JAMES O. BROWNING, District Judge.
Lane brings this shareholder class action on behalf of himself and the holders of common stock of Defendant Westland Development Company, Inc., against Westland
In 1692, when the area around Albuquerque, New Mexico was part of the Spanish empire, King Charles II of Spain conveyed more than 55,000 acres of land to a few of his loyal subjects. See TAC ¶¶ 2, 6, at 2, 5 (quoting Peter C. Beller, Insider Deal on the Mesa, Forbes, Sept. 3, 2007); Director Defendants', Westland's, and Suncal's Joint Opposition to Plaintiff's Motion for Class Certification at 4, filed February 4, 2009 (Doc. 141)("Opposition to Class Certification"). This land, known as the Atrisco Land Grant, was originally part of the town of Atrisco, and now lies in and around western Albuquerque. See TAC ¶¶ 2, 6, at 2, 5 (citation omitted); Opposition to Class Certification at 3. The Atrisco Land Grant is an eighty-six-square-mile parcel of real estate, which includes tens of thousands of acres of undeveloped property, master planned communities, retail properties, water rights, and untapped oil and gas rights in and around Albuquerque. See TAC ¶¶ 2, 6, at 2, 5 (citation omitted).
The heirs of the original grantees formed Westland Development in 1967, transferring their interests in the land to the corporation. See TAC ¶ 2, 6, at 2, 6 (citation omitted); Opposition to Class Certification at 4. The heirs became the shareholders of the new corporation, receiving tradable stock proportional to their ancestors' land holdings. See TAC ¶ 6, at 6. For most of Westland Development's existence, its articles of incorporation prohibited the transfer of Westland Development stock to anyone other than an heir to the Atrisco Land Grant, and Westland Development stock was not publicly traded. See Opposition to Class Certification at 4; Proxy Statement at 6.
Westland Development owned about 46,400 acres of land from the Atrisco Land Grant, including the mineral, oil, and gas rights. See Proxy Statement at 6. Westland Development also owned another 10,000 acres of land located north of the original Atrisco land grant, but did not own the mineral rights to that land. See Proxy Statement at 6. Westland Development was in the business of selling and developing portions of the land it held, and it also leased retail property to businesses in Albuquerque and in El Paso, Texas. See Proxy Statement at 6.
Various parties approached Westland Development about acquiring either Westland
Sometime in early June or late July of 2005, Page met with Philip Aries, the head of Tucson, Arizona, based Aries Realty. See TAC ¶ 6, at 7 (citations omitted); Proxy Statement at 17. Aries Realty was a representative of a group of investors interested in acquiring Westland Development. See TAC ¶ 6, at 7 (citations omitted); Proxy Statement at 17. The investment group and Westland Development embarked on a series of negotiations that ultimately resulted in terms that Westland Development's Board of Directors approved on August 17, 2005. See TAC ¶ 6, at 7 (citations omitted); Opposition to Class Certification at 3; Proxy Statement at 18. The terms provided for the acquisition of Westland Development by way of merger into a newly formed company named ANM Holdings, Inc., with Westland Development shareholders being cashed out for $200.00 per share. See TAC ¶ 6, at 7 (citations omitted); Opposition to Class Certification at 3; Proxy Statement at 18. The terms also permitted Westland Development to consider other offers in a post-signing market-check — a so-called fiduciary out. See Opposition to Class Certification at 3; Proxy Statement at 18. On September 19, 2005, Westland Development's Board of Directors approved the merger agreement. See Proxy Statement at 19.
Westland Development proceeded to consider a series of unsolicited offers that it received in the wake of publicity about the merger discussions, and of its filing with the Securities and Exchange Commission ("SEC") in connection with the proposed merger. See TAC ¶ 6, at 8-9; Opposition to Class Certification at 4; Proxy Statement at 19. Westland Development determined that two of the offers it received, from Sedora Holdings, LLC and Atrisco Heritage, were genuine "acquisition proposals" under the merger agreement with ANM Holdings, which Westland Development could consider under the fiduciary out. See TAC ¶ 48(b), at 29; Proxy Statement at 21. Westland Development entered into negotiations with the companies making the offers and ultimately concluded that Sedora Holdings' offer of $255.00 per share was superior to either ANM Holdings' or Atrisco Heritage's offers. See Opposition to Class Certification at 4; Proxy Statement at 22. Westland Development exercised its rights under the fiduciary out, and ANM Holdings decided not to counter Sedora Holdings' offer. See Opposition to Class Certification at 4; Proxy Statement at 22. Westland canceled its merger agreement with ANM Holdings and entered into a merger agreement with Sedora Holdings. See Opposition to Class Certification at 4; Proxy Statement at 22. The new merger agreement with Sedora Holdings, like the one with ANM Holdings, had a fiduciary out clause. See Opposition to Class Certification at 4; Proxy Statement at 22.
On May 23, 2006, the SunCal Companies Group entered the picture and made a proposal to acquire Westland Development for $280.00 per share. See Proxy Statement at 23. On May 31, 2006, Westland Development's Board of Directors determined that the SunCal Companies Group's offer was superior to Sedora Holdings' offer, and gave Sedora Holdings until June 5, 2006 to revise its offer. See Proxy Statement at 23. After Westland Development's determination that the SunCal Companies Group's offer was superior, Westland Development continued to receive additional offers, and Sedora Holdings also amended its offer in an effort to regain its status as the preferred buyer. See Proxy Statement at 24. Bidding continued, and the SunCal Companies Group increased its offer twice, ultimately arriving at a figure of $315.00 per share, an amount with which Sedora Holdings declined to compete. See TAC ¶ 37, at 19; Opposition to Class Certification at 4; Proxy Statement at 24. Westland Development and the SunCal Companies Group formally entered into a merger agreement on July 19, 2006. See TAC ¶ 37, at 19; Opposition to Class Certification at 4; Proxy Statement at 25.
Under the terms of the merger agreement, each of the 794,927 issued and outstanding shares of Westland Development common stock would be converted into the right to receive $315.00 in cash, with an acquisition company created by the SunCal Companies Group becoming the owner of all of Westland Development's outstanding stock. See TAC ¶ 37, at 19; Opposition to Class Certification at 4; Proxy Statement at 26. Additionally, the merger agreement entitled Westland Development's shareholders to receive an ownership interest in a newly formed company called Atrisco Oil and Gas LLC ("Atrisco LLC"), which would be a vehicle for providing income from Westland Development's mineral rights to Westland Development's shareholders. See Opposition to Class Certification at 4-5; Proxy Statement at 24-25. Atrisco LLC would receive all the income from Westland Development's existing oil-and-gas leases, plus half the income from future mineral leases on Westland Development property. See Opposition to Class Certification at 4-5; Proxy Statement at 24-25. The agreement also provided for the creation of the Atrisco Heritage Foundation ("Atrisco Foundation"), a non-profit organization that was to be devoted to promoting and preserving the cultural heritage of the Atrisco heirs. See Opposition to Class Certification at 5; Proxy Statement at 24, 26-27.
On September 20, 2006, Westland Development filed its definitive Proxy Statement for the merger with the SEC and mailed the Proxy Statement to all Westland Development's shareholders. See TAC ¶ 3, at 1; Proxy Statement at 3. A shareholder meeting was convened on November 6, 2006, and on November 21, 2006, Westland Development announced that shareholders had approved the merger. See TAC ¶ 5, at 5. Shareholders voted on the proposal, with 72.4% of Westland Development's common shares and 97.75% of Westland Development's Class B shares ultimately voting in favor of the SunCal Merger. See TAC ¶ 5, at 5. On December 7, 2006, Westland "announced the consummation of the" merger. TAC ¶ 5, at 5. As a result of the merger, approximately 6,100 Westland heirs got an average of $37,000.00 apiece, while the nine members of Westland Development's Board of Directors received $15 million. See TAC ¶ 6, at 9.
Lane contends that the Defendants used the allegedly false and misleading Proxy
Lane alleges that the Proxy Statement failed to fully disclose several conflicts of interest involving a number of Westland Development directors. The Proxy Statement disclosed that "some of Westland's officers and directors have various relationships with Westland or interests in the merger that are different from your interests as a shareholder and that may present actual or potential conflicts of interest," TAC ¶ 39, at 20 (quoting Proxy Statement at 29), revealing that two of Westland Development's board members had contracts that would result in severance payments for involuntary dismissal, see TAC ¶ 39, at 20 (quoting Proxy Statement at 30). According to the Proxy Statement, Page was "employed as Westland's president and chief executive officer under a renewable six year employment agreement" that also provided for seven times her annual salary as a severance payment if her employment were involuntarily terminated. TAC ¶ 39, at 20 (quoting Proxy Statement at 30). The Proxy Statement also states that Defendant Sosimo Padilla, Westland Development's chairman and executive vice president, had a consulting agreement with severance terms similar to those in Page's contract. See TAC ¶ 39, at 20 (quoting Proxy Statement at 30).
The Proxy Statement states that, in addition to money due under those contracts, the existing Westland directors could receive future positions on the board of Atrisco LLC and as trustees of the Atrisco Foundation. See Proxy Statement at 31. The existing Westland Development Board of Directors was given the power to appoint the Atrisco Foundation's trustees from among Westland Development's shareholders, and it was considered likely that "one or more" of Westland Development's directors would be chosen as a trustee. Proxy Statement at 31. Atrisco LLC's Board of Directors was to be drawn from the Westland Development Board of Directors, although which directors would be picked was said to be undecided. See Proxy Statement at 31.
According to Lane, the Proxy Statement fails to mention that Page and Padilla's contracts were of recent vintage, having been secretly modified to secure their support for the merger. See TAC ¶¶ 40-41, at 21. Lane also asserts that the Proxy Statement fails to disclose that "at least four Westland directors were promised lifelong trusteeships" at the Atrisco Foundation or on the board of Atrisco LLC, and that, instead of receiving "customary fees" for their service, they were going to receive outsized "lucrative annual retainers." TAC ¶ 42, at 22.
Lane's TAC states that the Proxy Statement contains nothing about the fact that Page voted against the merger at a board meeting on July 18, 2006, and that Defendant Troy Benavidez abstained from voting at the same meeting. See TAC ¶¶ 44-45, at 24-25. The Proxy Statement states only, Lane notes, that Westland Development's Board of Directors recommends that the shareholders approve the merger and plan to vote their shares for the merger. See TAC ¶¶ 43-44, at 23-24 (quoting Proxy Statement at 5-12). Moreover, in a question-and-answer section about the merger, the Proxy Statement states that "Westland's directors and officers plan to vote their shares in favor of the approval of the merger agreement." Proxy Statement at 10. According to Lane, despite this representation, four of the nine directors on Westland Development's board — Benavidez, Defendant Ray Mares, Jr., Defendant Charles Pena, and Defendant Randolph Sanchez — did not vote their Class A shares in favor of the merger, while a fifth director — Defendant Joe Chavez — voted only 100 of his 310 Class A shares in favor of the merger. See TAC ¶ 45 & n. 4, at 24-25.
The Proxy Statement indicates that Westland Development was employing a market-check process in connection with the merger and that "Westland's board of directors had every reason to believe the post-signing market check would be effective in maximizing shareholder value by finding the best acquisition proposal for Westland." Proxy Statement at 27. The market check consisted primarily of the consideration of various offers to acquire the company. See Proxy Statement at 19-27. According to Lane, Westland Development never actively solicited prospective bidders to secure the best value for the company or otherwise determined the value of the shares at the time of the sale. See TAC ¶ 46, at 25-27. Lane further alleges that the negotiations with ANM Holdings detailed in the Proxy Statement "are either false or confirm that defendants falsified internal Westland documents because during the relevant period none of the Board minutes mention any negotiations with ANM." TAC ¶ 46(a), at 25.
Lane alleges that there were two important flaws in the Proxy Statement's disclosure of the valuations made of Westland. The Proxy Statement mentions two separate valuations that the same independent valuation firm conducted — one performed in 2001, and the other in 2005. The 2001 opinion valued Westland Development at about $87.00 per share, see Proxy Statement at 16, while the 2005 opinion valued Westland Development at about $180.00 per share, see Proxy Statement at 27. Lane alleges that the Proxy Statement fails to disclose that the 2001 valuation originally assessed Westland Development at $249.00 per share, but that Page ordered the company performing the valuation to manipulate the valuation downward to $87.00 per share. See TAC ¶ 48, at 28. Lane also alleges that the 2005 valuation is undermined by the Proxy Statement's failure to mention an internal appraisal by Westland Development's vice president of sales, Brent Lesley, which valued Westland Development at $474.00 per share, more than twice that of the 2005 valuation. See TAC ¶ 48(a), at 28.
According to the Proxy Statement, Westland Development's Board of Directors thought the merger was "advisable
In discussing Westland Development's Board of Directors' views on the merger, the Proxy Statement asserts that Westland Development was a somewhat "unattractive" acquisition target, because it held a "vast amount of undeveloped land" that would be very expensive and time consuming to develop. TAC ¶ 50, at 32 (quoting Proxy Statement at 27). Additionally, the Proxy Statement asserts that Westland Development was facing "significantly increasing costs ... to develop its own land," because the City of Albuquerque would not bear the infrastructure costs associated with recent Westland Development developments, such as the Petroglyphs.
Lane alleges that the Proxy Statement made four omissions regarding the mineral resources available to Westland Development and the creation of Atrisco LLC. The Proxy Statement represents that Westland Development had no opinion as to the value of Class A stock in Atrisco LLC, and stated that Westland Development's management did not know if there was "oil, natural gas, coal bed methane gas or any other natural resource under Westland's land," and was "not aware of any commercially successful drilling on the property." TAC ¶ 52, at 34 (quoting Proxy Statement at 7). Lane contends this statement ignores four important facts that should have been disclosed: (i) that Westland Development's Board of Directors had been informed that between 100 and 500 million barrels of oil could be located on Westland
The Proxy Statement represents that Westland Development was furnishing the Proxy Statement in connection with the solicitation of proxies by Westland Development's Board of Directors, and that "Westland and its directors and executive officers [we]re participating in the solicitation of proxies from Westland's shareholders with respect to the matters described in this proxy statement. SunCal may also be deemed a participant in the solicitation of such proxies." TAC ¶ 55, at 36 (quoting Proxy Statement at 13). The Proxy Statement further states that Westland Development, Defendant SCC Acquisition Corp., and Defendant SCC Acquisitions, Inc. were the "Participants in the Merger." TAC ¶ 55, at 37 (citing Proxy Statement at 13). Lane contends that these statements were misleading, because they omitted a number of relevant entities. An organizational chart filed with the SunCal Companies Group's October 31, 2007 TIDD application represented that, immediately before the merger, the SunCal Companies Group and its affiliates consisted of SCC NM Member LLC and D.E. Shaw Real Estate Portfolios 1, LLC ("DESCO Real Estate"), which are 7.5% and 92.5% owners, respectively, of SCC Westland Venture LLC (the parent of Westland Holdco, Inc.). See Westland Organizational Chart, filed February 9, 2009, 2009 WL 1312896 (Doc. 145-2)("Organizational Chart"). Westland Holdco, Inc. is, in turn, the parent of SCC Acquisition Corp., the entity that was merged into Westland. Additionally, SCC Acquisition Corp. owned and/or controlled two of its subsidiaries, Westland SPE GP, LLC and Westland DevCo, LP. See Organizational Chart at 1.
The Proxy Statement included a segment dealing with Proxy Statement solicitors, which stated that "Westland expects to make arrangements with and compensate approximately 90 individuals to assist in the solicitation" of the proxies. TAC ¶ 57, at 39 (quoting Proxy Statement at 16). Westland Development did not hire any Proxy Statement solicitors. See TAC ¶ 58, at 39. Lane alleges that the Defendants were aware that Westland Development never hired any Proxy Statement solicitors, and that SCC Acquisition Corp. retained all the Proxy Statement solicitors, "who secretly received lucrative payments for delivering votes in favor of the" merger. TAC ¶ 58, at 39.
On February 21, 2006, Rachel M. Stubbs filed a complaint in connection with the Board of Directors agreement to merge with ANM Holdings in the Second Judicial District Court, Bernalillo County, State of New Mexico. See Declaration of Darren J. Robbins in Support of Lead Plaintiff's Motion for Final Approval of Class Action Settlement ¶ 15, at 6, filed January 27, 2012 (Doc. 372)("Robbins Decl."); Stipulation of Settlement at 11, filed December 9, 2011 (Doc. 363)("Settlement"). In that case,
After the case was remanded to the state trial court, Rael filed a second amended complaint to include additional parties and refine her post-merger allegations. See Settlement at 15. The parties engaged in discovery, including serving deposition notices and requests for production. See Settlement at 15. "Certain of the defendants answered the complaint, while others filed motions to dismiss which
In the Agreement and Plan of Merger (dated July 19, 2006), filed March 13, 2012 (Doc. 401-1)("Merger Agreement"), the parties to the merger agreed:
Merger Agreement at 4 (emphasis original). Since the Paying Agent, Mellon Investor Services, LLC, began the disbursement of funds, some shareholders of Westland Development have not come forward to claim their funds. See Notice of Deposit into Court Registry at 1-2, filed June 6, 2011 (Doc. 353). In the Disbursing Agent Agreement, filed June 6, 2011 (Doc. 353-1), the parties to the merger agreed that, "[a]t the request of the Surviving Corporation, Mellon shall deliver to the Surviving Corporation or its designee all unexchanged securities and related unclaimed property for the Surviving Corporation one year after the Effective Time." Disbursing Agent Agreement ¶ 12, at 5. The Remaining Merger Consideration is the $2,278,702.41 in unpaid shareholder proceeds remaining after the SunCal Merger. See Settlement at 7. On May 23, 2011, the Court ordered, in conformance with the parties' stipulation, that the Remaining Merger Consideration be transferred to the Court registry pending the outcome of the litigation. See Stipulated Order at 3, filed May 23, 2011 (Doc. 352).
On April 5, 2010, Westland DevCo, LP filed a petition for bankruptcy relief under Chapter 11 of Title 11 of the United States Code. See In re Westland DevCo, LP, Case No. 10-bk-11166-CSS (D.Del.Bankr.), Declaration of Bruce V. Cook in Support of Debtor's Chapter 11 Petition ¶ 2, at 2 (dated April 5, 2010), filed April 9, 2010 (Doc. 200-1)("Cook Decl."). Commercial property values dropped approximately forty percent in value nationwide between October 2007 and April 2010, and commercial property values in Albuquerque dropped approximately twenty-seven percent during the same period. See Richard Metcalf, "Real Estate Moves at Fire-Sale Prices; As Values Slump, Market for Commercial Properties Tilts Heavily in Favor of Buyers," Albuquerque Journal (dated April 5, 2010), filed April 9, 2010 (Doc. 200-2).
Lane filed his initial Complaint on November 3, 2006, in which he asserted class-action claims under § 14(a) and § 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a through 78oo ("Exchange Act"). Complaint for Violation of §§ 14(a) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 14a-9, filed November 3, 2006 (Doc. 1)("Complaint"). Lane filed his Request for Hearing on Motion and Memorandum of Law in Support of Plaintiff's Application for a Temporary Restraining Order and Order to Show Cause Why a Preliminary Injunction Should Not Issue contemporaneously with his Complaint. See Doc. 3 ("Motion for TRO"). Lane asked that the Court enjoin the scheduled November 6, 2006 shareholder vote "until shareholders receive the material information they need to make an informed decisions on whether or not to divest themselves of their historic ownership in the Atrisco Land Grant." Motion for TRO at 5. After a five hour hearing, the Court denied the Motion for TRO. See Clerk's Minutes at 1 (dated November 3, 2006), filed December 13, 2006 (Doc. 25). The Court held that Lane had not met his high burden of establishing "a clear and unequivocal right," or that there was a "substantial likelihood" that he would prevail. Clerk's Minutes at 2. The Court agreed with Lane that the public interest is served "by complete and full information," but found that Lane had not established that there were misrepresentations or that any such misrepresentations were material. Clerk's Minutes at 4.
On September 17, 2007, Lane filed a first amended complaint. See Amended Complaint for Violation of §§ 14(a) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 14a-9, filed September 17, 2007 (Doc. 50)("First Amended Complaint"). On December 3, 2007, the Defendants filed motions to dismiss the First Amended Complaint. See Motion to Dismiss and Joinder in Director Defendants' Motion to Dismiss, filed December 3, 2007 (Doc. 52); Motion to Dismiss, filed December 3, 2007 (Doc. 53). The Court granted in part and denied in part those motions on September 15, 2008. See Order, filed September 15, 2008 (Doc. 81); Memorandum Opinion, filed September 24, 2008 (Doc. 83)("September 24, 2008 MO"). The primary issues that the Court addressed were: (i) whether Lane's allegations were "so dependent upon alleged corporate mismanagement under New Mexico state law that they [could not] support a federal claim under § 14(a)"; (ii) whether the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4 ("PSLRA") imposed "heightened pleading requirements on Lane's allegations and whether Lane's pleadings [met] those requirements"; (iii) whether the omissions and misrepresentations which Lane alleged that the Defendants' proxy solicitation contained were material; and (iv) whether Land had "properly stated a § 20(a) control person claim." September 24, 2008 MO at 1099. The Court found that: (i) Lane's claims fit § 14(a)'s parameters, and that his allegations did not turn on state law; (ii) the PSLRA applied in part to Lane's allegations,
On December 1, 2008, Lane filed a motion to amend his First Amended Complaint. See Lead Plaintiff's Opposed Motion for Leave to Amend Complaint Pursuant to Rule 15(a)(2) of the Federal Rules of Civil Procedure, filed December 1, 2008 (Doc. 105). The Court granted that motion on February 5, 2010. See Order Granting Lead Plaintiff's Opposed Motion for Leave to Amend Complaint Pursuant to Rule 15(a)(2) of the Federal Rules of Civil Procedure at 1, filed February 5, 2009 (Doc. 144). Pursuant to the order granting the motion, Lane filed his Second Amended Complaint. See Second Amended Complaint for Violations of §§ 14(a) and 20(a) of the Securities and Exchange Act of 1934 and SEC Rule 14a-9, filed February 9, 2009 (Doc. 145)("Second Amended Complaint"). Various Defendants filed motions to dismiss the Second Amended Complaint. See Director Defendants' Motion to Dismiss Second Amended Complaint, filed February 5, 2009 (Doc. 142); Defendants Westland's and SunCal's Motion to Dismiss and Joinder in the Director Defendants' Motion to Dismiss, filed February 5, 2009 (Doc. 143); and the D.E. Shaw Defendants' Motion to Dismiss Plaintiff's Second Amended Complaint, filed February 26, 2009 (Doc. 152). The Court granted in part and denied in part those motions. See Memorandum Opinion and Order, 649 F.Supp.2d 1256, 1309-1310 (D.N.M.2009) (Doc. 177)("July 17, 2009 MOO"). In the July 17, 2009 MOO, the Court was deciding: (i) whether the Court should allow allegations in the Second Amended Complaint which the Court did not expressly give leave to add; (ii) whether Lane sufficiently pled the alleged damages of the Westland Development shareholders; (iii) whether the allegations in the Second Amended Complaint were material under § 14(a); (iv) whether the statute of limitations barred the claims against the D.E. Shaw Defendants; and (v) whether Lane adequately pled the claim against the D.E. Shaw Defendants under § 20(a). See July 17, 2009 MOO at 1262. The Court found that Lane's allegations regarding economic loss were conclusory. See July 17, 2009 MOO at 1262. The Court also found that most of Lane's amendments were insufficient to cure the deficiencies that the Court identified in the September 24, 2009 MO, with the exception of the allegations related to proxy solicitors and the fairness statement, which the Court found had been sufficiently supplemented to support a claim. See July 17, 2009 MOO at 1262-63. With respect to loss
On July 15, 2009, Lane filed a motion to amend his Second Amended Complaint. See Lead Plaintiff's Opposed Motion for Leave to Amend Complaint Pursuant to Rule 15(a)(2) of the Federal Rules of Civil Procedure (Doc. 176). On March 31, 2010, the Court issued an Order granting Lane's motion to amend, see Doc. 199, and, on June 8, 2010, 727 F.Supp.2d 1214 (D.N.M. 2010), the Court issued its Memorandum Opinion more fully explaining its decision, see Doc. 204 ("June 8, 2010 MO"). The Court found that Lane had sufficiently alleged both causation and damages. See June 8, 2010 MO at 1230. The Court noted that many of the Defendants' arguments were better aimed at a motion for summary judgment and that, taking the alleged facts as true, Lane stated a plausible claim for relief. See June 8, 2010 MO at 1235-36. On June 17, 2010, Lane filed his TAC. On July 1, 2010, the SunCal Companies Group filed its Answer to the Third Amended Complaint by SunCal ("SunCal TA"). Doc. 208. The party identified as responding to the TAC was "SunCal, improperly named as SunCal Companies Group." SunCal TA at 1. One day later, on July 2, 2010, the SunCal Companies Group amended its Answer to respond on behalf of "Defendant SCC Acquisition Corp. (`SCC'), improperly named as SunCal Companies Group." Amended Answer to the Third Amended Complaint by SCC Acquisition Corp., filed July 2, 2010 (Doc. 211)("SunCal TAA"). On March 31, 2010, the Court issued an Order granting Lane's Motion to Amend. See Doc. 199. On June 17, 2010, Lane filed his TAC. The core of Lane's claims is that Westland Development's shareholders received too low a price for their shares. See TAC ¶ 64, at 40-41; June 8, 2010 MO at 1227-28, 1230-31, (stating that Lane had adequately pled damages).
On January 10, 2011, the Court joined eight entities to the case: (i) SCC NM Member LLC; (ii) SCC Westland Venture LLC; (iii) Westland Holdco, Inc.; (iv) SCC Acquisition Corp.; (v) SCC Acquisitions Inc.; (vi) Westland SPE GP, LLC; (vii) Westland DevCo, LP; and (viii) Westland DevCo, LLC. See Memorandum Opinion and Order at 1, filed January 10, 2011 (Doc. 283). In a separate memorandum opinion and order, filed the same day, the Court also: (i) certified a class of all persons who held the outstanding shares of Westland no par value Class A common stock as of the close of business on September 18, 2006, excluding the Defendants;
On December 9, 2011, the parties filed the Stipulation of Settlement. See Doc. 363. The Settlement notes that the Defendants "have denied and continue to deny each and all of the claims and contentions alleged by Lead Plaintiff in the Litigation." Settlement at 16. Nonetheless, the Defendants "have concluded that further conduct of the Litigation could be protracted and expensive and that it is desirable that the Litigation be fully and finally settled." Settlement at 17. Lane asserts that the class claims have merit, but acknowledges that "the expense and length of continued proceedings necessary to prosecute the Litigation" and "have taken into account the uncertain outcome and the risk of any litigation." Settlement at 17. The parties stipulate and agree that, subject to Court approval of the Settlement, all claims that have or could have been brought in relation to this action are released. See Settlement at 17. The cash settlement consists of $3.8 million comprised of: (i) a cash payment of $1,500,000.00 by the DESCO Defendants; and (ii) $2,278,702.41 in the Remaining Merger Consideration — plus any accumulated interest. See Settlement at 18. The Individual Defendants acknowledge that the Rael v. Page action influenced their decision to: (i) waive their claim to 35,000 "change-in-control" shares; (ii) transfer the Santa Clara, San Jose de Armijo, and Evangelico cemeteries and the La Capillita Antigua church to the Atrisco Foundation; (iii) produce Westland Development's corporate books and records to shareholders; and (iv) convene an annual shareholder meeting on June 8, 2006. Settlement at 17. The Individual Defendants acknowledge that SCC Acquisition Corp.'s $315.00 per share offer on which the Westland Development shareholders voted on at the November 6, 2006 meeting was $60.00 per share higher than the $255.00 per share offer that the Individual Defendants agreed to on February 24, 2006.
Through the Settlement, Lane and each class member shall be deemed to have "fully, finally, and forever released, relinquished, and discharged" their claims against the Defendants. Settlement at 24. The Defendants shall also be deemed to have "fully, finally, and forever released" any claims against Lane, class counsel, or the class members related to this action. Settlement at 24. The Claims Administrator, Gilardi & Co. LLC, will administer and calculate the class members' claims and oversee the disbursement of funds to any authorized claimant. See Settlement at 25. The Remaining Merger Consideration will then be distributed to the class members on a pro rata basis. See Settlement at 25. The $1.5 million paid by the DESCO Defendants will not be used to compensate the unpaid class members. See Settlement at 26. If, after six months, there is any remaining balance, Lane will reallocate the balance among the authorized claimants. See Settlement at 27.
With respect to attorney's fees and expenses, the Individual Defendants' insurance carrier will reimburse Robbins Geller Rudman & Dowd LLP for expenses incurred up to $650,000.00. See Settlement at 27. The insurance carrier will also pay attorney's fees of $3.1 million. See Settlement at 27. The Settlement provides that the attorney's fees are not part of the Settlement and that the Court should consider them separately. See Settlement at 28.
On December 19, 2011, the Court entered an Order Preliminarily Approving Settlement and Providing for Notice. See Doc. 366 ("Order Preliminarily Approving Settlement").
On January 27, 2012, Lane filed the Motion for Approval of Class Settlement. See Doc. 370. In the Memo Seeking Approval, Lane asserts that, "[a]fter five years of hard-fought litigation and extensive settlement negotiations, the parties agreed on the terms of a Settlement." Memo Seeking Approval at 8. He represents that the Settlement resolves all claims against all Defendants in this action as well as breach of fiduciary duty claims pending in the Second Judicial District Court. See Memo Seeking Approval at 8. Lane asserts that the class will receive a "$60 per share increase in cash consideration from what was to be paid to Westland shareholders in connection with [SunCal] merger, as well as an additional $3,793,509.25 in cash." Memo Seeking Approval at 8. Lanes states that the Settlement was not reached until he:
Memo Seeking Approval at 9-10. He argues that the Settlement takes into account the specific risks of continued litigation, including that the 54,000 acres acquired in the SunCal Merger have been foreclosed upon and that several of the entities involved in the purchase of Westland Development are no longer financially viable. See Memo Seeking Approval at 10. Lane states that, as a result of negotiations between class counsel and the Individual Defendants' insurance carrier, the insurance carrier agreed to pay class counsel in the amount of: (i) up to $650,000.00 in expenses; and (ii) $3.1 million in fees. See Memo Seeking Approval at 11. He also states that he would receive reimbursement for his time in the amount of $4,725.00, as permitted under the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4. See Memo Seeking Approval at 11. Lane requests that the Court enter an order: (i) determining that the Settlement is fair; (ii) granting final approval of the Settlement and entering final judgment; (iii) approving the payment of attorney's fees and expenses; and (iv) authorizing a payment to Lane for his time. See Memo Seeking Approval at 11.
Lane argues that the Settlement was fairly and honestly negotiated. See Memo Seeking Approval at 18. He contends that this action has been "hotly contested" with over 360 docket entries over the course of the past five years. Memo Seeking Approval at 18. Lane asserts that the parties have extensively briefed numerous complex issues and that the settlement agreement took many months to negotiate. See Memo Seeking Approval at 18 (citing Lucas v. Kmart Corp., 234 F.R.D. 688, 693 (D.Colo.2006)). Additionally, Lane points out that all parties were represented by "multiple counsel with expertise on the [securities laws] and complex class litigation." Memo Seeking Approval at 18-19 (alteration original)(quoting Lucas v. Kmart Corp., 234 F.R.D. at 693). He argues that where, as here, the settlement resulted from arm's length negotiations, the Court may presume the settlement to be fair, adequate, and reasonable. See Memo Seeking Approval at 19. Lane further asserts that serious questions of law and fact exist that create a significant risk of obtaining a more favorable result after continued litigation. See Memo Seeking Approval at 19. He contends that class counsel obtained sufficient information to weigh the benefits of settlement against the risks of continued litigation. See Memo Seeking Approval at 19. As to the risks, Lane points out that the Defendants have strenuously argued at every stage of the litigation that the class' claims lack merit and the Court's rulings denying the Defendant's
Lane asserts that the value of an immediate recovery outweighs the mere possibility of future relief after protracted and expensive litigation. See Memo Seeking Approval at 21. He reiterates that this litigation has been pending for five years and that significant time investments will be necessary before a trial, including motions for summary judgment, motions in limine, and motions under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993).
With respect to attorney's fees and expenses, Lane contends that it is "axiomatic that a `request for attorney's fees should not result in a second major litigation'" and that "ideally, of course, litigants will settle the amount of a fee." Memo Seeking Approval at 23 (citing Hensley v. Eckerhart, 461 U.S. 424, 437, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983)(Powell, J.)). He represents that class counsel and the Individual Defendants' insurance carrier separately negotiated the fee and expense portion of the Settlement. See Memo Seeking Approval at 23. He argues that the attorney's fees and expenses will not reduce the class award. See Memo Seeking Approval at 23-24 (citing In re Resorts Int'l S'holder Litig., No. 9470, 1990 WL 154154, at *6 (Del.Ch. Oct. 11, 1990)). Lane asserts that the $3.1
Lane contends that the applicable twelve-factor test, developed in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974), and which the United States Court of Appeals for the Tenth Circuit adopted, see Gottlieb v. Barry, 43 F.3d 474, 483 & n. 4 (10th Cir.1994), weighs heavily in favor of approving the award of attorney's fees and reimbursement of expenses. See Memo Seeking Approval at 25. He argues that the time and labor invested to adequately and successfully prosecute this litigation supports the fees and expenses, because class counsel prosecuted the litigation for "five years on a contingency basis without payment and advanced all costs and expenses incurred on behalf of the Class without any assurances of a fee or even reimbursement." Memo Seeking Approval at 25. He asserts that the negotiated fee amount is "less than one-third of what Plaintiffs' Counsel invested in litigating the case over the past five years." Memo Seeking Approval at 25 (emphasis original). Moreover, Lane contends that class counsel have incurred expenses, and will likely incur more expenses, in the prosecution of the litigation in an amount which exceeds the $650,000.00 request. See Memo Seeking Approval at 25. He argues that class counsel's efforts have yielded substantial economic benefits to the class. See Memo Seeking Approval at 25. Lane asserts that, in cases such as this one, where class counsel provides both substantial economic and non-economic benefits, courts often assess the attorney's fees as a percentage of any increase in price to assess its reasonableness. See Memo Seeking Approval at 27 (citing In re Nationwide Fin. Servs. Litig., No. 2:08-CV-00249, 2009 U.S. Dist. LEXIS 126962, at *37-38 (S.D.Ohio Aug. 18, 2009)). He further asserts that, here, "the final offer price of $315 per share was increased from $255, a $60 difference" and that multiplying that figure "by the 794,927 Westland shares outstanding at the time of the Merger yields a total value of $47,695,620." Memo Seeking Approval at 27. Lane contends that the two to five dollar per share payment on top of this increase renders the attorney's fees less than ten percent of the benefit that the class will receive. See Memo Seeking Approval at 25, 27.
Lane argues that this litigation is complex, and has raised significant legal and factual issues. See Memo Seeking Approval at 27. He points out that the parties appeared before the Court on sixteen occasions, many of which were half or full-day hearings. See Memo Seeking Approval at 28. Lane asserts that, to address these difficult questions, class counsel exercised a high degree of skill, and that he sought class counsel with experience and a reputation for handling similar cases. See Memo Seeking Approval at 28. He contends that counsel "had to possess the
Lane also asks that the Court approve an expense award under the PSLRA. See Memo Seeking Approval at 32. He requests payment of $4,725.00, and represents that he has devoted approximately 270 hours to "the oversight of, and participation in, this action, including reviewing pleadings, preparing for and giving his deposition, complying with defendants' discovery requests and consulting with counsel." Memo Seeking Approval at 32. He argues that courts "routinely award such costs and expenses to reimburse the named plaintiffs for expenses incurred through their involvement with the action and lost wages." Memo Seeking Approval at 32 (citing Hicks v. Morgan Stanley & Co., No. 01-10071, 2005 WL 2757792, at *10 (S.D.N.Y. Oct. 24, 2005)). He asserts that any expense award will not reduce the amount available to the class members. See Memo Seeking Approval at 32.
Lane and class counsel also filed several declarations in support of the Motion for Approval of Class Settlement. See Robbins Decl.; Declaration of Lawrence Lane in Support of Motion for Final Approval of Class Action Settlement, filed January 27, 2012 (Doc. 373)("Lane Decl."); Declaration of Carole K. Sylvester Re A) Mailing of Notice of Pendency of Settlement of Class Action and the Proof of Claim and Release Form, B) Publication of the Summary Notice, and C) Internet Posting, filed January 27, 2012 (Doc. 374)("Sylvester Decl."); Declaration of Jeffrey D. Light Filed on Behalf of Robbins Geller Rudman & Dowd LLP in Support of Award of Attorneys' Fees and Expenses, filed January 27, 2012 (Doc. 375)("Light Decl."); Declaration of
Robbins represents that, in deciding to settle the litigation, Lane and class counsel considered the significant risks associated with continuing to prosecute the class claims including that they may be unable to demonstrate loss causation or damages, because "the Merger price, $315 per share, was a dramatic premium over the $20 per share price Westland's shares had traded at in the years leading up to the Merger and a premium of more than 50% to the initial ANM merger consideration." Robbins Decl. ¶ 74, at 23. He states that another consideration is the "present-day backdrop in which the former Westland property had been foreclosed upon, entities involved in the purchase of Westland were no longer financially viable and the southwest region continues to suffer through one of the weakest property markets in recent history." Robbins Decl. ¶ 74, at 23. Robbins asserts that, since entering into the Settlement, class counsel has used reasonable best efforts to identify, locate, and make payment of the $315 per share cash consideration to the unpaid class members. See Robbins Decl. ¶ 78, at 24. He states that class counsel was provided with a list of the 287 unpaid class members and that, of those 287, 87 were listed as deceased. See Robbins Decl. ¶ 78, at 24. He argues that the Settlement represents a favorable outcome for the class and that class counsel's reputation as zealous advocates willing to prosecute a meritorious claim allowed Lane to be in a
In his declaration, Lane asserts that, at the time he commenced this case, he held 48 Westland Development shares. See Lane Decl. ¶ 2, at 2. He states that he has spent approximately 270 hours prosecuting this case including:
Lane Decl. ¶ 3, at 2-3. Lane states that he believes "this settlement represents a favorable recovery on behalf of the Class and is a fair, reasonable and adequate compromise of the Litigation." Lane Decl. ¶ 6, at 3.
Carole K. Sylvester, who is employed with the claims administrator
Nicholas Koluncich, of the Law Offices of Nicholas Koluncich III in Albuquerque, submitted a declaration in support of the attorney's fees and expenses as well. See Koluncich Decl. ¶ 1, at 2. He states that his firm spent 7,000.17 hours on the ligation, which establishes a lodestar amount of $3,519,402.00, and that the firm incurred expenses of $86,720.49. See Koluncich Decl. ¶ 3, at 2. He asserts that the firm's expenses include: (i) $15,981.58 on meals,
On February 14, 2012, Miller Barondess, LLP filed the Barondess Objection. See Doc. 380. Miller Barondess asserts that it performed legal services for "Westland Development Company" in April and May of 2010, and that the bills for its services remain unpaid. Barondess Objection at 2.
On February 17, 2012, Stephens Property Co., LLC filed the Stephens Objection. See Doc. 383. Stephens Property objects to the use of the Court registry funds as part of the settlement and asserts that, as
On March 13, 2012, Lane filed the Lead Plaintiff's Response to (1) Stephens Property Co. LLC's Objection to Use of Funds in Court Registry for Settlement and (2) Miller Barondess, LLP's Objection to Use of Settlement Funds in Court Registry for Settlement. See Doc. 402 ("Response to Stephens Property and Miller Barondess"). Lane asserts that the $2,293,509.25 are funds that Westland Development did not pay to shareholders, which the paying agent, Mellon Investor Services, was holding pending direction from Westland DevCo, LLC. See Response to Stephens Property and Miller Barondess at 2. He states that, on May 20, 2011, the funds were transferred to the Court registry. See Response to Stephens Property and Miller Barondess at 2. He argues that, "[d]espite the fact that Westland DevCo LLC was entitled to use these remaining funds as it saw fit," Stephens Property and Miller Barondess now object to the use of those proceeds to fund the Settlement. See Response to Stephens Property and Miller Barondess at 2. He contends that these objections should be overruled, because:
Response to Stephens Property and Miller Barondess at 2. Lane argues that the Tenth Circuit has held that "non-class members have no standing to object." Response to Stephens Property and Miller Barondess at 3 (quoting Heller v. Quovadx, Inc., 245 Fed.Appx. 839, 842 (10th Cir.2007)). He asserts that neither Stephens Property nor Miller Barondess is a class member, and that neither has attempted to intervene in the litigation. See Response to Stephens Property and Miller Barondess at 3.
With respect to Miller Barondess' claims, Lane asserts that it does not have a claim against the surviving entity — Westland DevCo, LLC — because Miller's declaration indicates that Miller Barondess provided services for the "SunCal Companies," and because the statement regarding services rendered was sent to Bruce V. Cook, General Counsel of the SunCal Companies. Response to Stephens Property and Miller Barondess at 3 (citing Miller Decl. ¶ 2, at 2; Statement as of April 30, 2010, filed February 14, 2012 (Doc. 381-1)). He also argues that Miller Barondess' claim that its services benefitted the Westland Development shareholders is "facially suspect," because the legal services were performed in 2010 — four years
Stephens Property did not file a reply. On March 14, 2012, Miller Barondess filed its Reply in Support of Miller Barondess, LLP's Objection to Use of Settlement Funds in Court Registry for Settlement. See Doc. 405 ("Barondess Reply"). Miller Barondess asserts that it performed services for Westland DevCo, LLC, not for the SunCal Companies, and that the term "SunCal Companies" is the overall trade name for a large land developer who acts as the managing company for various single purpose entities. Barondess Reply at 2. It argues that a unique billing number is created to identify each single-purpose entity and that all bills are sent to Cook. See Barondess Reply at 2. Miller Barondess contends that its work benefitted Westland DevCo, LLC and that the "total balance due, $62,242.19, should be paid to Miller Barondess from the $2,293,509.25 in Westland DevCo, LLC funds on deposit with the Court registry because the services rendered were for the benefit of that entity." Barondess Reply at 3. Miller Barondess states that it is not objecting to the settlement, but that, as a creditor, it was invited to object to the use of funds in the Court registry and that, as a creditor of Westland DevCo, LLC, it is entitled to payment for services rendered. See Barondess Reply at 3 (citing Notice of Deposit into Court Registry, filed July 1, 2011 (Doc. 357); Notice of Use of Funds in Court Registry for Settlement, filed January 9, 2012 (Doc. 367)("Notice of Use of Funds")).
On March 1, 2012, Interlegis, Inc. filed the Interlegis Motion. See Doc. 395.
On March 13, 2012, Lane filed the Lead Plaintiff's Response to Interlegis, Inc.'s Objection to January 9, 2012 Notice of Funds in Court Registry for Settlement. See Doc. 401 ("Interlegis Response"). Lane argues that, "[d]espite the fact that Westland DevCo LLC was entitled to use these remaining funds as it saw fit," Interlegis, Inc. now objects to the use of the of the remaining merger proceeds in the settlement. Interlegis Response at 2. He asserts that the Court should overrule this objection because:
Interlegis Response at 2. Lane first contends that Interlegis' Objection was inexplicably almost two weeks late and that Interlegis, Inc. offers no reason for its delay in filing. See Interlegis Response at 3-4. He argues that Interlegis, Inc. was aware of this litigation, because the parties attempted to gain access to records which
On March 16, 2012, Interlegis, Inc. filed Interlegis, Inc.'s Reply to Lead Plaintiff's Response to Objections to the January 9, 2012 Notice of Use of Funds in Court Registry for Settlement. See Doc. 410 ("Interlegis Reply"). It asserts that its objection was not late, because its objection was filed in advance of the hearing and in time to permit Lane to respond. See Interlegis Reply at 1. Interlegis, Inc. argues that, while Lane set a "deadline," there was no Court order which governed the filing of third-party objections, and the "excusable neglect" requirement is satisfied, because no Court order establishes a deadline. See Interlegis Reply at 1. It contends that its objection was "inferentially solicited" and that "Plaintiff's objection to its purportedly late filing is waived by the filing of its Response." Interlegis Reply at 1. Interlegis, Inc. also asserts that it objects only "to the extent it has standing" and that it renews its objection to the extent that the funds are derived from SCC Acquisitions, Inc. See Interlegis Reply at 2.
On February 17, 2012, ten class members filed objections to the Settlement. See D. Armijo Objection at 1; B. Armijo Objection at 1; J. Moralez Objection at 1; Baros Objection at 1; Lori Moralez Objection at 1; Sanchez Trust Objection at 1; Larry Moralez Objection at 1; Lucero Objection at 1; Otero Objection at 1; Lujan Objection at 1. All ten objections are substantially the same. These class members object to the amount of attorney's fees requested and to the amount of expense reimbursement sought. See, e.g., D. Armijo Objection ¶ 1, at 1. They assert that the amount of attorney's fees is unreasonable and excessive, particularly in light of the fact that it represents more than forty-five percent of the combined class settlement fund, and in light of the fact that "a significant portion of the combined class settlement fund is being obtained from the `Remaining Merger Consolidation [$2,278,702.41]', which is a preexisting fund which Class Counsel did not create or obtain to resolve the claims asserted in this litigation." D. Armijo Objection ¶ 1, at 1. They further object to the Settlement because "the structure of the Settlement is such that there is an inherent conflict between the members of the Settlement Class who are described in the Class Settlement Notice as `Unpaid Class Members' and the members of the Settlement Class who are not `Unpaid Class Members.'" D. Armijo Objection ¶ 2, at 2. These class members assert that none of the named Plaintiffs are Unpaid Class Members and that, as such, "it appears the named Plaintiffs are not adequate representatives for the `Unpaid
On March 13, 2012, Lane filed his Reply Memorandum of Law in Further Support of Motion for Final Approval of Class Action Settlement. See Doc. 400 ("Further Support of Class Action Settlement"). He asserts that, of the more than 7,400 notices mailed to former Westland Development shareholders in connection with the Settlement, ten shareholders have filed "what appear to be carbon copy objections." Further Support of Class Action Settlement at 6. He argues that none of the objections have any basis in fact or support in the law, and that the Court should overrule them. See Further Support of Class Action Settlement at 6. Lane contends that a "[s]ettlement merits a presumption of fairness where it was the culmination of a complicated litigation over the course of several years between `experienced, capable counsel after meaningful discovery'" and emphasizes that the Settlement was achieved only after class counsel:
Further Support of Class Action Settlement at 7-8 (quoting Blessing v. Sirius XM Radio Inc., No. 09 CV 10035, 2011 WL 3739024, at *1 (S.D.N.Y. Aug. 24, 2011)) (citing Robbins Decl. ¶¶ 7, 13-67, at 5, 7-22).
Lane argues that the Settlement structure does not create a conflict. See Further Support of Class Action Settlement at 8. He notes that the individual objectors do not articulate what the "inherent conflict" is or why the fact that Lane was paid in the Merger renders him an unfit "class representative[] for the `Unpaid Class Members.'" Further Support of Class Action
Lane further asserts that best efforts were used to identify all members of the class. See Further Support of Class Action Settlement at 10. He points out that "the Objectors do not, and cannot, articulate how the Court-approved methods of providing Notice to the Class were deficient." Further Support of Class Action Settlement at 10 (citing McNeely v. Nat'l Mobile Health Care, 2008 WL 4816510, at *14). He argues that the Tenth Circuit has held that rule 23(e) does not require actual notice to each party who could be bound. See Further Support of Class Action Settlement at 11 (citing Gottlieb v. Wiles, 11 F.3d 1004, 1013 (10th Cir.1993), overruled on other grounds by Devlin v. Scardelletti, 536 U.S. 1, 122 S.Ct. 2005, 153 L.Ed.2d 27 (2002)). Lane notes that the Albuquerque Journal and the Los Angeles Times published the notice, and that the Claims Administrator mailed the Notice and Claim Form to all persons who held outstanding shares of Westland Development common stock as of September 18, 2006-7,409 packages in total. See Further Support of Class Action Settlement at 12. He asserts that direct mailings and publications have previously been found to provide "the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort." Further Support of Class Action Settlement at 12 (quoting DeJulius v. New England Health Care Emps. Pension Fund, 429 F.3d 935, 943-45 (10th Cir.2005)). Lane represents that, to date, class counsel have received in excess of 600 telephone calls in connection with the Settlement, affirmatively asked for updated addresses, translated forms into Spanish, and posted notices regarding the settlement hearing. See Further Support of Class Action Settlement at 12-13. He asserts that these efforts are all above-and-beyond Court-ordered requirements. See Further Support of Class Action Settlement at 13. He argues that
Further Support of Class Action Settlement at 13 (quoting Robbins Decl. ¶ 78, at 24-25). He represents that each of the 287 identified as Unpaid Class Members were also mailed a claim package. See Further Support of Class Action Settlement at 14. Lane contends that, "[b]y all objective accounts, the extensive notice program implemented in this Settlement exceeds the reasonableness and adequacy requirements under the Federal Rules and Tenth Circuit authority," and that the Court should overrule the objections. Further Support of Class Action Settlement at 14.
In response to the individual objectors' argument that the amount of the Settlement is unknown, Lane asserts that the amount of the Settlement is fixed and finite. See Further Support of Class Action Settlement at 14. He argues that the settlement creates a fund of approximately $3.78 million. See Further Support of Class Action Settlement at 14. Although a class member's share will depend on how many shares they owned and how many class members submit valid claim forms, Lane contends that "there can be no dispute that" the class was informed how their settlement share would be calculated and an estimate of their expected settlement share. Further Support of Class Action Settlement at 15 (citing Buccellato v. AT & T Operations, Inc., No. C 10-00463-LHK, 2011 WL 4526673, at *2 (N.D.Cal. June 30, 2011)). He asserts that the Tenth Circuit has held that "[i]t is not necessary to give all of the details of the settlement, but only to `fairly apprise' the class members of the terms of the settlement." Further Support of Class Action Settlement at 15 (citing Gottlieb v. Wiles, 11 F.3d at 1013). He argues that the notices were sufficient for the purpose of apprising the class members of the Settlement's terms, because they informed the class members of the Settlement's total amount as well as the range of possible payouts. See Further Support of Class Action Settlement at 16. Lane contends that the individual objectors' argument that the Settlement amount is "unknown" is "meritless." Further Support of Class Action Settlement at 16.
Lane argues that the Court should not divert the class' property interest in the Settlement fund to a third party. See Further Support of Class Action Settlement at 16. He asserts that, "[i]t is hard to accept the legitimacy of an argument that, on the one hand claims $3.78 million is `minimal,' yet on the other claims it should be reduced to zero." Further Support of Class Action Settlement at 16. He points out that over 99.8% of the former shareholders do not object to the Settlement and notes the potential conflict of interest in diverting the Settlement funds to the Atrisco Foundation, because four of the Individual Defendants have sat on the Atrisco Foundation's Board since the SunCal Merger. See Further Support of Class Action Settlement at 16. Lane asserts that the individual objectors cite no authority for the proposition that the
With respect to the attorney's fees, Lane asserts the individual objectors' contention that the fees represent forty-five percent of the combined class settlement fund is a red herring. See Further Support of Class Action Settlement at 18. He argues that the individual objectors ignore that the attorney's fee amount must be assessed on the basis of both the monetary and non-monetary benefits, and that, so framed, the requested attorney's fees represent less than ten percent of the total cash benefit to the class. See Further Support of Class Action Settlement at 18. Lane notes that the class has obtained the benefit of increased consideration and the cancellation of 35,000 change-in-control shares, in addition to the millions of dollars it will receive via the Settlement. See Further Support of Class Action Settlement at 19. He contends that the individual objectors were able to criticize the fee award only because they excluded class counsel's substantial efforts to obtain fifty-one million dollars in pre-merger compensation to the class. See Further Support of Class Action Settlement at 19. Lane argues that the $3.1 million attorney's fees represent only six percent of the total cash benefit and that the percentage is substantially below the range approved in securities class actions. See Further Support of Class Action Settlement at 20. Furthermore, Lane asserts that the attorney's fees and expenses "are not being paid from a common fund, but were separately negotiated with the [Individual] Defendants' D & O Insurer." Further Support of Class Action Settlement at 21. He contends that the attorney's fees and expenses will not reduce the amount of money available to the class and that the individual objectors' complaint seems to misapprehend the settling parties' agreement. See Further Support of Class Action Settlement at 21 (citing In re Motor Fuel Temperature Sales Practices Litig., 271 F.R.D. 263, 294 (D.Kan.2010)). Lane argues that the Court should overrule the individual objectors' objections and approve the Settlement. See Further Support of Class Action Settlement at 22.
On March 15, 2012, the individual objectors filed the Memorandum in Support of Various Class Members' Objections to the Proposed Class Settlement. See Doc. 407 ("Objectors' Memo"). The individual objectors assert that they object, because more "than sixty percent of the purported `Class Settlement Fund' consists of the $2,278,702.41 which was an escrow account established to compensate only those
The individual objectors assert that the Settlement does not specify what "reasonable best efforts" will be used to identify the Unpaid Class Members and points out that only a ninety-day window existed "from the date of the proposed settlement's execution for Lead Plaintiff and Lead Counsel to find the Unpaid Class Members and for the Unpaid Class Members to exchange their Westland shares at a rate of $315 per share." Objectors' Memo at 9-10. They argue that Lane is the only class representative and that he will be able to file a claim and recover sums from "the remaining $2,278,702.41." Objectors' Memo at 10. They contend that "a close review" of the Settlement reveals a conflict between the paid shareholders and the unpaid shareholders, because, under the Settlement, the Unpaid Class Members will lose their ability to receive compensation in exchange for their Westland Development shares. Objectors' Memo at 10. The individual objectors argue that, had Lane never filed this class action, the Unpaid Class Members would still have been able to receive compensation for their shares at a rate of $315 per share. See Objectors' Memo at 10. They assert that, under the Settlement, the $2,278,702.41 will be used to pay all class members. See Objectors' Memo at 10. They contend that, because the Unpaid Class Members have not had a voice in the Settlement negotiations, the Settlement cannot bind them. See Objectors' Memo at 11.
The individual objectors further assert that, when the Court takes a closer look at class counsel's valuation of the alleged class benefit, the Court "will realize that the vast majority of the claimed benefit is illusory." Objectors' Memo at 12. They argue that the "parties in this case have negotiated a common-fund settlement in which Lead Counsel seek to recover their attorneys' fees as a percentage of the settlement fund" and that "the entire settlement amount comes from the same source, i.e. Defendants in this litigation." Objectors' Memo at 12 (citing Johnston v. Comerica Mort. Corp., 83 F.3d 241, 246 (8th Cir.1996)). They contend that, when a "large attorneys' fee means a smaller recovery, a significant conflict of interest is created and the absence of individual clients controlling the litigation for their own benefit creates opportunities for collusive agreements." Objectors' Memo at 12-13. The individual objectors assert that, "[t]hough Plaintiff and Lead Counsel purport to represent and seek to bind paid and Unpaid Class Members, they seek monetary awards only for themselves." Objectors' Memo at 13. They further assert
Approximately forty class members ask to be excluded from the Settlement, and they represent approximately 7,652 Westland Development shares. See Letter from Robert A. Trujillo to the Court, filed January 31, 2012 (Doc. 379)("Trujillo Letter"); Requests for Exclusion from Settlement, filed March 15, 2012 (Docs. 409, 409-1, 409-2).
On March 20, 2012, the Court held a settlement hearing. Lane spoke in support of the Settlement. See Transcript of Hearing at 5:23-25 (March 20, 2012)(Robbins)("Tr.").
With respect to settlement negotiations, Lane stated that, initially, the insurance carrier took the position that it would not pay for any settlement, although it would continue to pay for defense costs, and that this position was a considerable stumbling block to negotiations. See Tr. at 15:11-16:6 (Robbins). The Court stated that it appeared that the Defendants were saying we are not putting any money on the table, but that they continued incurring litigation costs. See Tr. at 16:9-11 (Court). Lane agreed, and asserted that the insurance carrier paid the costs of the defense and that there was a "decaying" policy in place, where there is coverage but defense costs are taken out first. Tr. at 16:12-15 (Robbins). The Court asked whether it was a pac-man policy,
Lane stated that individuals representing about 7,000 shares have opted out and that will increase the recovery to the class members about one percent, but that the larger variable is how many class members submit a claim. See Tr. at 31:7-13 (Robbins). He asserted that, because of the extensive notice program, he believes that the claim rate will be high, but that it is unlikely to be one hundred percent. See Tr. at 31:16-22 (Robbins). The Court asked why there was a need for a claims administrator and for class members to submit a form, rather than using the same procedures used to give notice to the class to distribute the funds. See Tr. at 31:24-32:5 (Court). Lane argued that there is a benefit to the claims procedures, because it has lower administrative costs and avoids "shenanigans." Tr. at 32:6-12 (Robbins). He asserted that a claims process subjects individuals to the Court's jurisdiction and that such security was necessary given that: (i) the Remaining Merger Consideration was misplaced or forgotten for several years; and (ii) that there are still individuals who possess outstanding share certificates. See Tr. at 32:12-16 (Robbins). Lane argued that Mellon Investor Services was required to exchange original certificates for the cash consideration, but that to avoid problems regarding the validity of claims he believed a claims administrator is a prudent safeguard. See Tr. at 32:16-20 (Robbins). In response to the Court's question why someone would not submit a claim, Lane asserted that some of it was emotional, because some class members feel strongly that the SunCal Merger was not the correct course of action and want nothing to do with it. See Tr. at 33:8-34:7 (Court). He further asserted that the some class members also might not take advantage of their claim if checks were mailed to class members and that the claims administrator avoids false claims. See Tr. at 34:8-22 (Court, Robbins). Lane contended that, when determining whether to settle, he and class counsel also took into account that several of the SunCal entities have filed for bankruptcy and that, although the Individual Defendants are worth about $10 million, it is difficult to go after individuals' property to fulfill a judgment. See Tr. at 34:24-35:10 (Robbins).
The Court then asked what it should do with respect to the corporate objectors. See Tr. at 37:21-38:2 (Court). Lane responded that the relief for which the corporate objectors ask is extraordinary — only one of the objectors has a court judgment — and they ask that the Court give them money based on a previous business relationship. See Tr. at 38:3-15 (Robbins). Lane asserted that he believes the Defendants acted out of an abundance of caution to notify possible creditors that they were using this money, but argued that this action is not the proper vehicle for them to receive any payment. See Tr. at 38:16-23 (Robbins). He argued that two of the corporate objectors do not have a judgment and that the one corporate objector with a judgment does not have a judgment against Westland DevCo, LLC. See Tr. at 38:24-39:9 (Court, Robbins). Lane contended that it is his understanding that the judgment is against SCC Acquisitions Inc., which is wholly owned by an entity separate and apart from Westland DevCo LLC. See Tr. at 39:22-40:2 (Mitchell). He also noted that the Interlegis Objection was filed late. See Tr. at 40:3-10 (Mitchell). Turning to the individual objectors, Lane asserted that class counsel has sent out over 7,000 packages to former Westland Development shareholders and one tenth of one percent of those individuals — ten people — filed objections, representing a total of 216 shares. See Tr. at 41:16-22 (Robbins). He noted that there were about 750,000 total Westland Development shares. See Tr. at 41:23-24 (Court, Robbins). Lane pointed out that Peter A. Sanchez, the Atrisco Foundation's Chief Executive Officer, owns ninety of the objectors' shares, and suggested that his objection is related to his role on the Atrisco Foundation. See Tr. at 41:25-42:4 (Robbins). Lane stated that class counsel sent Sanchez a letter asking about his role as trustee of the Agnes B. Sanchez Revocable Trust, because class counsel has no record of such a trust. See Tr. at 42:13-21 (Robbins). The Court clarified that this objecting group was satisfied with the SunCal Merger, but wished that the Settlement funds would go to the Atrisco Foundation. See Tr. at 43:17-19 (Court). Lane asserted that it is very unusual for an objector to argue both that the Settlement is inadequate and unfair, and that the solution is to give the class members nothing. See Tr. at 43:23-44:7 (Robbins). He contended that, since 2007, the Atrisco Foundation has received millions of dollars and that most of that money is spent on compensation for people like Sanchez. See Tr. at 44:8-12 (Robbins).
With respect to the Objectors' Memo, Lane argued that all objections and briefs in support were due as of February 17, 2012, and noted that the Objectors' Memo was submitted on March 15, 2012. See Tr. at 45:1-15 (Robbins). He asserted that the notice program, which the individual objectors attack, conforms with the standards of Gottlieb v. Wiles and DeJulius v.
With respect to the attorney's fees, Lane contended that $3.8 billion is "hardly" an illusory benefit. Tr. at 52:22-24 (Robbins). He further asserted that it was only after the complaints in the state actions that the Atrisco Foundation was included in merger agreements and the Defendants admit that those complaints were a factor in accepting a Merger Agreement which was sixty dollars per share higher than the original merger offer. See Tr. at 52:25-54:4 (Robbins). He argued that the courts have recognized that, when there are multiple causative factors, the burden is on the objectors to show lack of causation. See Tr. at 54:5-20 (Robbins). Lane noted that the Settlement and the attorney's fees were negotiated separately, because class counsel first negotiated with the Defendants for the class recovery and then negotiated with the insurer as to the attorney's fees. See Tr. at 55:4-16 (Court, Robbins). Lane then argued the Johnson v. Georgia Highway Express, Inc. factors in substantially the same manner as his Memo Seeking Approval. See Tr. at 55:22-58:19 (Robbins). He asserted that he viewed the litigation as a common-benefit and common-fund case, because it has elements like the termination of the Class B shares and the shareholder meeting, and because the attorney's fees represent something less than ten percent of the total benefit viewed in that light. See Tr. at 59:5-19 (Robbins).
Westland Development then addressed the Remaining Merger Consideration. It first stated that it is unusual to give notice to a defendant's creditors, but when the money was put in the Court registry, the three corporate objectors were notified. See Tr. at 62:1-9 (Fish). The Court asked whether the corporate objectors would be able to recover, if they do not receive some portion of the Settlement, and Westland Development indicated that they
The Individual Defendants asserted that the litigation was hard fought and that there were several disputes about the Settlement's language. See Tr. at 75:5-16 (Bessette). They represented that the negotiations were fairly typical in that, after the class claims are settled, the plaintiffs will turn to the insurance carrier to negotiate the attorney's fees. See Tr. at 75:17-25 (Bessette). The Individual Defendants stated that there was a specific exclusion within their insurance policy that excluded funds used to increase compensation in a transaction from the definition of a loss, but that defense costs were included. See Tr. at 76:8-15 (Bessette).
The individual objectors asserted that, with respect to the timing of the Objectors' Memo, they looked at paragraph 18 of the notice and relied on that information to timely submit letters objecting, and that the brief was the only document that they filed after February 17, 2012. See Tr. at 79:12-23 (Court, Barton). They indicated that some of the individual objectors are associated with the Atrisco Foundation and so are familiar with the issues surrounding the SunCal Merger. See Tr. at 80:15-22 (Barton). The individual objectors asserted that the Unpaid Class Members are a sub-class. See Tr. at 81:1 (Barton). The Court asked what more could be done for the Unpaid Class Members. See Tr. at 81:8 (Barton). The individual objectors indicated that the Atrisco Foundation has some names and addresses with respect to persons it believes are Unpaid Class Members and that the Atrisco Foundation's data has not yet been accessed. See Tr. at 81:12-16 (Barton). They argued that the Atrisco Foundation's resources represent the best chance to reach the Unpaid Class Members. See Tr. at 81:17-23 (Barton). They asserted that the number of Unpaid Class Members could be significantly higher than 287, but that they did not have a specific number. See Tr. at 82:6-13 (Barton). The individual objectors argued that there was a class conflict between the Unpaid Class Members and the rest of the class, and that it might behoove all parties to have a trustee appointed. See Tr. at 82:18-83:10 (Barton). The Court asked why the individual objectors and their counsel did not locate an Unpaid Class Member to demonstrate what more could be done, and to show that class counsel were not using adequate efforts to
The individual objectors argued that some procedures should be in place to make sure that the Unpaid Class Members are protected and that there is a significant question whether all appropriate efforts have been made to reach the Unpaid Class Members. See Tr. at 88:7-13 (Barton). They contended that the Atrisco Foundation has a list of names that it believes are Unpaid Class Members and, at a minimum, that list demonstrates that not all has been done that could be. See Tr. at 88:14-18 (Barton). The Court then asked whether the Atrisco Foundation has an incentive to locate the Unpaid Class Members if the Atrisco Foundation is asking that the Settlement funds go to it. See Tr. at 89:15-18 (Court). They responded that the Court's assessment was "arguably correct." Tr. at 89:19-20 (Barton). The individual objectors stated that they are concerned with the internal class conflict and believe that the Court should appoint a trustee. See Tr. at 90:1-10 (Barton). They admitted that the Atrisco Foundation may not completely have the Unpaid Class Members interests at heart, but that the Atrisco Foundation has a lot of shareholder information. See Tr. at 90:11-21 (Barton). They argued, however, that this case presents an unusual situation, because there was an escrow fund set up for the Unpaid Class Members, and that the Settlement asks that the Court release those funds for the benefit of all class members. See Tr. at 90:22-91:6 (Barton). The individual objectors asserted that there has been no court adjudication of what rights the Unpaid Class Members have to these funds. See Tr. at 92:1-5 (Barton). The Court asked whether the money would return to Westland DevCo, LLC, if the Court rejects the Settlement. See Tr. at 92:9-11 (Court). The individual objectors agreed that the Court's assessment was likely correct. See Tr. at 92:12-14 (Barton). The Court then asked, if that scenario is likely the case, whether the Unpaid Class Members are in the same position as the other objectors — they are general creditors. See Tr. at 92:15-18 (Court). The individual objectors agreed, but argued that the same fundamental issue exists — how do the parties make the best effort to locate the Unpaid Class Members. See Tr. at 92:18-25 (Barton). The Court then asked whether the Unpaid Class Members would be in a better position if the Court approves the Settlement. See Tr. at 93:1-5 (Court). The individual objectors agreed that the Unpaid Class Members are in a better position if the Court approves the Settlement. See Tr. at 93:5 (Barton).
With respect to the request for attorney's fees, the individual objectors asserted that the Defendants were always willing to pay the $2,278,702.41 to the Unpaid Class Members. See Tr. at 94:3-6 (Barton).
Miller Barondess then argued in support of its objection. Miller Barondess asked that the Court do equity and acknowledge that Miller Barondess performed work for Westland DevCo, LLC in 2010. See Tr. at 99:15-21 (Gunderson). Miller Barondess asserted that no one has challenged the veracity of the bills that Miller Barondess submitted and noted that, until the litigation, no one was aware the Remaining Merger Consideration existed. See Tr. at 99:22-100:1 (Gunderson). Miller Barondess stated that it wanted to be paid for services rendered in 2010. See Tr. at 100:2-8 (Gunderson). The Court then asked how it could determine that this work was performed for Westland DevCo, LLC. See Tr. at 100:12-15 (Court). Miller Barondess explained that the SunCal entities are the overall management company and that there is a specific billing code for Westland DevCo, LLC to identify that individual entity. See Tr. at 100:16-101:3 (Gunderson). Miller Barondess indicated that each of the bills contain the Westland DevCo, LLC billing code. See Tr. at 101:3-6 (Gunderson). Miller Barondess also represented that Westland DevCo, LLC reflects these debts in its books. See Tr. at 101:23-25 (Gunderson). Miller Barondess asserted that the notice it received was the first time it became aware that Westland DevCo, LLC had funds sufficient to satisfy its bills. See Tr. at 102:15-19 (Gunderson). The Court then asked why, from an equitable standpoint, Miller Barondess should benefit from the class and its counsel's work. See Tr. at 102:20-25 (Court). Miller Barondess asserted that it was simply asking that the Court do equity, because, in 2010, when the work was done, there were no assets to the pay the bills. See Tr. at 103:10-17 (Court, Gunderson).
The Court then asked if anyone was present at the hearing for Stephens Property, and, after receiving no response, allowed Interlegis, Inc. to argue in support of its objection. See Tr. at 104:25-105:10 (Court). Interlegis, Inc. asserted that it was before the Court because it was invited to do so by the SunCal entities, which includes SCC Acquisitions, Inc. See Tr. at 106:15-19 (Rappaport). It stated that it was given notice that certain funds would be used to satisfy the Settlement and that it was asked if there were any objections.
The Individual Defendants later clarified that, with respect to the attorney's fees provision in the Settlement, the fees were negotiated separately with their insurance carrier and that, if the Court reduces the fees in any way, those funds would go back to the insurance carrier, and not increase the class funds. See Tr. at 113:13-22 (Bessette). The Court then stated that it did not appear to be a benefit to the class members if the Court reduces the attorney's fees, and the Individual Defendants agreed. See Tr. at 113:23-25 (Court, Bessette).
With respect to the Barondess Objection, class counsel asserted that it appeared that the work Miller Barondess performed was for Westland DevCo, LLP and not Westland DevCo, LLC. See Tr. at 117:6-12 (Mitchell). With respect to the individual objectors, Westland Development stated that it would hope that the Atrisco Foundation would supply class counsel with the Atrisco Foundation's list of the Unpaid Class Members. See Tr. at 111:6-10 (Fish). Lane asserted that he and class counsel were in agreement with the individual objectors that the parties were looking for the best possible opportunity to locate and pay the Unpaid Class Members. See Tr. at 119:20-22 (Robbins). He asserted, however, that there was no subclass. See Tr. at 119:23-24 (Robbins). Lane argued that, if the Atrisco Foundation has names and addresses, and will turn them over, class counsel will begin going through that information immediately. See Tr. at 120:4-10 (Robbins). He also asked why no Unpaid Class Member was before the Court, if the Atrisco Foundation has such easy access to the Unpaid Class Members. See Tr. at 120:10-16 (Robbins). With respect to the suggestion that the Court appoint a trustee, Lane argued that the Atrisco Foundation would be an inappropriate trustee, because the fiduciaries of the Atrisco Foundation have been paid extraordinary compensation and that the class should not be a vehicle for adding persons or entities who may attempt to extract economic gain under the guise of assisting the class. See Tr. at 123:7-22 (Robbins). Lane stated that he would be glad to exchange information regarding the Unpaid Class Members with the Atrisco Foundation. See Tr. at 124:6-10 (Robbins). The Atrisco Foundation asserted that it did not have the man power to go through its data and that it would have to assess whether turning over its information was feasible. See Tr. at 125:19-126:13 (Garcia). The Atrisco Foundation agreed to send the Court a letter indicating its position on the exchange of information. See Tr. at 127:9-12 (Court, Barton).
On March 21, 2012, Westland DevCo, LLC submitted its Supplemental Brief Regarding Settlement Approval. See Doc. 414 ("Supplemental Brief"). Westland DevCo, LLC asserts that, at the hearing, it had informed the Court that, unless a bankruptcy is filed within ninety days of a transfer, there was nothing improper about preferring the class over other creditors. See Supplemental Briefing at 1. It argues that, in Collier on Bankruptcy, the "first sentence in the `Overview of Section 547' states, `A debtor may ordinarily prefer one or more of its creditors, so long as the transfer or payment is to pay or secure a legitimate debt and violates no statute.'" Supplemental Brief at 1 (quoting A. Resnick & H. Sommer, Collier on Bankruptcy § 547.01, at 547-48 (16th ed.2010)). Westland DevCo, LLC also points to Kenan v. Fort Worth Pipe Co. (In re Rodman, Inc.), 792 F.2d 125 (10th Cir.1986) for support. See Supplemental Brief at 2. It contends that it was the party that issued the proxy which is alleged to be wrongful and that the release of claims against it is valid consideration for the transfer. See Supplemental Brief at 2.
On March 22, 2012, Miller Barondess filed its Supplemental Reply in Support of Miller Barondess, LLP's Objection to Use of Funds in Court Registry for Settlement. See Doc. 415 ("Supplemental Reply"). Miller Barondess argues that "Section 547 is not applicable here because Miller Barondess is a creditor, and the class members are shareholders," and that Westland DevCo, LLC "is wrong under the law." Supplemental Reply at 2. Miller Barondess asserts that it is a basic principle of corporate law that creditors are paid ahead of shareholders. See Supplemental Reply at 2 (citing 16 W. Fletcher, et al., Fletcher Cyclopedia of the Law of Private Corporations § 7941 (West perm. Ed., rev. vol. 2012)). Miller Barondess contends that this "absolute priority rule" is a fundamental principle of American bankruptcy law and that "[t]he absolute priority rule requires that certain classes of claimants be paid in full before any member of a subordinate class is paid." Supplemental Reply at 2 (quoting In re Geneva Steel Co., 281 F.3d 1173, 1180 (10th Cir.2002)). It further asserts that, "[u]nder this rule, unsecured creditors stand ahead of investors in the receiving line and their claims must be satisfied before any investment loss is compensated." Supplemental Reply at 3 (quoting In re Geneva Steel Co., 281 F.3d at 1181 n. 4). Miller Barondess argues that, as a creditor, it is entitled to payment for services rendered to Westland DevCo, LLC before its remaining assets are distributed to the class members, who are shareholders. See Supplemental Reply at 3. Miller Barondess contends that the Remaining Merger Consideration is the only asset of Westland DevCo, LLC from which Miller Barondess can be compensated for its outstanding bills. See Supplemental Reply at 3. Miller Barondess asserts that it would be unfair and inequitable to "disregard basic corporate law and deprive the firm of recovery of amounts admittedly due and owing." Supplemental Reply at 3. It argues that there is no equity "in the position espoused by the shareholders," because the shareholders "want everything, every penny, on their alleged and unproven claims, while seeking to deny Miller Barondess any payment in its status as a bona fide creditor who rendered valuable services." Supplemental Reply at 4.
On April 13, 2012, the individual objectors filed the Notice of Correspondence to the Honorable James O. Browning, see Doc. 417 ("Objectors' Notice"), and the Letter from Peter Sanchez to the Court, see Doc. 417-1 ("Sanchez Letter"). In the Objectors' Notice, they maintain their objections to the Settlement and ask that the
With respect to class counsel's assertion at the hearing that most class members reside in New Mexico or California, Sanchez notes that twenty-seven percent or 1,809 former Westland Development shareholders live outside of New Mexico or California. See Sanchez Letter at 2. He argues that, if class counsel "only directed their efforts to locate former Westland shareholders to New Mexico and California, they missed a substantial number of former Westland shareholders and shareholder heirs." Letter at 2. He asserts that, if the Court approves the Settlement, the Atrisco Foundation is willing to help locate former Westland Development shareholders and their heirs. See Sanchez Letter at 3. Sanchez states that the Atrisco Foundation proposes a two-step process. See Letter at 3. First, the Atrisco Foundation would compare the lists of former Westland Development shareholders who have not redeemed their Westland Development shares, because 270 Unpaid Class Members seems low to Sanchez, and that, depending on the amount the parties want to reimburse the Atrisco Foundation, the Atrisco Foundation could also make
On April 20, 2012, Lane filed the Lead Plaintiff's Response to the Objectors' Notice of Filing. See Doc. 418 ("Notice Response"). Lane first notes that, at the hearing, the individual objectors — whose counsel also represents the Atrisco Foundation — expressed concern that the Atrisco Foundation had a list of Westland Development shareholders which included individuals not on the list which class counsel obtained from Mellon Investor Services. See Notice Response at 2. Lane states that the Court asked the individual objectors or the Atrisco Foundation to submit a letter within ten days to inform the Court whether the Atrisco Foundation has a list of class members who did not receive payment. See Notice Response at 2. He points out that the individual objectors did not submit the Objectors' Notice until twenty-four days after the hearing and that it confirms that the Atrisco Foundation "does not have a list identifying Class Members who did not receive payment and that it never had any such information." Notice Response at 2 (emphasis original). He argues that the Atrisco Foundation's purported concern about class counsel's best efforts "appears to have been ill-founded, at best." Notice Response at 2. Lane contends that any assertion that 170 to 270 Unpaid Class Members "seems low" is without support and that the list which class counsel obtained from Mellon Investor Services confirms that there are 287 Unpaid Class Members. Notice Response at 3 n. 2. He argues that the Atrisco Foundation now "purports to have an inventory of `current heirs to the former shareholders of Westland and the current heirs to the Atrisco Land Grant,'" and that such a vast collection of names is not the list that the individual objectors told the Court the Atrisco Foundation possessed at the hearing. Notice Response at 3 (emphasis original). Lane emphasizes that the class is made up of those who held outstanding shares of Westland Development common stock as of the close of business on September 18, 2006, and asserts that the "fact that the [Atrisco Foundation] identified approximately 20,000 heirs whose parents or grandparents sold their shares years prior to the sale or are not yet shareholders,' is not relevant for the purposes of this Settlement." Notice Response at 3 (emphasis original). He points out that the Atrisco Foundation still has not, or cannot, identify any class member who did not receive payment "despite the various records it claims to possess." Notice Response at 4. Lane contends that class counsel did not confine its notice to California and New Mexico, but mailed 7,409 claims packages to potential class members nationwide and that the "motives underlying [the Atrisco Foundation's] proposal are self-evident." Notice Response at 4, 6.
Rule 23 of the Federal Rules of Civil Procedure requires judicial approval
In DeJulius v. New England Health Care Emps. Pension Fund, the Tenth Circuit addressed the adequacy of class notice procedures. It held that due process "does not require actual notice to each party intended to be bound by the adjudication of a representative action." DeJulius v. New England Health Care Emps. Pension Fund, 429 F.3d at 944. For due-process purposes, Tenth Circuit precedent focuses upon whether the district court gave "the best notice practicable under the circumstances including individual notice to all members who can be identified through reasonable effort." In re Integra Realty Res., Inc., 262 F.3d 1089, 1110 (10th Cir.2001). With respect to the fairness and reasonableness of a settlement, the Tenth Circuit has held that a district court did not abuse its discretion in approving a class settlement from which an "extremely small percentage of class members opted out." Rutter & Wilbanks Corp. v. Shell Oil Co., 314 F.3d at 1188.
In Robles v. Brake Masters Systems, Inc., No. 10-0135, 2011 U.S. Dist. LEXIS 14432 (D.N.M. Jan. 31, 2011)(Browning, J.), the Court granted in part and denied in part the parties' joint motion for approval of a class action settlement. See 2011 U.S. Dist. LEXIS at *1. The Court denied the distribution of an incentive award to the class representative. See Robles v. Brake Masters Sys. Inc., 2011
The cy pres doctrine is an equitable doctrine under which courts "distribute unclaimed portions of a class-action judgment or settlement funds to a charity that will advance the interests of the class." Black's Law Dictionary 444 (9th ed.2009). It derives from the French expression "cy pres comme possible," which means "as near as possible," and developed out of the law of trusts. M. Redish, P. Julian, & S. Zyontz, Cy Pres Relief and the Pathologies of the Modern Class Action: a Normative and Empirical Analysis, 62 Fla. L.Rev. 617 (2010).
5 J. Moore, J. Solovy, R. Marmer, T. Chorvat, and D. Feinberg, Moore's Federal Practice, § 23.171, at 23-599 (3d ed.2011). "The doctrine, or rather something parading under its name, has been applied in class action cases ..., but for a reason unrelated to the reason for the trust doctrine." Mirfasihi v. Fleet Mortg. Corp., 356 F.3d 781, 784 (7th Cir.2004)(Posner, J.). "Use of the cy pres doctrine in the class action context can be traced largely to a pioneering student Comment, published in the University of Chicago Law Review in 1972." M. Redish, P. Julian, & S. Zyontz, 62 Fla. L.Rev. at 631 (citing Stewart R. Shepard, Comment, Damage Distribution in Class Actions: The Cy Pres Remedy, 39 U. Chi. L.Rev. 448 (1972)). That student argued that "[w]hen distribution problems arise in large class actions, courts may seek to apply their own version of cy pres by effectuating as closely as possible the intent of the legislature in providing the legal remedies on which the main cause of action was based." S. Shepard, Comment, 39 U. Chi. L.Rev. at 452. Courts resort to cy pres where funds remain after distributing a class award and the court wishes to avoid: (i) returning the funds to a defendant who has been found liable, or agreed it was liable, in that amount; and (ii) increasing the pro-rata share of the class members who file claims, potentially giving those class members a windfall. See M. Redish, P. Julian, & S. Zyontz, 62 Fla. L.Rev. at 619. In the
The Court found no case from the Tenth Circuit discussing the validity of the cy pres doctrine with respect to class actions. In Robles v. Brake Masters Systems, Inc., the Court noted that recent academic debate has "called into question the constitutionality of certain class action remedies, in part because some remedies transform the underlying substantive law." 2011 U.S. Dist. LEXIS 14432, at *46 (citing M. Gilles & G. Friedman, Exploding the Class Action Agency Costs Myth: the Social Utility of Entrepreneurial Lawyers, 155 U. Pa. L.Rev. 103 (2006); M. Redish, P. Julian, & S. Zyontz, 62 Fla. L.Rev. 617; S. Yospe, Cy Pres Distributions in Class Action Settlements, 2009 Colum. Bus. L.Rev. 1014 (2009)). In In re Thornburg Mortgage, Inc. Securities Litigation, No. CIV 07-0815, the Court recently granted preliminary approval of a class settlement. See In re Thornburg Mortg. Sec. Litig., No. CIV 07-0815, Order Preliminarily Approving Settlement and Providing for Notice, filed April 23, 2012 (Doc. 387)("Thornburg Order"). In the Thornburg Order, the Court noted its view that the cy pres doctrine is not a "sound judicial doctrine" and declined to approve a provision in which any unclaimed balance went to the Center for Civic Values in Albuquerque. Thornburg Order at 15. The Court believes that funds which are part of a class settlement should either be distributed to the class members or returned to the defendants and that a class action should not be "a free-standing device to do justice." Thornburg Order at 15.
The Court has a basic disagreement with the application of this doctrine for several reasons: (i) class actions are disputes between parties and the money damages should remain among the parties, rather than be distributed to some third party; (ii) it is unseemly for judges to engage in the selection of third party beneficiaries and to distribute class action damages to third parties; (iii) judges are often not in the best position to choose a charitable organization that would best approximate the unpaid class members' interests; and (iv) the doctrine encourages charitable organizations, and plaintiffs' lawyers, to lobby the court for cy pres awards.
With respect to the Court's first criticism, several Circuit Court Judges have discussed a similar view. The Honorable Richard A. Posner, United States Circuit Judge for the United States Court of Appeals for the Seventh Circuit, has commented on the unsoundness of the rationale underlying the application of the cy pres doctrine. Writing for the Seventh Circuit, he noted that "[t]here is no indirect benefit to the class from the defendant's giving the money to someone else" and noted that the badly named "`cypres' remedy" is "purely punitive." Mirfasihi v. Fleet Mortg. Corp., 356 F.3d at 784. The Honorable Joseph F. Weis, Senior United States Circuit Judge for the United States Court of Appeals for the Third Circuit, concurring and dissenting in In re Pet Food Products Liability Litigation, 629 F.3d 333 (3d Cir.2010), also stated that he was "not persuaded that application of the cy pres doctrine is appropriate in the class action setting," and that "any funds remaining at the conclusion of the claims process should be distributed to class members where possible or escheated to the government." 629 F.3d at 359 (Weis, J., concurring and dissenting). Discussing the fundamental differences between a testator's wishes — at which the
The Court also believes that distributions to third parties presents issues regarding the appearance of impropriety, because judges are engaging in the selective distribution of funds to parties not before it. There are no principled rationales for how a court goes about choosing from among charitable organizations when there is no indication that the parties contemplated that these funds might be distributed to a third-party entity. There is no mechanism for how charitable organizations come before the court to be considered for such an award. Three national newspapers have all indicated the suspect nature of judges engaging in such awards. In an article for the New York Times, Adam Liptak
Furthermore, courts are often not in the best position to make these decisions and any efforts to become better informed about the range of charitable organizations available is likely to result in lobbying for distributions from the Court. Courts should not be placed in the tenuous position of making a false choice about which organizations will convey the greatest "indirect" benefit to class members who are not present and have no real voice in determining who should receive the funds. Judges "often use their discretion to approve charities proposed by class counsel" and "many cy pres distributions are channeled to organizations that support the work done by plaintiffs' attorneys." S. Yospe, 2009 Colum. Bus. L.Rev. at 1028. It thus appears that courts do not, in any meaningful way, search for the organization that is the "next-best" recipient of the funds, and are not in the best position to
Professor Martin H. Redish of Northwestern University School of Law has expressed concerns about the constitutionality of cy pres awards and, while the Court does not need to rest, and does not rest, its disapproval on a finding that such practices are unconstitutional,
M. Redish, P. Julian, & S. Zyontz, 62 Fla. L.Rev. at 623 (footnote omitted). Professor Redish asserts that cy pres distributions violate the Rules Enabling Act, 28 U.S.C. §§ 2071 to 2077, because such distributions
Ultimately, the Court's rejection of the validity of cy pres awards does not rest on any constitutional holding. The Court believes, however, the cy pres awards are inappropriate, because they inject a third party into the litigation, do not adequately reflect the best interests of absent class members, create an appearance of impropriety, and are not the best use of the Court's time and resources. The class action device in twenty-first century American society pushes due process and the conventional civil litigation model to the limits of how to compensate for mass harm. See Philip Morris USA Inc. v. Scott, ___ U.S. ___, 131 S.Ct. 1, 4, 177 L.Ed.2d 1040 (2010)("The extent to which class treatment may constitutionally reduce the normal requirements of due process is an important question. National concern over abuse of the class-action device induced Congress to permit removal of most major class actions to federal court...."). While often an unwieldy and rough mode of delivering justice, there are at present no other acceptable substitutes short of special legislation and regulation, which creates other problems and issues. On the other hand, it should not be expanded to include charitable gifts to non-parties at the expense of the parties and especially the class members. While the practice of law might at times be more enjoyable for attorneys if they did not have clients, in the end, litigation is not about the bar, but about the client. Cy pres moves the focus too much away from the class members' welfare, which the Court must jealously protect if the class action device is to remain a legitimate means of advancing justice. The Court can be cautious and prudent in using the class action device without touching the extreme limits of what the judiciary can do.
"In a certified class action, the court may award reasonable attorney's fees and nontaxable costs that are authorized by law or by the parties' agreement." Fed.R.Civ.P. 23(h). "The duty to investigate the provisions of any proposed compromise or settlement of a class action `includes the obligation to explore the manner in which fees of class counsel are to be paid and the dollar amount for such services.'" W. Rubenstein, A. Conte, and H. Newberg, Newberg on Class Actions, § 14:1 (4th ed.). "A request for attorney's fees should not result in a second major litigation. Ideally, of course, litigants will settle the amount of a fee." Hensley v. Eckerhart, 461 U.S. 424, 437, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983)(Powell, J.). "In class actions, the district court has broad authority over awards of attorneys' fees." Law v. National Collegiate Athletic Ass'n, 4 Fed.Appx. 749, 751 (10th Cir.2001)(unpublished)(citing Hayes v. Haushalter (In re FPI/Agretech Sec. Litig., 105 F.3d 469, 472 (9th Cir.1997))). The Tenth Circuit has adopted a test that the United States Court of Appeals for the Fifth Circuit adopted in Johnson v. Georgia Highway Express, Inc., which analyzes the following twelve factors: (i) the time and labor required; (ii) the novelty and difficulty of the question presented in the case; (iii) the skill requisite to perform the legal service
While the Tenth Circuit has not had much occasion to consider the propriety of providing incentive awards to class representatives, in a case addressing whether an incentive award was appropriate for a party objecting to class certification, the Tenth Circuit in UFCW Local 880-Retail Food Employers Joint Pension Fund v. Newmont Mining Corp., 352 Fed.Appx. 232 (10th Cir.2009), stated that incentive awards for class representatives are justified when a class representative is not forthcoming, and "may" be justified when the class representative undertakes risk, provides additional effort, or contributes expertise to prosecuting a class action:
352 Fed.Appx. at 235-36 (alteration in original) (citations omitted).
Other Courts of Appeals have addressed when incentive awards are appropriate. The Courts of Appeals consistently assert that incentive awards for class representatives are justified to give incentive to a class representative to come forward when none are forthcoming, and to compensate a class representative for risks they take and work they perform on behalf of the class. In Rodriguez v. West Publishing Corp., 563 F.3d 948 (9th Cir.2009), the United States Court of Appeals for the Ninth Circuit held that "incentive agreements entered into as part of the initial retention of counsel" created impermissible conflicts of interest, because they "bind counsel to apply for an award." 563 F.3d at 959. The Ninth Circuit contrasted incentive agreements with incentive awards, stating:
563 F.3d at 958-59 (emphasis in original).
In Hadix v. Johnson, 322 F.3d 895 (6th Cir.2003), the United States Court of Appeals for the Sixth Circuit affirmed a district court's denial of a prisoner's motion for an incentive award as class representative, because the settlement agreement did not provide for an award, stating: "Although we think there may be circumstances where incentive awards are appropriate, we need not resolve the difficult issue of detailing precisely when they are appropriate." 322 F.3d at 898. The Sixth Circuit elaborated:
322 F.3d at 898 (emphasis added).
In Cook v. Niedert, 142 F.3d 1004 (7th Cir.1998), the United States Court of Appeals for the Seventh Circuit set forth factors a district court should consider when determining whether to approve an incentive award:
142 F.3d at 1016 (emphasis added). The Seventh Circuit held that these factors were satisfied by a class representative who reasonably feared workplace retaliation, contributed hundreds of hours, and provided substantial information, and
142 F.3d at 1016.
In Montgomery v. Aetna Plywood, Inc., 231 F.3d 399 (7th Cir.2000), the Seventh Circuit held that a district court was within its discretion to deny the lead plaintiff an incentive award, because the class counsel had not made a "serious argument" in favor of an incentive award, the class notice had not adequately disclosed the incentive award, and the class counsel had not explained why the incentive award could not be paid out of fees:
231 F.3d at 410 (emphasis added).
Courts "have denied preferential allocation on the grounds that the named plaintiff may be tempted to settle an action to the detriment of the class or come to expect a `bounty' for bringing suit." 4 W. Rubenstein, A. Conte & H. Newberg, supra § 11:38, at 80-81 (footnote omitted). In Staton v. Boeing Co., 327 F.3d 938 (9th Cir.2003), the Ninth Circuit reversed a district court's approval of a settlement agreement based in part on incentive awards to the class representatives. The Ninth Circuit was concerned that the incentive
Awards to Named and Unnamed Class Members
Staton v. Boeing Co., 327 F.3d 938, 975-77.
In Robles v. Brake Masters Systems, Inc., the Court addressed the propriety of an incentive award. There, the Court held that the Tenth Circuit's statements concerning incentive awards should be "interpreted narrowly rather than broadly." 2011 U.S. Dist. LEXIS 14432, at *35. The Court noted that "[a]lmost all class plaintiffs
The Court will overrule the Barondess Objection, the Stephens Objection, and the Interlegis Objection. The Court will also overrule the individual objectors' objections. The Court will approve the Settlement. The Court finds that the Settlement is fair and reasonable. The Court will also approve the attorney's fees and expenses, because the Court concludes that they are reasonable and that the work class counsel performed in this case supports such an award. The Court also concludes that the $4,725.00 award to Lane for reasonable costs and expenses is appropriate.
Miller Barondess objects to the Settlement to the extent that it uses funds from Westland DevCo, LLC to pay the Westland Development shareholders rather than the $62,242.19 that it is owed in legal fees. See Barondess Objection at 5. In its Supplemental Reply, Miller Barondess argues that, "[a]s a creditor of Westland DevCo, LLC, Miller Barondess is entitled to payment for services rendered to Westland DevCo, LLC before its remaining assets are distributed to the class members, who are shareholders." Supplemental Reply at 3 (emphasis original). Miller Barondess asserts that equity requires that it be paid before the Remaining Merger Consideration is used for the Settlement. See Supplemental Reply at 3. Stephens Property asserts that Westland DevCo, LLC owes it $9,399.37 and that it is entitled to payment before the funds are used for the Settlement. See Stephens Objection at 2. Interlegis, Inc. contends that it has a judgment against SCC Acquisitions, Inc. doing business as Suncal Companies in the amount of $124,994.44 and objects to the Settlement to the extent that any funds derive from SCC Acquisitions, Inc. See Interlegis Objection at 1-2.
The money owed to Miller Barondess is for work performed in April and
Miller Barondess asserts, without providing any support, that the Remaining Merger Consideration are the "only assets of Westland DevCo LLC from which Miller Barondess can be compensated for its outstanding bills" and argues that equity requires that Westland DevCo, LLC settle its outstanding bill with Miller Barondess before using the funds for the Settlement. The Court does not, however, believe that equity requires that the Court pay Miller Barondess from the Settlement funds. Other than the citations to In re Geneva Steel Co. and Fletcher Cyclopedia of the Law of Private Corporations, which state general principles of corporate law, Miller Barondess provides no authority that would support the Court awarding some portion of the Settlement to it. The Court has no information about what occurred in the bankruptcy proceeding, other than the information provided in the Cook declaration, or whether Miller Barondess would be a creditor entitled to recover under bankruptcy law. It appears, from the argument at the hearing, that Miller Barondess has not sought a judgment against Westland DevCo, LLC in any court and, other than its objection here and sending a bill, does not appear to have diligently pursued compensation for its work. The evidence that Miller Barondess submitted in support of its request for compensation includes the Miller Declaration, Statement as of April 30, 2010 Statement No. 2634, filed February 14, 2012 (Doc. 381-1)("April Statement"), and Statement as of March 31, 2010 Statement No. 2714, filed February 14, 2012 (Doc. 381-2)("May Statement"). In the Miller Declaration, Miller refers to the entity for which Miller Barondess did work as "Westland Development Corporation (`Westland') ... a SunCal Company," Miller Decl. ¶ 2, at 2, while the Barondess Objection refers to the entity for which Miller Barondess performed work as "Westland Development Company," Barondess Objection at 2. The April Statement and May Statement reflect that the work was billed to "1001-022: Westland" and lists as a billing address "SunCal Companies, Bruce V. Cook, General Counsel, 2392 Morse Avenue, Irvine CA 92614." April Statement at 2; May Statement at 2. Miller Barondess argues that a unique billing number is created to identify each single-purpose entity and that all bills are
The Court finds that equity does not require that the Court use any part of the Remaining Merger Consideration to compensate Miller Barondess. The materials before the Court do not adequately establish that the work Miller Barondess performed was for Westland DevCo, LLC and not for one of the other Westland entities. All parties appear to agree that Westland DevCo, LLC is the only entity which has control over the Remaining Merger Consideration. Accordingly, because the Court cannot determine whether Miller Barondess performed work for Westland DevCo, LLC, the Court does not believe it would be equitable to use funds from the Settlement to compensate Miller Barondess for its work. Moreover, the Court believes it would be inequitable for the Court to redistribute funds from the Settlement to Miller Barondess where Miller Barondess does not have a judgment entitling it to such funds and does not appear to have diligently pursued compensation for its services. In contrast, Lane has instigated two lawsuits in an attempt to preserve his rights and the rights of those similarly situated, and it was the work of class counsel which brought the Remaining Merger Consideration to the Defendants' attention. Furthermore, Miller Barondess' assertion that its work benefitted the class is unfounded. See Miller Decl. ¶ 11, at 4 ("The work Miller Barondess performed for Westland benefitted the shareholders of Westland, because it evaluated potential claims against lenders and proposed foreclosure prevention strategies."). The work Miller Barondess undertook could not have benefitted the class, even if the work was performed for Westland DevCo, LLC, because it rendered legal services approximately four years after the SunCal Merger. Accordingly, this work would not have benefitted the former Westland Development shareholders, because, at that point, the SunCal Merger had taken place and they no longer had an interest in any of the Westland entities. Because Miller Barondess has not established that it is entitled to funds derived from Westland DevCo, LLC, has not proven that it diligently attempted to recoup its funds through other means, and has not established that it cannot recover the money it is owed through other means, the Court finds that equity does not require that the Court use the Settlement funds to compensate Miller Barondess.
Stephens Property asserts that Westland DevCo, LLC owes it $9,399.37 and that it has filed a Claim of Lien with Bernalillo County. See Stephens Objection at 1-2. The Claim of Lien is for $5,450.91 and is dated September 1, 2010. See Claim of Lien at 1-2. Lane asserts that a Real Property Deed was executed between Cook and O.B. Stephens, the general partner of Stephens Property, in lieu of foreclosure. See Response to Stephens Property and Miller Barondess at 4-5 (citing Real Property Deed at 2-4; Stephens Certificate at 2-3). The Real Property Deed was executed on January 10, 2011. See Real Property Deed at 2. Stephens Property did not file a reply or appear at the March 20, 2012 hearing.
Stephens Property offers no legal theory that would support the Court using the Settlement funds to compensate it. Like Miller Barondess, Stephens Property does not have a court judgment against Westland DevCo, LLC. The Court assumes that Stephens Property bases its objection on an equity theory. The Court concludes that equity does not require or counsel that the Settlement funds be used to compensate Stephens Property. It appears, from the Real Property Deed, that Stephens Property has already been compensated for the debt owed to it and that the Real Property Deed was made with O.B. Stephens, the apparent general partner of Stephens Property, in lieu of foreclosure. See Real Property Deed at 2-4; Stephens Certificate at 2-3. Stephens Property has also not established that there are no other assets from which it could be compensated. Given that Stephens Property did not refute Lane's arguments in the Response to Stephens Property and Miller Barondess, the evidence presented does not establish that there is a debt left to be paid. Because the Court cannot find by a preponderance of the evidence that Westland DevCo, LLC continues to owe $9,399.37 to Stephens Property, the Court concludes that equity does not require that it use the Settlement funds to compensate Stephens Property. There is no sound basis to take money from the class members, who have created this Settlement, and shift some of it to Stephens Property. Accordingly, the Court will overrule the Stephens Objection.
In its motion, Interlegis, Inc. asks that the Court extend the deadline for and accept its objections. See Interlegis Motion at 1-2. Interlegis, Inc. asserts that it was unclear, from the Notice of Use of Funds that it received, whether the Court had adopted the February 17, 2012 deadline. See Interlegis Motion at 2. Interlegis, Inc. filed its motion and objections on March 1, 2012 — approximately thirteen days after the Court's February 17, 2012 deadline. See Order Preliminarily Approving Settlement at 6. The Notice of Use of Funds, states that "Westland contends
In the Interlegis Objection, Interlegis, Inc. objects to the extent that any of the Remaining Merger Consideration derives from SCC Acquisitions. See Interlegis Objection ¶ 4, at 2. Lane asserts that "Interlegis' claim for payment cannot be imposed upon the Class or Westland DevCo, LLC." Interlegis Response at 6. He argues that, because the "funds at issue derive from Westland DevCo, LLC, Interlegis does not have a legitimate claim against the unpaid shareholder proceeds." Interlegis Response at 6. At the hearing, Westland Development argued the Interlegis judgment is against SCC Acquisitions, Inc., which is a California corporation, and as of March 5, 2012 is still in good standing. See Tr. at 71:15-72:10 (Fish). The Agreement and Plan of Merger establishes that, "[a]t any time which is more than six (6) months after the Effective Time, the Surviving Corporation will be entitled to require the Paying Agent to deliver to it any funds which had been deposited with the Paying Agent and have not been disbursed." Agreement and Plan of Merger (dated July 19, 2006), filed March 13, 2012 (Doc. 401-1)("Merger Agreement"). In a stipulated order, Westland DevCo, LLC identified an escrow account overseen by the United States District Court for the District of New Mexico as the "designee" of the Remaining Merger Consideration. Stipulated Order, filed May 23, 2011 (Doc. 352). The Remaining Merger Consideration thus derives from Westland DevCo, LLC and not from SCC Acquisitions, Inc. Because Interlegis, Inc. has judgments only against SCC Acquisitions Inc. and because Interlegis, Inc. only objects to the Settlement to the extent the funds derive from SCC Acquisitions, Inc., the Court concludes that Interlegis, Inc. is not entitled to compensation from the funds which derive from Westland DevCo, LLC. Accordingly, the Court will overrule the Interlegis Objection.
The individual objectors argue that Lane is the "only named Class Representative and is a paid Class member who will be able to file a claim and recover sums from the remaining $2,278,702.41." Objectors' Memo at 10. They further assert that the terms of the Settlement reveal a "conflict between the paid shareholders and unpaid shareholders," because "the $2,278,702.41 set aside under the Merger
A district court considering a proposed class-action settlement must determine whether the proposed settlement is fair, reasonable, and adequate. See In re Integra Realty Res., Inc., 354 F.3d at 1266. The Tenth Circuit, in Jones v. Nuclear Pharmacy, Inc., established a four-factor test for assessing whether a proposed settlement is fair, reasonable, and adequate, which includes: (i) whether the proposed settlement was fairly and honestly negotiated; (ii) whether serious questions of law and fact exist placing the ultimate outcome of the litigation in doubt; (iii) whether the value of an immediate recovery outweighs the mere possibility of future relief after protracted and expensive litigation; and (iv) the parties' judgment that the settlement is fair and reasonable. See 741 F.2d at 324. Analyzing these factors and the Settlement, the Court concludes that the Settlement is fair, reasonable and adequate, and will overrule the individual objections to it.
When examining whether a settlement was fairly and honestly negotiated, district courts within the Tenth Circuit often examine whether the parties "have vigorously advocated their respective positions throughout the pendency of the case." Wilkerson v. Martin Marietta Corp., 171 F.R.D. 273, 284 (D.Colo.1997). The Court is also concerned with the protection of class members whose rights may not have been given "adequate consideration during the settlement negotiations." Childs v. Unified Life Ins. Co., No. 10-CV-23-PJC, 2011 WL 6016486, at *12 (N.D.Okla. Dec. 2, 2011) (citing Wilkerson v. Martin Marietta Corp., 171 F.R.D. at 283; 7B C. Wright, A. Miller & M. Lane, Federal Practice & Procedure § 1979.1 (3d ed.2005)).
Class counsel were able to obtain a $1.5 million settlement from the DESCO Defendants and $2,278,702.41 from Westland DevCo, LLC. Although the individual objectors challenge the validity of using the $2,278,702.41 for the Settlement, the Merger Agreement demonstrates that, six months after the SunCal Merger, the Remaining Merger Consideration became Westland DevCo, LLC's money and any Unpaid Class Member would have to file a claim with Westland DevCo, LLC. See Merger Agreement at 4. After six months passed, the Unpaid Class Members became like any other Westland DevCo, LLC creditor. See Merger Agreement at 4. The Court does not believe that there is any conflict between Lane and the Unpaid Class Members. "[O]nly a conflict that goes to the very subject matter of the litigation will defeat a party's claim of representative status." Lowery v. City of Albuquerque, 2012 WL 394392, at *20 (citing 7A Federal Practice & Procedure, § 1768, at 389-93). The individual objectors assert that the Settlement is unfair, because Lane is not an Unpaid Class Member and because the Remaining Merger Consideration is money that should have originally gone to the Unpaid Class Members. See Objectors' Memo at 10-11. It has now been almost six years since the SunCal Merger, when Mellon Investor Services attempted to contact all shareholders, and now class counsel have also made efforts to contact the Unpaid Class Members. Westland DevCo, LLC was no longer required to keep this money available to the Unpaid Class Members, and the Settlement — with provisions requiring reasonable efforts to contact the Unpaid Class
There is good reason to believe that if, after two efforts and many years, the Unpaid Class Members have not sought to exchange their shares, it is because there are many emotional factors at play and they do not wish to exchange their shares. See Trujillo Letter at 2 ("This was an illegal taking of a registered land grant by unscrupulous directors. In my opinion the courts should not be a party to the continued stripping of land grant rights of the heirs."). Class counsel have detailed their extensive efforts to locate the Unpaid Class Members. See Robbins Decl. ¶ 78, at 24. Moreover, the individual objectors and the Atrisco Foundation have not come forward with an Unpaid Class Member who objects to the Settlement and does not have a list of Unpaid Class Members which could be used to locate those individuals. See Sanchez Letter at 1-3. The Sanchez Letter also suggests that the Court establish a program at the Atrisco Foundation wherein a Atrisco Foundation staff member would be charged with tracking down the former Westland Development shareholders at a cost of $50,000.00 per year. See Sanchez Letter at 3. While the Court is greatly concerned that the Unpaid Class Members be paid, the Court believes taking such steps would have the undesired effect of decreasing the fund available to the class and the Sanchez Letter provides no basis for the Court to find that such efforts would be more successful in reaching any class members, including the Unpaid Class Members. Without any assurance that more Unpaid Class Members will be found, it appears that Sanchez ensures that there will be less money available to the class and does not offer any realistic likelihood of finding any other class members. The Tenth Circuit has held that due process "does not require actual notice to each party intended to be bound by the adjudication of a representative action." DeJulius v. New England Health Care Emps. Pension Fund, 429 F.3d at 944 (emphasis original). Here, however, class counsel has sent over 7,000 individual claims packages to the Westland Development shareholders in addition to posting notifications online, in the Albuquerque Journal, and in the Los Angeles Times. For due-process purposes, Tenth Circuit precedent focuses upon whether the district court gave "the best notice practicable under the circumstances including individual notice to all members who can be identified through reasonable effort." In re Integra Realty Res., Inc., 262 F.3d 1089, 1110 (10th Cir.2001). Many of the Unpaid Class Members have ties to New Mexico and others in the class; the Court believes that there has been both formal and informal notice about the SunCal Merger and this litigation. The Court thinks that the remaining Unpaid Class Members either are deceased, do not exist, or are uninterested in participating, and exchanging their shares, for unknown reasons. Class counsel have expended reasonable efforts in an attempt to contact all class members, and the Sanchez Letter suggests methods which would be duplicitous and costly without providing any information concerning whether they would be more successful. While the Court would like to have the Atrisco Foundation use its resources to find the remaining
This case is not one where money is being taken from the Unpaid Class Members to pay the other class members. The Unpaid Class Members no longer had an automatic right to the Remaining Merger Consideration and yet the Settlement was structured to ensure that the Unpaid Class Members received another opportunity to exchange their shares. Moreover, no Unpaid Class Member has objected to the Settlement, and class counsel's efforts have shown that at least eighteen Unpaid Class Members have been located. See Robbins Decl. ¶ 78, at 24. That Lane is not an Unpaid Class Member is of no consequence, because there is no conflict of interest. See Deiter v. Microsoft Corp., 436 F.3d 461, 467 (4th Cir.2006)(holding that rule 23's typicality requirement does not require that "the plaintiff's claim and the claims of class members be perfectly identical or perfectly aligned"). The Unpaid Class Members have a period in which to obtain the same consideration for their shares that they could have received five years earlier and, after that period expires, all class members receive the same damages per share. Lane and the rest of the class do not receive a premium over the Unpaid Class Members. See Lowery v. City of Albuquerque, 2012 WL 394392, at *23-25 (holding that a proposed settlement was not fair, adequate, or reasonable where the class representatives received significantly more than the rest of the class and received a guaranteed, rather than pro rata, share). All that happens is all class members are treated equally in the merger.
The Court notes that this litigation has been ongoing for five years and has been vigorously litigated. There are over 400 docket entries in this case, including several motions to dismiss and at least twelve memorandum opinions and orders. Furthermore, the backdrop against which this Settlement was achieved also demonstrates the adequacy of this Settlement. In 2006, when this lawsuit was originally filed, the economy was in a much better place than it stands today. Since that time, the real estate market has plummeted, and several of the Defendants have filed for bankruptcy. See Tr. at 34:24-35:10 (Robbins). It is against that backdrop that Lane and class counsel have achieved an additional benefit to the class of five to eight dollars per share, which, although lower than their expert's estimate of damages of forty-six dollars per share avoids the high risk of engaging in further protracted litigation and receiving nothing. See Tr. at 26:23-27:9 (Court, Robbins); id. at 30:3-11 (Robbins). Here, the parties engaged in lengthy settlement negotiations spanning several months and were involved one failed attempt at mediation. See Memo Seeking Approval at 18-19. At least one court has held that, where a settlement "result[s] from arm's length negotiations between experienced counsel after significant discovery had occurred, the Court may presume the settlement to be fair." Lucas v. Kmart Corp., 234 F.R.D. at 693. Even without any presumption, there is no evidence that these negotiations were not fair, and there is evidence that they were robust and vigorous. Furthermore, there are only ten class members objecting and only approximately forty class members opting out in a class of thousands. The Tenth Circuit has held that a district court did not abuse its discretion in approving a class settlement from which an "extremely small percentage of class members opted out." Rutter & Wilbanks Corp. v. Shell Oil Co., 314 F.3d at 1188. Here, the objectors and persons opting out equal less than one percent of all class members. See Tr. at 31:7-13 (Robbins).
No party or objector asserts that there are not serious questions of law and fact which put the outcome of the litigation in doubt. The Defendants have strenuously argued that the class' claims lack merit and that, even if meritorious, the class did not suffer any damages. See, e.g., Director Defendants' Answer to Third Amended Complaint for Violations of §§ 14(a) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 14a-9, filed July 6, 2010 (Doc. 212). In previous opinions, the Court has warned that Lane's "claims might ultimately be found untimely on summary judgment or during a trial down the road." Lane v. Page, 649 F.Supp.2d 1256, 1304 (D.N.M.2009)(Browning, J.). Although the Court denied several rounds of motions to dismiss, "that ruling provides no guarantee that the [plaintiff] will ultimately prevail on the merits." McNeely v. Nat'l Mobile Health Care, LLC, 2008 WL 4816510, at *13.
The Court agrees that whether Lane could have prevailed on the merits at trial is questionable. The Defendants vigorously disputed that Lane could establish loss causation, which is a "difficult task." In re Daou Sys., Inc., 411 F.3d 1006, 1026 (9th Cir.2005). Loss causation in this case would have been difficult given the timing of the SunCal Merger — at the peak of the real estate market bubble — and "subsequent appraisals of the Westland land showed a marked decreased in value since the closing of the Merger." Memo Seeking Approval at 20. Damages also would have been reduced to a "battle of the experts," and "it is virtually impossible to predict with any certainty which testimony would be credited." In re Warner Commc'ns Sec. Litig., 618 F.Supp. at 744. It is evident from this case's long and complex history that any jury trial could have resulted in many different outcomes, and that a class victory was uncertain. There were numerous factual and legal questions yet to be addressed in the litigation.
There is an "overriding Public interested in settling class action litigation," In re Pet Food Prods. Liability Litig., 629 F.3d 333, 351 (3d Cir.2010), especially where "substantial judicial resources can be conserved by avoiding formal litigation," Ehrheart v. Verizon Wireless, 609 F.3d 590, 595 (3d Cir.2010). This litigation has been pending for five years, and all parties have incurred significant expenses in pursuing the litigation thus far. Pursuing the litigation further would require significant judicial and party resources to complete motions for summary judgment, motions under Daubert v. Merrell Dow Pharmaceuticals, and motions in limine. Any of those decisions could then be appealed to the Tenth Circuit along with any jury verdict that might be returned. See Feerer v. Amoco Prod. Co., 1998 U.S. Dist. LEXIS 22248, at *30 ("[E]ven if a favorable jury verdict had been obtained, inevitably an appeal would have followed and, conservatively,
"To most people, a dollar today is worth a great deal more than a dollar ten years from now." Reynolds v. Beneficial Nat'l Bank, 288 F.3d 277, 284 (7th Cir.2002). Here, the parties would be without the guarantee of receiving even a dollar if this suit were to be resolved at a later time. The Settlement provides the class with "substantial, guaranteed relief." Lucas v. Kmart Corp., 234 F.R.D. at 694. The uncertainties in this case, which go beyond the normal uncertainties of recovery before a jury, convince the Court that the value of immediate recovery outweighs the mere possibility of future relief. While the class may not receive everything that it desired, such is the nature of a compromise, and the Court finds that this factor weighs in favor of approving the Settlement.
The Honorable Richard D. Rogers, Senior United States District Judge for the District of Kansas has noted: "Counsels' judgment as to the fairness of the agreement is entitled to considerable weight." Marcus v. Kan. Dep't of Revenue, 209 F.Supp.2d 1179, 1183 (D.Kan.2002). Class counsel has significant experience and expertise in securities and class action litigation. Robbins Geller Rudman & Dowd LLP has been appointed class counsel in several other notable class actions including: (i) In re Enron Corp. Sec. Litig., No. H-01-3624 (S.D.Tex.); (ii) In re UnitedHealth Grp. Inc. PSLRA Litig., No. 06-CV-1691 (D.Minn.); and (iii) In re AT & T Corp. Sec. Litig., MDL No. 1399 (D.N.J.). See Report at 3-8. In his declaration, Mr. Robbins asserts that the Settlement was the product of arm's length negotiations between adversaries, and that he believes that the Settlement "is fair, reasonable, and adequate in all respects." Robbins Decl. ¶¶ 89-90, at 28. Lane also states, in his declaration, that, "in light of what [he] understand[s] to be the liability, damages, risks, and statute of limitations issues presented in the Litigation, this settlement presents a favorable recovery on behalf of the class." Lane Decl. ¶ 6, at 3. Accordingly, this factor weighs in favor of approving the Settlement.
In their objections, the individual objectors assert that, because the awards
In Klier v. Elf Atochem N. Am., Inc., the Fifth Circuit addressed circumstances and arguments as those before the Court. There, the defendant proposed that the court make a cy pres award to a scholarship fund it had established or two museums, because the unclaimed funds were primarily related to one subclass and it would be unfair for the funds to go to the other subclass. See 658 F.3d at 473, 480. The defendant argued that "equity weigh[ed] in favor of a cy pres distribution because distributing the unclaimed funds to members of Subclass A would deprive Subclass B of its settlement benefits." Klier v. Elf Atochem N. Am., Inc., 658 F.3d at 480. The Fifth Circuit rejected this argument and called it a "straw man," because all of the parties agreed that "additional distributions to the members of Subclass B were not economically viable." Klier v. Elf Atochem N. Am., Inc., 658 F.3d at 480. Accordingly, the Fifth Circuit found that the choice was not between "a distribution to Subclass A and a distribution to Subclass B," but a choice between "a distribution to Subclass A and a distribution to charity"; it found that because the settlement agreement provided that the funds be reallocated among the class, a cy pres award was inappropriate. Klier v. Elf Atochem N. Am., Inc., 658 F.3d at 480. Here, the individual objectors argue that it is unfair to redistribute funds among those who make claims after a certain period of time, because such a reallocation undermines the rights of the Unpaid Class Members. Neither the individual objectors nor the Atrisco Foundation, however, offered any other economically feasible means of locating the Unpaid Class Members. When making a choice between allocating the funds among those class members who have submitted a claim, and were wronged, and the Atrisco Foundation, the Court believes the more appropriate decision is to distribute the funds among the class members. Even if
The Court finds that each of the Jones v. Nuclear Pharmacy, Inc. factors weighs in favor of approving the Settlement. The Court believes that the Settlement is fair, reasonable, and adequate, especially in light of the parties vigorous pursuit of the litigation and the real concerns regarding possible recovery at a trial. The Court also concludes that there are not any conflicts between class members. Because the Settlement is fair and reasonable, the Court will approve the Settlement.
The individual objectors assert that "[t]he parties in this case have negotiated a common-fund settlement in which Lead Counsel seeks to recover their attorneys' fees as a percentage of the settlement fund." Objectors' Memo at 12. They argue that "the entire settlement amount comes from the same source" and that, when a large attorney's fee award means a smaller recovery, a conflict arises between counsel and the class. Objectors' Memo at 12. The individual objectors further assert class counsel's request for attorney's fees is unreasonably high and harms all class members. See Objectors' Memo at 13. They argue that the attorney's fees and costs represent seventy-one percent of the total amount recovered. See Objectors' Memo at 13. The individual objectors contend that "Lead Counsel misleads the Court when they contend that they obtained a benefit of approximately $47,000,000 for the Class as a result of the $60 per share increase in the merger offer made on February 9, 2006, and the Final Merger Agreement," because this litigation was filed almost four months after the SunCal Merger was approved. Objectors' Memo at 13. They contend that class counsel were not involved in any of the events that led to the sixty dollar per share increase and that, even if class counsel had not filed the litigation, the class would have received $315.00 per share. See Objectors' Memo at 15.
The Tenth Circuit has adopted a test that the Fifth Circuit adopted in Johnson v. Georgia Highway Express, Inc., which analyzes the following twelve factors: (i) the time and labor required; (ii) the novelty and difficulty of the question presented in the case; (iii) the skill requisite to perform the legal service properly; (iv) the preclusion of other employment because of acceptance of the case; (v) the customary fee; (vi) whether the fee is fixed or contingent; (vii) any time limitations imposed by the client or the circumstances; (viii) the amount involved and the results obtained; (ix) the experience, reputation, and ability of the attorneys; (x) the undesirability of the case; (xi) the nature and length of the professional relationship with the client; and (xii) awards in similar cases. See Gottlieb v. Barry, 43 F.3d at 483 & n. 4. "[R]arely are all of the Johnson factors applicable." Uselton v. Commercial Lovelace Motor Freight, Inc., 9 F.3d at 854. Applying the relevant factors, the Court finds that it should approve the award of attorney's fees and costs.
The litigation has been ongoing for five years. Over those five years, class counsel prosecuted the litigation without payment and advanced all costs. Class counsel asserts
Robbins Decl. ¶ 94, at 29-30. Lane asserted that the hourly rates for class counsel varied from around $200.00 per hour to $700.00 per hour for Mr. Robbins' time. See Tr. at 14:15-18 (Robbins). Even if every attorney and paralegal who worked on this case billed at the relatively low rate of $200 per hour, the attorney's fees would be in excess of the attorney's fee award requested. Additionally, if every attorney at Robbins Geller Rudman & Dowd LLP billed the 11,800 hours they spent on this case at a rate of $300.00 per hour, the fees would exceed the $3.1 million award. Given the complexity of the case and the number of motions, documents, depositions, and hearings, the Court does not believe that 11,800 hours is excessive. In Anderson v. Merit Energy Co., Nos. 07-cv-00916-LTB-BNB, 07-cv-1025-REB-MJW, 2009 WL 3378526 (D.Colo. Oct. 20, 2009), the United States District Court for the District of Colorado approved attorney's fees in the amount of $5,900,000.00 where counsel similarly "devoted over ten thousand hours to the prosecution of th[e] Class litigation" and expended similar efforts. 2009 WL 3378526, at *2. In another case, the United States District Court for the Western District of Oklahoma approved an award of $4,008,103.52 where counsel expended over 15,000 hours on the litigation. See Ponca Tribe of Indians of Okla. v. Continental Carbon Co., No. 05-445, 2009 WL 2836508, at *3 (W.D.Okla. July 30, 2009). Furthermore, with respect to the expenses that class counsel have submitted, the individual objectors do not point to any expense that they believe is excessive or unwarranted. Class counsel limited their recoverable expenses to $650,000.00. In reality, however, the costs of the litigation are in excess of $698,730.12. See Light Decl. ¶ 5, at 2-3; Koluncich Decl. ¶ 3, at 2; Johnson Decl. ¶ 5, at 2; Kendall Decl. ¶ 5, at 2.
The time and labor expended in pursuit of the litigation were extensive and justifiable. The Court further notes that class counsel continues to expend time and incur expenses, because the settlement hearing lasted approximately four hours and parties submitted several post-hearing briefs. Accordingly, the Court finds that this factor weighs in favor of the requested attorney's fee award.
There are "few simple class action cases involving securities law," and this case is
The Court believes that these complexities and this factor weigh in favor of the attorney's fee and expenses award.
Because factors three and nine are closely related, the Court analyzes together the skill requisite to perform the legal services properly, and the experience and skill of class counsel. See In re Qwest Commc'ns Int'l, Inc. Sec. Litig., 625 F.Supp.2d at 1150. Class Counsel are highly skilled and specialized attorneys who use their substantial experience and expertise to prosecute complex securities class actions. In possibly one of the best known and most prominent recent securities cases, Robbins Geller Rudman & Dowd LLP served as sole lead counsel — In re Enron Corp. Sec. Litig., No. H-01-3624 (S.D.Tex.). See Report at 3. The Court has previously noted that the class would "receive high caliber legal representation" from class counsel, and throughout the course of the litigation the Court has been impressed with the quality of representation
Class counsel brought their skill and experience to this case, successfully litigating many motions. Furthermore, the Court agrees that "[f]ew plaintiffs' law firms could have devoted the kind of time, skill, and financial resources over a five-year period necessary to achieve the pre- and post-Merger benefits obtained for the Class here." Memo Seeking Approval at 31. It is unlikely that many other counsel would have been able to continue funding the litigation for it to reach this point or that many other counsel would have been able to so successfully prosecute the litigation. See In re Qwest Commc'ns Int'l, Inc. Sec. Litig., 625 F.Supp.2d at 1150 ("This factor carries significant weight because the plaintiff class likely would not have obtained any relief ... without the assistance of counsel with a high level of skill and expertise. Further, lead counsel should be rewarded for the successful application of their skill and expertise."). Where "Class Counsel's knowledge and experience... significantly contributed to a fair and reasonable settlement" this factor supports a large request for attorney's fees. Anderson v. Merit Energy Co., 2009 WL 3378526, at *3. Given the high quality of defense counsel, "there was simply no way that this case could have been prosecuted successfully without a high level of skill exhibited on the part of Class Counsel." Feerer v. Amoco Prod. Co., 1998 U.S. Dist. LEXIS 22248, at *31. Accordingly, the Court finds that these two factors weigh in favor of the requested attorney's fees. Class Counsel are both skilled and experienced, and used those skills and experience for the benefit of the class.
Class Counsel assert that the time spent on this case was at the expense of time counsel could have devoted to other matters. See Memo Seeking Approval at 29. Although class counsel do not specifically provide that they had to turn work away, the amount of time and effort that class counsel have expended over the five-year course of the litigation would certainly effect other work and the amount of work they could take. "Because of the number of hours that class counsel have been required to devote to this case, class counsel necessarily were precluded from handling other litigation matters during that time." Lucken Family Ltd. P'ship, LLP v. Ultra Res., Inc., No. 09-cv01543, 2010 WL 5387559, at *5 (D.Colo. Dec. 22, 2010). While the Court does not believe that this factor carries great weight, to the extent that it factors into the Court's decision, it weighs in favor of the requested attorney's fees and expenses award.
Courts have consistently held that the most important factor within this analysis is what results were obtained for the class. See Hensley v. Eckerhart, 461 U.S. at 436, 103 S.Ct. 1933. Lane asserts that the attorney's fees represent only six percent of the more than fifty-one million dollars in cash consideration from which the class benefitted as a direct result of class counsel's efforts. See Memo Seeking Approval at 24. He argues that class counsel's efforts were responsible for the final sixty dollars per share increase in price and for the cancellation of the 35,000 change-in-control
In Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970), the Supreme Court recognized that "courts increasingly have recognized that the expenses incurred by one shareholder in the vindication of a corporate right of action can be spread among all shareholders through an award against the corporation, regardless of whether an actual money recovery has been obtained in corporation's favor." 396 U.S. at 394, 90 S.Ct. 616.
Settlement at 19. The sixty dollars per share increase multiplied by 794,927 shares establishes a $47,695,620.00 benefit for Westland Development shareholders. See Memo Seeking Approval at 27. Furthermore, the "Director Defendants acknowledge that the existence of the Rael Action was a factor in the Westland Board's decision to ... waive the Director Defendants' claim to 35,000 `change-in-control' shares, which had the effect of increasing the consideration payable to Westland's common shareholders from $255 per share to $266.23 per share." Settlement at 18. This increase in share price resulted in $8,927,030.21 to the class.
Although $3,778,702.41 may not be as large a Settlement fund as members of the class hoped to receive, and is probably less than class counsel wanted upon filing this
Accordingly, the Court finds that this factor weighs in favor of the requested attorney's fees and expenses award.
The attorney's fees in this case were contingent. This factor weighs in favor of the requested attorney's fees award, because "[s]uch a large investment of money [and time] place[s] incredible burdens upon ... law practices and should be appropriately considered." Feerer v. Amoco Prod. Co., 1998 U.S. Dist. LEXIS 22248, at *33. See Been v. O.K. Indus., Inc., No. CIV-02-285-RAW, 2011 WL 4478766, at *9 (E.D.Okla. Aug. 16, 2011)("Courts agree that a larger fee is appropriate in contingent matters where payment depends on the attorney's success."). Class counsel assumed the risk that the litigation would yield no recovery and for five years have received no compensation for the time and expenses they have spent during the course of the litigation. The Court has recognized in other cases that "[f]ees in the range of 30-40% of any amount recovered are common in complex and other cases taken on a contingent fee basis." Robles v. Brake Masters Sys., Inc., 2011 U.S. Dist. LEXIS 14432, at *55.
$3.1 million in addition to $650,000.00 in expenses is a large award. The Court notes that this money is not coming from the class fund. See Further Support of Class Action Settlement at 20. The attorney's fees were separately negotiated, with a separate entity — the Individual Defendants' insurance carrier. See Memo Seeking Approval at 24. The insurance carrier had a "pac-man" policy in place and would pay attorney's fees, but, because of how the policy defined loss, would not pay for damages. See Tr. at 16:16-22 (Court, Robbins); id. at 76:8-15 (Bessette). Accordingly, the attorney's fees do not reduce the amount available to the class and any judicial reduction to the attorney's fees does not increase the funds available to the class, but reverts to the insurance carrier. See Tr. at 113:13-22 (Bessette). The Court still examines, however, the fees in relation to the Settlement. The
Moreover, when the Court examines the requested attorney's fees in the context of how much class counsel put into the case, the Court finds that the requested attorney's fees are appropriate. Even if every attorney and paralegal who worked on this case billed at the relatively low rate of $200 per hour,
Because the fees were contingent, and are at or below the customary fee and awards in similar cases, the Court finds that this factor weighs in favor of the requested attorney's fees and costs.
The Court notes that, at the class certification stage, no other class member or law firm sought to represent the class. See Lane v. Page, 250 F.R.D. at 646. Additionally, the time and effort that this case has taken would make it undesirable to many attorneys. See Been v. O.K. Indus., Inc., 2011 WL 4478766, at *10. The Court also considers, however, that there were several state cases proceeding against these Defendants on different theories before this case was filed. The state suits establish that there were several plaintiffs willing to pursue actions against these Defendants in state court, but either were satisfied with Lane representing the class in the federal suit or did not wish to represent the class in a federal suit. Although there was a motion to intervene early in the litigation, the Court found that Frank Martin had not moved to be named lead plaintiff and dismissed the motion as moot. See Memorandum Opinion and Order at 14, filed July 2, 2007 (Doc. 43). Accordingly, the Court finds that, because no other party or counsel stepped forward to represent the class, this factors weighs in favor of the attorney's fees, but is not a strong consideration.
The Court will award attorney's fees of $3.1 million and expenses of $650,000.00. All of the relevant Johnson v. Georgia Highway Express, Inc. factors counsel, to some extent, in favor of the fee award. The individual objectors have not made any specific objections to billing rates, times, or costs. The attorney's fees represent a fraction of the benefit conveyed to the class and a fraction of the total lodestar amount. Furthermore, the attorney's fees and expenses were separately negotiated after the Settlement was negotiated and with the Individual Defendant's insurance carrier, rather than with the Defendants. See Tr. at 55:4-16 (Court, Robbins). While the individual objectors criticize these separate negotiations, see Tr. at 95:19-23 (Barton), that the fees were negotiated after the Settlement reduces the risk of any improper bargaining, such as reducing the class award so that the attorney can be paid quickly. See McKenna v. Sears, Roebuck & Co., 116 F.3d 1486, 1997 WL 349024, at *1 (9th Cir. June 25, 1997)(unpublished table decision)("Here, the fee agreement was negotiated after the class settlement was negotiated after the class settlement, a fact that reduces the danger of an improper quid pro quo detrimental to the class."). Even if the Court were to reject the attorney's fees arrangement, the funds would not go to the class and would not increase the class fund in any way. This litigation has been vigorously litigated over a period of five years. The Court finds that the attorney's fees and expenses are reasonable and fair. While the attorney's fees are a lot in isolation, in comparison to what class counsel put into the case, they did not hit a home run. Accordingly, the Court approves the award of $3.1 million
Lane asks that the Court award him $4,725.00 in reasonable costs and expenses related to his service as the class representative. See Memo Seeking Approval at 32. The PSLRA provides that "[t]he share of any final judgment or of any settlement that is awarded to a representative party serving on behalf of the class shall be equal, on a per share basis, to the portion of the final judgment or settlement awarded to all other members of the class." 15 U.S.C. § 78u-4(a)(4). It also provides, however, that the Court may award "reasonable costs and expenses (including lost wages) directly relating to the representation of the class to any representative party serving on behalf of the class." 15 U.S.C. § 78u-4(a)(4). The Court has recently discussed its general disapproval of incentive awards. See Robles v. Brake Masters Sys., Inc., 2011 U.S. Dist. LEXIS 14432, at *49 (holding that Congress made deliberate choices among enforcement mechanisms and that the "courts must be careful not to second guess Congress' selection through incentive awards, thereby illegitimately transforming the underlying substantive law from a compensatory model to a bounty hunter model."). The Tenth Circuit allows incentive awards in some circumstance, and the Court has narrowly interpreted that language as "authoriz[ing] an incentive award when the class representatives' efforts are greater than the typical class representative's efforts and/or greater than the efforts a class representative would have incurred if his or her action were an individual action." Robles v. Brake Masters Sys., Inc., 2011 U.S. Dist. LEXIS 14432, at *35-36 (internal quotation marks omitted). Robles v. Brake Masters Systems, Inc., was not brought pursuant to the PSLRA and sought a $9,869.79 incentive award for the named Plaintiff. See 2011 U.S. Dist. LEXIS 14432, at *9. The parties, however, have structured this award under the PSLRA as a reimbursement for reasonable costs and expenses and, in such a way, so as to allay many of the concerns that the Court noted in Robles v. Brake Masters Sys., Inc. Specifically, the money from the attorney's fees will be used to fund the award to Lane and the award to Lane will not reduce the total funds available to the class.
Lane asserts that he has devoted approximately 270 hours to the prosecution of this suit. See Lane Decl. ¶ 3, at 2. An award of $4,725.00 for 270 hours is approximately $17.50 per hour. The Court recalls Lane attending nearly every hearing before it and being very involved in this case. Here, in the context of the overall Settlement, the award is small. The award will not be at the expense of the class, and notice was given to the class of the award. See Robles v. Brake Masters Sys. Inc., 2011 U.S. Dist. LEXIS 14432, at *49-50 (rejecting an incentive award where the "parties did not notify the Collective Action Settlement Members of the proposed incentive award" and where the "proposed incentive award would be taken proportionally from other Collective Action Settlement Members' awards and thus benefitting Robles at their expense"). The award to Lane will reduce the available attorney's fees and will not reduce the award to the class. See Tr. at 37:14-20 (Robbins). In the Notice of Pendency of Settlement of Class Action, filed December 19, 2011 (Doc. 366)("Notice of Pendency"), class counsel informed the class that they would seek an award to Lane of $4,725.00 and that "these amounts will not reduce the $3,778,702.41 available for Class Members
Although the award to Lane is not an incentive award, rather it is for the purposes authorized under the PSLRA, see 15 U.S.C. § 78u-4(a)(4), the Court finds a comparison to incentive awards cases instructive. Additionally, the Tenth Circuit has stated:
UFCW Local 880 — Retail Food Emp'rs Joint Pension Fund v. Newmont Mining Corp., 352 Fed.Appx. 232, 235-36 (10th Cir.2009)(unpublished). There is some evidence that no other representative would have stepped forward to represent the class in Lane's absence, because, at the class certification stage, no other class
The Court finds that an award of $4,725.00 to Lane is lawful and appropriate. The amount is reasonable compensation for the hours that Lane has devoted to this case over a five-year period. The Court believes, and class counsel have vigorously argued, that Lane's efforts on behalf of the class went beyond what is normally expected of class representatives. Additionally, class counsel have supported their argument with action, because the award to Lane will reduce the attorney's fees. See Tr. at 37:14-20 (Robbins). Furthermore, the class had notice of the award and no class member objected to it. The Court believes that this award is appropriate compensation for reasonable costs and expenses under the PSLRA. Accordingly, the Court will approve the award of $4,725.00 to Lane.
Memorandum Opinion and Order at 43 n. 3, filed January 10, 2011 (Doc. 284).
Loring v. City of Scottsdale, Ariz., 721 F.2d 274, 275 (9th Cir.1983) (citations omitted). Generally, the common-benefit doctrine applies to permit litigants or lawyers to obtain reasonable attorney's fees out of the common fund or to spread the cost of the litigation to its beneficiaries. See In re Zyprexa Prods. Liab. Litig., 594 F.3d 113, 129 (3d Cir.2010); Rosenbaum v. MacAllister, 64 F.3d 1439, 1444 (10th Cir.1995)(holding that the common benefit doctrine applies where "the plaintiff's successful litigation confers `a substantial benefit on the members of an ascertainable class, and where the court's jurisdiction over the subject matter of the suit makes possible an award that will operate to spread the costs proportionally among them.'"). Here, the benefits to the class members have traits of both a common-fund class action, the $3,793,509.25 in cash consideration, and a common-benefit class action, the termination of the 35,000 change-in-control shares. Although both of these categories of class actions permit the parties to spread the costs of the attorney's fees among the class as beneficiaries, here, the class will not pay for or have their award reduced by the attorney's fees, because the attorney's fees were separately negotiated with the insurance carrier. The Court may, however, based on the common-benefit doctrine, consider non-economic benefits to the class when determining whether the attorney's fees are appropriate.
