechsel, Martin Pieters, and Rhett Williams
III. Objections
Only two objections have been made to the proposed settlement. The first objection is made by a group of five investors (the "Goshay Objectors") that in aggregate bought 156,452, or approximately 0.2%, of the 66.6 million shares that the Lead Plaintiff alleged were damaged by the defendants' conduct. The second objection is made by H.P. Koedam, a Dutch investor who bought several thousand shares.
The Goshay Objectors object on three grounds: (1) the Lead Plaintiff has not conducted formal discovery, (2) the ratio of the proposed settlement amount to the total loss of market capital is "suspiciously low" — according to the objectors, the ratio is 1.5% — and (3) the requested award of attorneys' fees and costs is "too much." (Letter from David H.S. Commins to the Court dated November 3, 2006; Letter from David H.S. Commins to the Court dated December 29, 2006.) These objections are discussed below.
The thrust of Mr. Koedam's objection is that the release provisions of the settlement are too broad. Specifically, Mr. Koedam objects that the release disposes of any claim class members might have under Dutch law before a Dutch court. Mr. Koedam also objects that the amount of the settlement is insufficient. The objections of Mr. Koedam and the Goshay Objectors are addressed below. For the reasons set forth below, the objections are overruled.
Mr. Koedam also speculates that the notice of settlement was not distributed to Dutch financial institutions in accordance with this Court's Notice Order. (Letter from Aafje Rietveld to the Court dated December 7, 2006 ("The fact that the notice was not sent to several of the larger institutions in the Netherlands, makes my client wonder if any financial institutions received such a notice.")) Mr. Koedam provides no support for his supposition, and Lead Counsel have submitted evidence indicating that notice of settlement was in fact provided to over 100 Dutch financial institutions, as required by the Notice Order. (Joint Declaration of David Kessler Lionel Z. Glancy Exh. 1(B)). Absent any evidence in support of Mr. Koedam's speculation, it cannot be credited.
DISCUSSION
I. Class Certification
Rule 23(a) of the Federal Rules of Civil Procedure sets out the prerequisites to a class action. These are (1) numerosity, (2) commonality, (3) typicality, and (4) adequacy. Fed.R.Civ.P. 23(a). Additionally, for a class action to be maintainable, it must meet one of the three subsections of Rule 23(b). Here, the plaintiffs contend that the requirement of Rule 23(b)(3) are met. Rule 23(b)(3) requires that common issues of fact and law predominate over individual issues, see, e.g., In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124, 132-33 (2d Cir. 2001), and that the class action be "superior to other available methods for the fair and efficient adjudication of the controversy." Fed.R.Civ.P. 23(b)(3). The Court may certify a class only after determining that each of the requirements of Rule 23 has been met. Miles v. Merrill Lynch Co. (In re Initial Pub. Offering Sec. Litig.), 471 F.3d 24, 41 (2d Cir. 2006). Class certification is not contested here.
A. Numerosity
Rule 23(a)(1) requires that the class be "so numerous that joinder of all members is impracticable." Fed.R.Civ.P. 23(a)(1). This requirement is generally satisfied if the class exceeds forty. Trief v. Dun Bradstreet Corp., 144 F.R.D. 193, 198 (S.D.N.Y. 1992). Here, the thousands of buyers of securities that comprise the class (Joint Declaration of David Kessler Lionel Z. Glancy ¶ 58; Transcript of Settlement Fairness Hearing 30:1-9, Jan. 4, 2007) easily exceeds the limit of practicable joinder.
B. Commonality
The second requirement of Rule 23(a) is that there be "questions of law or fact common to the class." Fed.R.Civ.P. 23(a)(2). Where, as is the case here, the class claims arise out of publicly announced, allegedly false statements and omissions, "common questions of law and fact are virtually assured." In re Arakis Energy Corp. Sec. Litig., 95-CV-3431 (ARR), 1999 U.S. Dist. LEXIS 22246, *19, 1999 WL 1021819, *5 (E.D.N.Y. Apr. 23, 1999). Among the common questions here are (i) whether statements the defendants made to the investing public misrepresented or omitted material facts about KPNQwest's financial situation, (ii) whether the defendants acted with scienter, (iii) whether, and if so, to what extent, misrepresentations or omissions artificially inflated the price of the securities, and (iv) what damages, if any, the plaintiffs suffered. These questions are at the core of the action and establish commonality.
C. Typicality
The typicality requirement, which "tend[s] to merge" with the commonality requirement, Caridad v. Metro-North Commuter R.R., 191 F.3d 283, 291 (2d Cir. 1999) (quoting General Telephone Co. v. Falcon, 457 U.S. 147, 157 n. 13 (1982)), is satisfied if "the claims of the named plaintiffs arise from the same practice or course of conduct that gives rise to the claims of the proposed class members." Marisol A. v. Giuliani, 929 F.Supp. 662, 691 (S.D.N.Y. 1996), aff'd, 126 F.3d 372 (2d Cir. 1997). The Lead Plaintiff here bought KPNQwest securities during the class period, and his claims, like those of the rest of the class, arise out of alleged violations of federal securities laws. Thus his claim and the claims of the other members of the settlement class arise out of the same course of events and are based on the same legal theory, satisfying the typicality requirement.
D. Adequacy
The final requirement of Rule 23(a) — that "the representative parties will fairly and adequately protect the interests of the class," Fed.R.Civ.P. 23(a)(4) — is also satisfied. Further, class counsel must be "qualified, experienced, and generally able to conduct the litigation." Marisol A., 126 F.3d at 378. There is no indication that the Lead Plaintiff's interests conflict with those of the other class members, and Lead Counsel are qualified and experienced and have proven able to conduct the litigation.
E. Maintainability
A class action is maintainable pursuant to Rule 23(b)(3) if "questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and . . . a class action is superior to other available methods for the fair and efficient adjudication of the controversy." Fed.R.Civ.P. 23(b)(3). The maintainability inquiry thus consists of two prongs: predominance and superiority, both of which are satisfied here.
The predominance prong is satisfied if "the issues in the class action that are subject to generalized proof, and thus applicable to the class as a whole, . . . predominate over those issues subject only to individualized proof." In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124, 136 (2d Cir. 2001). "Predominance is a test readily met in certain cases alleging consumer or securities fraud. . . ." Amchem Products, Inc. v. Windsor, 521 U.S. 591, 625 (1997). The Lead Plaintiff here alleges that the defendants engaged in a common course of conduct. Proof of such a common course of conduct would establish liability with respect to the entire settlement class. Common issues thus predominate. See In re Visa Check, 280 F.3d at 139.
A class action is superior to other methods of adjudicating this case. The proposed settlement provides a recovery to class members who otherwise would not find it cost-effective to pursue their claims. It also provides for a single resolution of the claims of several thousand class members around the world. The superiority prong is "easily satisf[ied]" in securities cases, and this case is no exception. In re AOL Time Warner, Inc. Sec. "ERISA" Litig., MDL 1500, 02 Civ. 5575(SWK), 2006 U.S. Dist. LEXIS 17588, at *23, 2006 WL 903236, at *6 (S.D.N.Y. Apr. 6, 2006).
The requirements for class certification are met, and the settlement class is certified for the purposes of settlement.
II. Fairness of the Proposed Settlement
Rule 23(e) requires that the settlement of a class action be approved by the Court. The Court may approve a settlement that is binding on the class only if it determines that the settlement is "fair, adequate, and reasonable" and not a "product of collusion." Joel A. v. Giuliani, 218 F.3d 132, 138 (2d Cir. 2000). This evaluation requires the court to consider both "the settlement's terms and the negotiating process leading to settlement." Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 116 (2d Cir. 2005). "A presumption of fairness, adequacy, and reasonableness may attach to a class settlement reached in arm's-length negotiations between experienced, capable counsel after meaningful discovery." Id. (internal quotation omitted). In determining fairness of a settlement, courts evaluate both (1) the negotiation process and (2) the substantive terms of settlement. Id.
In its review of the proposed settlement, the Court is mindful of the "strong judicial policy in favor of settlements, particularly in the class action context." Id. However, the Court is also mindful of its fiduciary duty to non-representative class members and remains aware that "inherent in any class action is the potential for conflicting interests among the class representatives, class counsel, and absent class members." In re Global Crossing Sec. ERISA Litig., 225 F.R.D. 436, 455 (S.D.N.Y. 2004) (internal quotations and citations omitted).
A. Procedural Fairness
The Court will find that the negotiating process was fair if it can ensure that "the settlement resulted from arm's-length negotiations and that plaintiffs' counsel have possessed the experience and ability necessary to effective representation of the class's interests." D'Amato v. Deutsche Bank, 236 F.3d 78, 85 (2d Cir. 2001). "`The experience of counsel, the vigor with which the case was prosecuted, and the coercion or collusion that may have marred the negotiations themselves' shed light on the fairness of the negotiating process." Hicks v. Morgan Stanley Co., 01 Civ. 10071(RJH), 2005 U.S. Dist. LEXIS 24890, *13, 2005 WL 2757792, at *5 (S.D.N.Y., Oct. 24, 2005) (quoting Malchman v. Davis, 706 F.2d 426, 433 (2d Cir. 1983)).
There is no reason here for the Court to doubt the fairness of the negotiation process. As evidenced by their resumes, Lead Counsel are able lawyers experienced in litigating and settling securities class actions. (Joint Decl. Exs. 5-7.) The settlement negotiations were begun in September of 2005, and the second settlement was finalized almost a year later, in July of 2006. (Joint Decl. ¶¶ 25-28.) There is no reason for the Court to suspect that coercion or collusion may have marred the settlement negotiations.
B. Substantive Fairness
The Court of Appeals has enumerated nine factors that a trial court should consider in its determination of whether the substantive terms of a proposed settlement are fair and reasonable. See City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974), abrogated on other grounds by Goldberger v. Integrated Resources, Inc., 209 F.3d 43 (2d Cir. 2000). These factors are (1) the complexity, expense, and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining a class action through trial; (7) the ability of defendants to withstand greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; and (9) the range of reasonableness of the settlement fund in light of the attendant risks of litigation. Id. The Court reviews these factors in seriatim.
1. Securities class actions are "notorious[ly] complex" and therefore are often settled. In re AOL Time Warner, Inc. Sec. "ERISA" Litig., MDL 1500, 02 Civ. 5575(SWK), 2006 U.S. Dist. LEXIS 17588, at *31, 2006 WL 903236, at *8 (S.D.N.Y. Apr. 6, 2006). Some of the complexities to this case are the result of fairly complicated telecommunications transactions and arcane accounting rules. This case was filed in 2002, yet the pre-discovery motions to dismiss were still be pending when the court was notified of the settlement agreement, indicating that this case would likely take a long time to be resolved at trial. The first factor is soundly in favor of the settlement.
2. The reaction of the class has been positive. Over 43,500 copies of the notice of settlement were distributed. A total of six class members have objected, and 10 requests for exclusion were made. (Joint Decl. ¶ 52.) The second factor is also soundly in favor of the settlement.
3. "[T]he stage of the proceedings and the amount of discovery completed are important factors to consider in order to ensure that plaintiffs have had access to material to evaluate their case and assess the adequacy of any settlement proposal." In re PaineWebber Ltd. P'ships Litig., 171 F.R.D. 104, 126 (S.D.N.Y. 1997), aff'd, 117 F.3d 721 (2d Cir. 1997). As the Goshay Objectors point out, Lead Counsel have not engaged in formal discovery in this case. This is to be expected given the posture of the case: the settlement agreements were reached before the statutory stay on discovery provided for by the Private Securities Litigation Reform Act was lifted. See 15 U.S.C. § 77z-1(b)(1); 15 U.S.C. § 78u-4(b)(3)(B). Nevertheless, Lead Counsel conducted confirmatory discovery consisting of a six month investigation in Europe, interviews of 29 witnesses (Joint Decl. ¶ 54), and a review of 1.8 million pages of documents (Joint Decl. ¶ 22).
In connection with the discovery conducted, the Goshay Objectors draw the Court's attention to the decision by a Dutch court to order an investigation into claims of mismanagement of KPNQwest. The Goshay Objectors contend that information revealed by this investigation could provide information useful in assessing the adequacy of the settlement. (Hr'g Tr. 12:19-13:3.) However, it is far from clear that this is the case, particularly because the claims the Dutch court ordered investigated relate to mismanagement, not disclosure. (See Hr'g Tr. 26:13-27:11.) Furthermore, the possibility that more information may become available in the future is not determinative — the Court's inquiry is into whether the plaintiffs have sufficient information to evaluate the adequacy of the proposed settlement, not whether they have availed themselves of all possible information. The confirmatory discovery that Lead Counsel has conducted is sufficient to provide the plaintiffs with "a clear view of the strengths and weaknesses of their cases" and of the adequacy of the settlement. In re Warner Communications Sec. Litig., 618 F.Supp. 735, 745 (S.D.N.Y. 1985).
4. The plaintiffs face significant challenges to proving liability, as is often the case in securities litigation. See,e.g., In re AOL Time Warner, Inc. Sec. "ERISA" Litig., 2006 U.S. Dist. LEXIS 17588, at *39, 2006 WL 903236, at *11 ("The difficulty of establishing liability is a common risk of securities litigation"). The plaintiffs face nine motions to dismiss, including a very strong statute of limitations defense. The simple odds are against the plaintiffs surviving completely the nine separate motions to dismiss, weighing in favor of the proposed settlement.
5. Proof of damages poses another significant challenge to the plaintiffs' case. External factors such as the industry-wide telecommunications "meltdown" could make loss causation difficult to prove. Additionally, valuation of some of the securities at issue, particularly the options, would be complex and difficult to present to a jury. Further, the plaintiffs expect that they would face a contention that the market for the KPNQwest bonds was not open and efficient, divesting the plaintiffs of the presumption of reliance based on the fraud-on-the-market doctrine. (Joint Decl. ¶ 42.) These difficulties also weigh in favor of the proposed settlement.
6. The Lead Plaintiff anticipates that, absent this settlement, the defendants would challenge the class certification on several points during the course of the litigation. The class certification could be particularly susceptible to attack on the grounds that the class should be limited to investors who bought common stock on domestic exchanges, excluding those investors who bought notes or who bought securities on foreign exchanges. (Joint Decl. ¶¶ 42-43.) This factor too favors the settlement.
7. The financial condition of the defendants also favors the settlement. KPNQwest, the issuer and the primary perpetrator of the fraud, filed for bankruptcy before this action was filed and has since been dissolved. (Joint Decl. ¶ 29.) Qwest, the corporate defendant against which the Lead Plaintiff believes he has the strongest case, faces its own financial difficulties. As Judge Blackburn recently noted, there is "a substantial risk that a large judgment entered against Qwest would cause Qwest to file bankruptcy." In re Qwest Communs. Int'l, Inc. Secs. Litig., 01-cv-01451-REB-CBS, 2006 U.S. Dist. LEXIS 71039, at *18 (D. Colo., Sept. 28, 2006). Although the defendants may be able to withstand a greater judgment, it is not certain that they could withstand a significantly greater one.
8, 9. The final two Grinnell factors constitute an inquiry into the range of the reasonableness of the settlement in light of the best possible recovery and in light of the all the attendant risks of litigation.
The first of these factors provides little insight into the reasonableness of this proposed settlement. As is not uncommon in cases of this sort, see, e.g., In re AOL Time Warner, Inc. Sec. "ERISA" Litig., 2006 U.S. Dist. LEXIS 17588, at *43, 2006 WL 903236, at *12, the Lead Plaintiff has not provided an estimate of the total damages sustained by the class. Even had the Lead Plaintiff provided an estimate, it is not clear that it would shed much light on the reasonableness of the settlement. As discussed above, the damages caused by the alleged fraud are difficult to separate from the loss of value caused by external factors. The comparison of the settlement amount to such a speculative damages figure is not dispositive — or even particularly useful — in assessing the fairness of a settlement.See, e.g., id; cf. In re Global Crossing Sec. ERISA Litig., 225 F.R.D. 436, 460-61 (S.D.N.Y. 2004) ("The settlement amount's ratio to the maximum potential recovery need not be the sole, or even the dominant, consideration when assessing the settlement's fairness").
Although the Goshay Objectors and Mr. Koedam object to the settlement because of the settlement amount, their objections are unsupported and unpersuasive. The Goshay Objectors argue that the settlement amount constitutes only a small fraction of the total decline in market capitalization of KPNQwest and is thus insufficient. This view ignores the need to demonstrate that the fraud was the proximate cause of the loss. See Amron v. Morgan Stanley Inv. Advisors, Inc., 464 F.3d 338, 343 (2d Cir. 2006) (citing Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 346-47 (2005)). The claim that the alleged fraud was the proximate cause of the entirety of the loss in market capitalization would be exceedingly difficult to substantiate and exceeds the scope of the Lead Plaintiff's allegations. Mr. Koedam's bald assertion that the settlement amount is insufficient when compared to the total damages is offered without explanation and is even less persuasive.
Moreover, in light of the risks attendant to this litigation, it is clearer that the proposed settlement is reasonable. As discussed above, the Lead Plaintiff faces many serious challenges. Specifically, it appears that it would be quite difficult for the plaintiffs to establish liability, particularly with respect to note holders and investors who bought securities on foreign exchanges. Damages could also be difficult to prove, particularly with respect to the notes, which may not have traded on an open and efficient market, and with respect to the shares traded on foreign exchanges. Loss causation would require elaborate economic models which could prove difficult to present properly to a jury. Finally, it is likely that some of the Lead Plaintiff's claims are time barred. In light of these risks to the litigation, the proposed settlement falls well within the range of reasonableness.
Evaluation of the substantive terms of the proposed settlement in light of the Grinnell factors thus indicates that the proposed settlement is in substance fair, reasonable, and adequate.
III. Release
In exchange for the settlement fund, the settlement releases all of the class plaintiffs' claims against the defendants arising out of or related to the purchase of KPNQwest securities during the class period. This release includes, inter alia, claims based on foreign law. Mr. Koedam objects to the breadth of this release because it encompasses claims that might otherwise be brought in other jurisdictions. Mr. Koedam's objection is overruled.
"Broad class action settlements are common, since defendants and their cohorts would otherwise face nearly limitless liability from related lawsuits in jurisdictions throughout the country." Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 106 (2d Cir. 2005). The authority of plaintiffs in a class action to release claims on behalf of members of the class is restricted by two doctrines: the released claims and the settled claims must arise from an "identical factual predicate," and the released claims must be adequately represented in the litigation. Id. The identical factual predicate doctrine permits for the release of claims regardless of the whether the claims could have been presented in the settling action and regardless of the legal foundation of the claim. See, e.g., In re WorldCom, Inc. Sec. Litig., 388 F. Supp. 2d 319, 333, 341-44 (S.D.N.Y. 2005) (approving release of claims arising under, inter alia, foreign law). The adequacy of representation doctrine requires "an alignment of interests between class members" rather than "vigorous pursuit of that claim." Wal-Mart, 396 F.3d at 106-107.
The settlement releases all claims
arising out of, based upon, or related in any way to: (a) the purchase, acquisition, sale, disposition, retention, or ownership of KPNQwest securities (including stocks, bonds, and options) and the allegations that were made or could have been made in the Litigation; (b) the purchase or other acquisition of, the retention of, [the ownership of,] the sale or other disposition of, or any other transaction involving KPNQwest securities by any of the Released Persons during the Settlement Class Period; or (c) the settlement or resolution of the Litigation (including, without limitation, any claim for attorneys' fees by Lead Plaintiff or any Settlement Class Member).
This occurrence of "the ownership of" appears only the KPN Stipulation.
(Quest Stip. ¶ 1.24; KPN Stip. ¶ 1.26.) The release is thus limited to claims that share the same factual predicate as the settled claims, and Mr. Koedam does not challenge the adequacy of the representation. Accordingly, the release is within the Lead Plaintiff's authority and is appropriate. That the release is not limited to claims brought under the laws of the United States of America or brought in American forums does not inform the Court's analysis.
IV. Plan of Allocation
In approving a plan of allocation, the Court "must ensure that the distribution of funds is fair and reasonable." In re AOL Time Warner ERISA Litig., 02 CV 8853 (SWK), 2006 U.S. Dist. LEXIS 70474, at *31, 2006 WL 2789862, at *11 (S.D.N.Y. Sept. 27, 2006) (quoting In re Global Crossing Sec. ERISA Litig., 225 F.R.D. 436, 462 (S.D.N.Y. 2004). If the plan of allocation is formulated by "competent and experienced class counsel, an allocation plan need only have a `reasonable, rational basis.'" Hicks v. Morgan Stanley Co., 01 Civ. 10071(RJH), 2005 U.S. Dist. LEXIS 24890, *19-20, 2005 WL 2757792, at *7 (S.D.N.Y., Oct. 24, 2005) (quotingIn re Global Crossing, 225 F.R.D. at 462). The plan of allocation was fully disclosed in the Notice of Proposed Settlement, and no objections were made to it.
The plan of allocation provides that, after taxes, administrative costs, and attorneys' fees and expenses are deducted from the settlement fund, the fund will be distributed to the class members who submitted proofs of claims. The distribution will be on a pro rata basis based on the class members' total recognized claims. The formula for the calculation of a class member's recognized loss is based on the dates of purchase and sale of securities in relation to the dates of the disclosures reflecting the fraud. (Hr'g Tr. 24:1-15.) The plan of allocation is fair and reasonable.
V. Application for Attorneys' Fees
Lead Counsel have applied for an award of attorneys' fees of thirty percent of the settlement fund. The Court has broad discretion to award attorneys' fees, provided that those fees are reasonable under the circumstances. Goldberger v. Integrated Resources, Inc., 209 F.3d 43, 47 (2d Cir. 2000). A district court's determination of attorneys' fees will be overturned only for abuse of that discretion. Id. The trend in the Second Circuit has been to calculate the attorneys' fees as a percentage of the total settlement rather than to use the "lodestar method" to arrive at a reasonable fee. Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 121 (2d Cir. 2005).
The reasonableness of the percentage awarded is determined by reviewing six factors: "(1) counsel's time and labor; (2) the litigation's complexities and magnitude; (3) the litigation risks; (4) quality of representation; (5) the relationship of the requested fee to the settlement; and (6) considerations of public policy." Masters v. Wilhelmina Model Agency, Inc., ___ F.3d ___, 2007 U.S. App. LEXIS 191, *37, 2007 WL 28983, *13 (2d Cir. 2007). The lodestar value then acts as a "cross check" and the hours submitted by the attorneys are reviewed but not exhaustively scrutinized. Goldberger, 209 F.3d at 50. Courts have applied the Goldberger factors to determine whether the attorneys should receive an award greater than the lodestar. See, e.g.,Ling v. Cantley Sedacca, L.L.P., 04 Civ. 4566, 2006 U.S. Dist. LEXIS 4711, 2006 WL 290477 (S.D.N.Y. Feb. 8, 2006). In determining a reasonable award of attorneys' fees, the Court seeks to balance the "overarching concern for moderation with the concern for avoiding disincentives to early settlements." In re Elan Sec. Litig., 385 F. Supp. 2d 363, 376 (S.D.N.Y. 2005) (citations and internal quotations omitted).
A. Time, Labor, Magnitude, and Complexity
Class action securities litigation is usually complex. See In re AOL Time Warner, Inc. Sec. "ERISA" Litig., 2006 U.S. Dist. LEXIS 17588, at *31, 2006 WL 903236, at *8 (S.D.N.Y. Apr. 6, 2006) ("Due to its notorious complexity, securities class action litigation is often resolved by settlement, which circumvents the difficulty and uncertainty inherent in long, costly trials."). This case, involving a variety of securities traded on several different exchanges, is no exception. Consistent with the complexity and magnitude of the case, counsel have spent 8,171.86 hours on this matter, resulting in a lodestar figure of $3,167,428.45 at the lawyers' usual billing rates. (Joint Decl. Ex. 5-7.) The time was spent, inter alia, investigating the KPNQwest initial public offering, reviewing SEC filings and reports related to the bankruptcy of KPNQwest, interviewing former KPNQwest employees, drafting complaints and oppositions to motions, and reviewing documents and deposition transcripts as part of the confirmatory discovery. (Joint Decl. ¶¶ 14-28.)
B. Risk of Litigation
Courts of this Circuit have recognized the risk of litigation to be "`perhaps the foremost' factor to be considered" in determining the award of appropriate attorneys' fees. In re Elan Sec. Litig., 385 F. Supp. 2d 363, 374 (S.D.N.Y. 2005) (quotingGoldberger, 209 F.3d at 54). Because all but a small percentage of securities class actions result in settlements, securities class actions generally pose only a very small risk of non-recovery. See In re Dreyfus Aggressive Growth Mutual Fund Litig., 98 Civ. 4318(HB), 2001 U.S. Dist. LEXIS 8418, at *16, 2001 WL 709262, at *4 (S.D.N.Y. June 22, 2001). However, as discussed above, absent settlement this case would likely prove a risky one, and the risk involved in this case is reflected in the amount of the settlement.
C. Quality of Representation
To determine the "quality of the representation," courts review, among other things, the recovery obtained and the backgrounds of the lawyers involved in the lawsuit. See In re Global Crossing Sec. ERISA Litig., 225 F.R.D. 436, 467 (S.D.N.Y. 2004). Lead Counsel here negotiated a settlement on behalf of the class that, in light of the difficulties the plaintiffs faced, is favorable for the plaintiffs. Further, Lead Counsel and liaison counsel have submitted resumes of their firms, which demonstrate that the plaintiffs' attorneys have significant experience litigating and settling securities class actions. (See also Hr'g Tr. 50:18-51:7.)
D. Requested Fee in Relation to Settlement
A fee of thirty percent of the settlement fund is consistent with fees awarded in similar class action settlements resulting in settlements of comparable value. See Hicks v. Morgan Stanley, 01 Civ. 10071(RJH), 2005 U.S. Dist. LEXIS 24890, at *30-31, 2005 WL 2757792, at *9 (S.D.N.Y. Oct. 19, 2005); In re Warnaco Group, Inc. Sec. Litig., 00 Civ. 6266(LMM), 2004 U.S. Dist. LEXIS 13126, at *8, 2004 WL 1574690, at *3 (S.D.N.Y. July 13, 2004); Maley v. DelGlobal Techs. Corp., 186 F.Supp. 2d 358, 369 (S.D.N.Y. 2002). Thirty percent of a larger settlement fund could constitute a windfall; however, a settlement fund of this size does not create such an issue. See Hicks, 2005 U.S. Dist. LEXIS 24890, at *30-31, 2005 WL 2757792, at *9. The requested fee is reasonable in relation to the settlement amount.
The Goshay Objectors contend that thirty percent is too high a fee in light of what they consider an insufficient settlement amount. As discussed above, however, the amount of the settlement is reasonable in light of the Grinnell factors.
E. Public Policy
Public policy supports an award of fees to "a private attorney acting as a `private attorney general,'" because this role is "vital to the continued enforcement and effectiveness of the Securities Acts." Eltman v. Grandma Lee's, Inc., 82 Civ. 1912 1986 U.S. Dist. LEXIS 24902, at *25, 1986 WL 53400, at *9 (E.D.N.Y. May 29, 1986). Awards of fees in cases like this one "serve the dual purposes of encouraging representatives to seek redress for injuries caused to public investors and discouraging future misconduct of a similar nature." Maley, 186 F. Supp. 2d at 369. Further, as Judge Holwell observed in another recent class action securities litigation, "[d]ue to the dispersed, and relatively small, losses among a large pool of investors, the class action mechanism and its associated percentage-of-recovery fee award solve the collective action problem otherwise encountered by which it would not be worthwhile for individual investors to take the time and effort to initiate the action."Hicks, 2005 U.S. Dist. LEXIS 24890, at *26-27, 2005 WL 2757792, at *9.
F. Lodestar Cross-Check
In cases where the court applies the percentage method of fee calculation, the lodestar method can still provide a useful "cross-check" of the reasonableness of the requested percentage.Goldberger, 209 F.3d at 50. Under the lodestar method of fee computation, a multiplier is typically applied to the lodestar. In re Global Crossing Sec. ERISA Litig., 225 F.R.D. 436, 467-68 (S.D.N.Y. 2004). The multiplier represents, among other factors, the risk of the litigation, the complexity of the issues, the contingent nature of the engagement, and the skill of the attorneys. Id.
Lead counsel's requested award of fees implicates a lodestar multiplier of 1.44. This multiplier is modest in relation to lodestar multipliers frequently used in this district. See, e.g.,In re Global Crossing Sec. ERISA Litig., 225 F.R.D. at 436 (2.16 multiplier "falls comfortably within the range of lodestar multipliers and implied lodestar multipliers used for cross-check purposes in common fund cases in the Southern District of New York"). Such a lodestar multiplier is appropriate given the contingent nature of the engagement and the risk of the case resulting in a less favorable settlement.
VI. Reimbursement of Counsel's Expenses
Lead Counsel have requested a reimbursement of their out-of-pocket expenses. "Attorneys may be compensated for reasonable out-of-pocket expenses incurred and customarily charged to their clients." In re Independent Energy Holdings PLC Securities Litigation, 302 F.Supp.2d 180, 183 n. 3 (S.D.N.Y. 2003). The expenses incurred here are type expected in this sort of action and are reasonable. Accordingly, they will be reimbursed.