Opinion
Master File No. 01CV04080-CM
February 24, 2004
MEMORANDUM AND ORDER
Plaintiffs brought this class action alleging securities fraud in relation to the failed merger of defendant Sprint Corporation and defendant WorldCom, Inc. On April 7, 2003, the lead plaintiffs and the Sprint defendants entered into a Stipulation and Agreement of Settlement (the Stipulation). On October 29, 2003, this court entered an order preliminarily approving the settlement and setting the hearing for final approval on December 16, 2003. In that order, the court also directed the Settlement Administrator to mail within ten days to each member of the class, to the extent shown by record of Sprint or its transfer, a copy of the Notice of Pendency and Proposed Settlement of Class Action (the Notice); to post the Stipulation, accompanying exhibits, and the Complaint on the Settlement Administrator's website; and to publish on two separate occasions a copy of the Summary Notice in the national edition of Investor's Business Daily and The Kansas City Star.
The court appointed Gilardi Co., LLC as Settlement Administrator.
On December 16, 2003, the court held a hearing on plaintiffs' unopposed motion for final approval of the settlement. At that hearing, plaintiffs' counsel represented to the court that the Notices had been sent to over 126,000 people and that, in response, there were no objections filed by any class member to the terms of the Stipulation. Accordingly, the court approved the settlement and plan allocation of the settlement proceeds, plaintiffs' request for attorneys' fees, and reimbursement of expenses for certain lead plaintiffs.
On December 18, 2003, Franklin Lee DeJulius and Susan M. DeJulius (Movants) moved to intervene, claiming that the notice to the class members was inadequate and that the fee requested by class counsel was unreasonable and excessive. Specifically, Movants claim that they did not receive their copy of the Notice until December 16, 2003. This matter is before the court on Movants' Motion to Intervene (Doc. 168).
I. The Notice
A. "Nominees"
As set forth in the court's October 29, 2003 order, the court directed Notices to be mailed to each member of the class, to the extent shown by record of Sprint or its transfer. As such, the first step in the process is to obtain Sprint's stock transfer records. These are records maintained by Sprint's stock transfer agent to track transfers of the company's stock from one name to another and reflect some, but not all, of the purchases and sales of a company's stock. The reason these records do not reflect all such transactions is because some securities purchasers, like Movants, have their stock registered not in their own name but in a "street name," or in their broker's name. This practice facilitates the quick transfer of stock when an investor decides to buy or sell, but it also means that an investor's name and address will not be reflected on the stock transfer agent's records; only the nominee holder's name will appear.
As such, the initial mailing of the settlement notice is sent to all individuals or entities who appear on the stock transfer agent records. Because of the issue described above regarding nominees, the notice contains a section directing nominees to either provide the claims administrator with the names and addresses of the beneficial owners whose stock they hold so that the claims administrator can mail the notice to the stockholders directly, or to forward the notice if the nominees choose to send notification directly to their own clients.
B. Facts Regarding Notice in this Case
On October 31, 2003, the Settlement Administrator sent by first-class mail 37,081 Notices to class member persons and entities (nominees). With respect to those Notices sent to entities, the Notice requested that nominees within ten days either (1) send a copy of the Notice by first class mail to all such beneficial owners; or (2) provide a list of the names and addresses of such beneficial owners to the Settlement Administrator.
Accordingly, in response to correspondence or inquiries from potential class members and nominees, the Settlement Administrator mailed either directly to class members or delivered in bulk to nominees an additional 89,420 Notices. Of those 89,420 Notices, 56,078 were actually sent directly to Class Members whose names and addresses were supplied by nominees in response to the initial mailing of the Notice. As such, by December 3, 2003, the Settlement Administrator had mailed a total of 126,501 Notices.
II. Standards
Pursuant to the Tenth Circuit, neither Federal Rule of Civil Procedure 23(c) or due process require receipt of class notice by every class member. In re Integra Realty Res, Inc., 2004 WL 61169, at 10 (10th Cir. Jan. 14, 2002). In Integra, the court rejected the argument that all of the members of a class are entitled to actual notice before such class members can be bound to a judgment. Rather, the court relied on the Supreme Court's holding that notice satisfies due process when it is `"reasonably calculated, under all the circumstances, to apprize interested parties of the pendency of the action and afford them an opportunity to present their objections.'" Id. (quoting Mullane v. Cent. Hanover Bank Trust Co., 339 U.S. 306, 314 (1950)). The court reasoned:
[W]e are cognizant of the concern that, in some isolated instances, individual class members may have a judgment entered against them without having received actual notice of the opportunity to raise objections or individual defenses before the expiration of the deadline for doing so. We are nonetheless persuaded to adhere to Integra I based on two of its points in particular. First, we recognized that imposing a requirement of actual notice to every class member would place an impossible constraint on defendant class action litigation. Second, we noted that individual class members may "challenge the binding effect of the settlement as to themselves in a collateral action."Integra, 2004 WL 61169 at 11 (citations omitted). As such, the court held that the notice regarding the settlement fairness hearing satisfied due process even though 1,455 out of 6,423 original notices were never received by class members. See also Silber v. Mabon, 18 F.3d 1449, 1453-54 (9th Cir. 1994) (rejecting argument that class notice must be received to provide opportunity to opt out for purposes of due process).
III. Discussion
The initial Notices were sent to both class members directly and nominees. Movants take issue with those Notices sent to nominees, contending that a majority of the Notices could not have been received by class members in time to object.
In this case, a 32-day interval existed between the time the Notices were initially sent and the objection deadline. The court looks to Torrisi v. Tucson Electric Power Company, 8 F.3d 1370, 1375 (9th Cir. 1993), wherein the court examined whether notice of a proposed class action settlement satisfied due process. In Torrisi, the district court ordered on December 11, 1991 that notice of the proposed settlement be sent to known class members. The court set February 6, 1992 as the last day to receive written objections, and February 20, 1992 as the date for a hearing on approval of the settlement and class counsel's request for attorneys' fees. The notice was published, and on January 6, 1992, it was mailed to 76,700 individual stockholders and to 277 brokerages, banks and institutions, which held shares in their street names. All names and addresses were generated from the defendant's stockholder lists. The brokerages, banks and institutions provided the names and addresses of 36,000 additional beneficial owners of shares, which were mailed to these persons as their names and addresses were made known, the last mailing occurring on February 11, 1992.
The court in Torrisi examined whether the notice provided to approximately one-third of the shareholders-those who held their shares in street name-was inadequate. The court concluded that such notice did not violate due process, notwithstanding the fact that the last mailing occurred on February 11, 1992, at least five days after class members could object.
[T]he question before us today is not whether some individual shareholders got adequate notice, but whether the class as a whole had notice adequate to flush out whatever objections might reasonably be raised to the settlement. If an individual shareholder later claims he did not receive adequate notice and therefore should not be bound by the settlement, he can litigate that issue on an individual basis when the settlement is raised as a bar to a lawsuit he has brought.Torrisi, 8 F.3d at 1375; see also Marshall v. Holiday Magic, Inc., 550 F.2d 1173 (9th Cir. 1977) (approving under due process a 26-day notice interval).
In this case, the court recognizes that Movants did not receive their Notice until December 16, 2003, apparently because their nominee failed to act within the requested 10 days. Movants speculate that other class members, as many as 70.7 percent, did not receive the Notice prior to the objection deadline. However, Movants concede that it was possible for beneficial owners of nominee accounts to have received the Notice fourteen days prior to the objection deadline.
Other than the fact that Movants themselves did not receive the Notice in time to object, they rely purely upon speculation for the proposition that numerous other class members also did not receive timely notice. However, to date, Movants are the only class members, out of 126,501 Notices sent, who have made the court aware that they received their Notice after the December 2, 2003 objection deadline. Thus, following the reasoning set forth in Torrisi, where notices were mailed up to five days past the objection deadline, the notice procedure utilized in this case was sufficient to flush out any meaningful substantive objection to the settlement. In other words, the timing of the mailing of the Notices, along with the Notice publication in the national edition of Investor's Business Daily and The Kansas City Star, were "reasonably calculated, under all the circumstances, to apprize interested parties of the pendency of the action and afford them an opportunity to present their objections." Integra, 2004 WL 61169 at 10. Accordingly, the court finds that the notice procedures in this case satisfy Rule 23(c)(2) and due process.
Incidentally, the court points out that Movants are the only class members who have objected to the terms of the settlement, but even they do not dispute the essence of the agreement. Rather, Movants take issue only with the amount of the lead plaintiffs' attorneys' fees. That, however, is an issue the court specifically considered and determined at the fairness hearing on December 16, 2003. Moreover, the attorneys' fee award approved by the court in this case, 17.5 percent of the Settlement Fund, was well within the range of fee awards the Tenth Circuit has permitted in similar cases. Oppenlander v. Standard Oil Co. (Indiana), 64 F.R.D 597, 616 (D. Colo. 1974) ("Our research reflects that fee allowances in class actions brought under the federal securities laws have traditionally ranged from 20 percent (20%) to 30 percent (30%) of the recovery effected for the class," and "Our study of opinions of the Court of Appeals for the Tenth Circuit reveals that fees ranging from 15 percent to 50 percent of substantial recoveries have been affirmed.").
IT IS THEREFORE ORDERED that Movants DeJulius' Motion to Intervene (Doc. 168) is denied.