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Stanford University Law School
- Securities Class Action Clearinghouse
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MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH (68581)
JOY ANN BULL (138009)
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
- and -
REED R. KATHREIN (139304)
JEFFREY W. LAWRENCE (166806)
DAVID R. STICKNEY (188574)
222 Kearny Street, 10th Floor
San Francisco, CA 94108
Telephone: 415/288-4545
Lead Counsel for Plaintiffs
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
In re RASTER GRAPHICS SECURITIES
LITIGATION
___________________________________
This Document Relates To:
ALL ACTIONS.
___________________________________
Master File No. C-98-0807-FMS
CLASS ACTION
DATE: February 19, 1999
TIME: 10:00 a.m.
COURTROOM: The Honorable
Fern M. Smith
NOTICE OF MOTION AND MOTION AND MEMORANDUM OF POINTS
AND AUTHORITIES IN SUPPORT OF MOTION FOR FINAL
APPROVAL OF SETTLEMENT
I. PRELIMINARY STATEMENT
II. THE STANDARDS FOR JUDICIAL APPROVAL OF CLASS ACTION SETTLEMENTS
III. THE SETTLEMENT MEETS THE NINTH CIRCUIT STANDARD FOR APPROVAL
A. The Parties Could Identify The Strengths And Weaknesses Of Their Cases
B. The Settlement Appropriately Balances The Risks Of Litigation And The Benefit To The Class Of A Certain Recovery
1. Continued Litigation Posed Substantial Risk In Establishing Liability And Damages
2. Balancing The Certainty Of An Immediate Recovery Against The Expense And Likely Duration Of Trial Favors Settlement
C. The Inability Of Defendants To Withstand A Large Judgment
D. The Recommendations Of Experienced Counsel Heavily Favor Approval Of The Settlement
E. Reaction Of The Class Supports Approval Of The Settlement
IV. CONCLUSION
Backman v. Polaroid Corp., 910 F.2d 10 (1st Cir. 1990)
Behrens v. Wometco Enterprises, Inc., 118 F.R.D. 534 (S.D. Fla. 1988),
aff'd, 899 F.2d 21 (11th Cir. 1990)
Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979)
Boyd v. Bechtel Corp., 485 F. Supp. 610 (N.D. Cal. 1979)
Bullock v. Administrator of Estate of Kircher, 84 F.R.D. 1 (D.N.J. 1979)
Chatelain v. Prudential-Bache Sec., 805 F. Supp. 209 (S.D.N.Y. 1992)
Church v. Consolidated Freightways, Inc., [1993 Transfer Binder]
Fed. Sec. L. Rep. (CCH) ¶97,743 (N.D. Cal. 1993)
Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974)
Ellis v. Naval Air Rework Facility, 87 F.R.D. 15 (N.D. Cal. 1980),
aff'd, 661 F.2d 939 (9th Cir. 1981)
Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976)
Fisher Bros. v. Cambridge-Lee Industries, Inc., 630 F. Supp. 482 (E.D. Pa. 1985)
Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975)
Green v. Occidental Petroleum Corp., 541 F.2d 1335 (9th Cir. 1976)
In re Apple Computer Sec. Litig., [1991 Transfer Binder] Fed. Sec. L. Rep. (CCH)
¶96,252 (N.D. Cal. 1991)
In re Pacific Enterprises Sec. Litig., 47 F.3d 373 (9th Cir. 1995)
In re PaineWebber Ltd. Pshps. Litig., 171 F.R.D. 104 (S.D.N.Y.),
aff'd, 117 F.3d 721 (2d Cir. 1997)
In re United Energy Corp. Solar Power Modules Tax Shelter Invest. Sec. Litig.,
[1989 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶94,376 (C.D. Cal. 1989)
In re Warner Communications Sec. Litig., 618 F. Supp. 735 (S.D.N.Y. 1985),
aff'd, 798 F.2d 35 (2d Cir. 1986)
In re Washington Public Power Supply System Sec. Litig., 720 F. Supp. 1379 (D. Ariz. 1989),
aff'd sub nom. Class Plaintiffs v. Seattle, 955 F.2d 1268 (9th Cir. 1992)
Lewis v. Newman, 59 F.R.D. 525 (S.D.N.Y. 1973)
M. Berenson Co. v. Faneuil Hall Marketplace, Inc., 671 F. Supp. 819 (D. Mass. 1987)
MWS Wire Industries, Inc. v. California Fine Wire Co., 797 F.2d 799 (9th Cir. 1986)
Malchman v. Davis, 761 F.2d 893 (2d Cir. 1985)
Marshall v. Holiday Magic, Inc., 550 F.2d 1173 (9th Cir. 1977)
Milstein v. Huck, 600 F. Supp. 254 (E.D.N.Y. 1984)
Newman v. Stein, 464 F.2d 689 (2d Cir. 1972)
Officers for Justice v. Civil Service Com., 688 F.2d 615 (9th Cir. 1982)
Randall v. Loftsgaarden, 478 U.S. 647 (1986)
Republic Nat'l Life Ins. Co. v. Beasley, 73 F.R.D. 658 (S.D.N.Y. 1977)
Sirota v. Solitron Devices, Inc., 673 F.2d 566 (2d Cir. 1982)
Steinberg v. Carey, 470 F. Supp. 471 (S.D.N.Y. 1979)
TSC Industries v. Northway, Inc., 426 U.S. 438 (1976)
Torrisi v. Tucson Elec. Power Co., 8 F.3d 1370 (9th Cir. 1993)
Trans World Airlines, Inc. v. Hughes, 312 F. Supp. 478 (S.D.N.Y. 1970), modified, 449 F.2d 51 (2d Cir. 1971),
rev'd, 409 U.S. 363 (1973)
Utility Reform Project v. Bonneville Power Admin., 869 F.2d 437 (9th Cir. 1989)
Van Bronkhorst v. Safeco Corp., 529 F.2d 943 (9th Cir. 1976)
Weinberger v. Kendrick, 698 F.2d 61 (2d Cir. 1982)
West Virginia v. Chas. Pfizer & Co., 314 F. Supp. 710 (S.D.N.Y. 1970),
aff'd, 440 F.2d 1079 (2d Cir. 1971)
Williams v. First Nat'l Bank, 216 U.S. 582 (1910)
Wool v. Tandem Computers, Inc., 818 F.2d 1433 (9th Cir. 1987)
Young v. Katz, 447 F.2d 431 (5th Cir. 1971)
15 U.S.C.
§78j(b)
§78t(a)
California Business & Professions Code
§17200
California Civil Code
§1709
§1710
California Corporations Code
§1507
§25400
§25500
Federal Rules of Civil Procedure
Rule 23
Rule 23(e)
17 C.F.R.
§240.10b-5
Arnold S. Jacobs, The Measure of Damages in Rule 10-5 Cases,
65 Geo. L.J. 1093 (1977)
Manual for Complex Litigation, Third (1995)
§30.42
TO: ALL PARTIES AND THEIR ATTORNEYS OF RECORD
PLEASE TAKE NOTICE that, pursuant to an Order of the Court filed December 11, 1998, on February 19, 1999, at 10:00 a.m., or as soon thereafter as counsel may be heard, at the United States Courthouse, 450 Golden Gate Avenue, San Francisco, CA, before the Honorable Fern M. Smith, United States District Judge, Representative Plaintiffs will and hereby move for a judgment finally approving the settlement of this action and dismissing it with prejudice. Representative Plaintiffs' motion is based on their Memorandum of Points and Authorities in Support of Final Approval of Settlement, the declarations of counsel for Representative Plaintiffs, the Stipulation of Settlement dated as of October 12, 1998, all other pleadings and matters of record, and such additional evidence or argument as may be presented at the hearing.
Representative Plaintiffs respectfully submit this memorandum of points and authorities in support of their motion for final approval of the settlement of this action for a total cash consideration of $4,500,000 plus interest accrued from October 15, 1998. This settlement is the result of arm's-length settlement negotiations and in Representative Plaintiffs' counsel's view appropriately reflects the relative strengths of the parties' respective claims and defenses and the substantial risks inherent in continuing the litigation.
This case arose out of the conduct of defendants which plaintiffs allege caused the price of Raster Graphics, Inc. ("Raster") common stock to be artificially inflated during the period beginning on April 24, 1997 through April 24, 1998. The action filed in this Court asserts claims under §§10(b) and 20(a) of the Securities Exchange Act of 1934, and the action filed in the Superior Court of California, County of Santa Clara alleges violations of Cal. Corp. Code §§25400, 25500 and 1507, Cal. Civil Code §§1709-1710, and Cal. Bus. & Prof. Code §17200. An overview of the case, the discovery efforts, motion practice and the negotiations leading to this settlement are set forth in the Declaration of Reed R. Kathrein in Support of Plaintiffs' Application for (1) Approval of Settlement, (2) an Award of Attorneys' Fees and Reimbursement of Expenses, and (3) Approval of Plan of Allocation ("Kathrein Decl.") filed herewith. The Court is respectfully referred to the Kathrein Decl. for a discussion of the factual and procedural history of the litigation.
Pursuant to an Order of the Court dated December 11, 1998, notices were mailed to approximately 2,500 class members. The notice sent to class members conforms in all respects to the requirements of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). In addition, a summary notice was published in Investor's Business Daily on December 22, 1998. The last day to file objections was February 1, 1999. No objections to the settlement have been received. Therefore, the settlement appears to enjoy the support of the members of the class.
Representative Plaintiffs' counsel firmly believe that this settlement is fair, reasonable and adequate based on their investigation and analysis of the evidence, the posture of the case, Raster's poor financial condition, past experience in similar actions, and in light of the serious disputes between the parties concerning damages and liability. Thus, Representative Plaintiffs' counsel recommend that the settlement be approved by this Court.(1)
It is well established in the Ninth Circuit that "voluntary conciliation and settlement are the preferred means of dispute resolution." Officers for Justice v. Civil Service Com., 688 F.2d 615, 625 (9th Cir. 1982). Class action suits readily lend themselves to compromise because of the difficulties of proof, the uncertainties of the outcome and the typical length of the litigation. "There is an overriding public interest in settling and quieting litigation," and this is "particularly true in class action suits." Van Bronkhorst v. Safeco Corp., 529 F.2d 943, 950 (9th Cir. 1976); Utility Reform Project v. Bonneville Power Admin., 869 F.2d 437, 443 (9th Cir. 1989).(2)
In approving a proposed settlement of a class action under Federal Rule of Civil Procedure 23(e), the Court must find that the proposed settlement is "fair, adequate and reasonable."(3) The Ninth Circuit has provided a list of factors which may be considered in evaluating the fairness of a class action settlement:
Although Rule 23(e) is silent respecting the standard by which a proposed settlement is to be evaluated, the universally applied standard is whether the settlement is fundamentally fair, adequate and reasonable. The district court's ultimate determination will necessarily involve a balancing of several factors which may include, among others, some or all of the following: the strength of plaintiffs' case; the risk, expense, complexity, and likely duration of further litigation; the risk of maintaining class action status throughout the trial; the amount offered in settlement; the extent of discovery completed, and the stage of the proceedings; the experience and views of counsel; the presence of a governmental participant; and the reaction of the class members to the proposed settlement.
Officers for Justice, 688 F.2d at 625 (citations omitted). Accord Torrisi v. Tucson Elec. Power Co., 8 F.3d 1370, 1375 (9th Cir. 1993); Church v. Consolidated Freightways, Inc., [1993 Transfer Binder] Fed. Sec. L. Rep (CCH) ¶97,743 (N.D. Cal. 1993); In re Washington Public Power Supply System Sec. Litig., 720 F. Supp. 1379 (D. Ariz. 1989), aff'd sub nom. Class Plaintiffs v. Seattle, 955 F.2d 1268 (9th Cir. 1992); In re United Energy Corp. Solar Power Modules Tax Shelter Invest. Sec. Litig., [1989 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶94,376 (C.D. Cal. 1989).
The district court must exercise "sound discretion" in approving a settlement. Torrisi, 8 F.3d at 1375; Ellis v. Naval Air Rework Facility, 87 F.R.D. 15, 18 (N.D. Cal. 1980), aff'd, 661 F.2d 939 (9th Cir. 1981). However, "where, as here, a proposed class settlement has been reached after meaningful discovery, after arm's length negotiation conducted by capable counsel, it is presumptively fair." M. Berenson Co. v. Faneuil Hall Marketplace, Inc., 671 F. Supp. 819, 822 (D. Mass. 1987). Therefore, in exercising its discretion, "the court's intrusion upon what is otherwise a private consensual agreement negotiated between the parties to a lawsuit must be limited to the extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or overreaching by or collusion between, the negotiating parties, and that the settlement, taken as a whole is fair, reasonable, and adequate to all concerned." Officers for Justice, 688 F.2d at 625. The Ninth Circuit defines the limits of the inquiry to be made by the court in the following manner:
Therefore, the settlement or fairness hearing is not to be turned into a trial or rehearsal for trial on the merits. Neither the trial court nor this court is to reach any ultimate conclusions on the contested issues of fact and law which underlie the merits of the dispute, for it is the very uncertainty of outcome in litigation and avoidance of wasteful and expensive litigation that induce consensual settlements. The proposed settlement is not to be judged against a hypothetical or speculative measure of what might have been achieved by the negotiators.
Id. (emphasis in original). As explained below and in the Kathrein Decl., application of these criteria shows that this settlement warrants the Court's approval.
Moreover, "[t]he recommendations of plaintiffs' counsel should be given a presumption of reasonableness." Boyd v. Bechtel Corp., 485 F. Supp. 610, 622 (N.D. Cal. 1979). The presumption of reasonableness in this action is fully warranted because the settlement is the product of arm's-length negotiations conducted by capable counsel who are well experienced in securities law litigation. M. Berenson Co., 671 F. Supp. at 822; Ellis, 87 F.R.D. at 18 ("the fact that experienced counsel involved in the case approved the settlement after hard-fought negotiations is entitled to considerable weight"); Manual for Complex Litigation, Third §30.42 (1995).(4) Here, it is the considered judgment of experienced counsel that this settlement is a fair, reasonable and adequate settlement of the litigation.
"'[T]he stage of the proceedings and the amount of discovery completed'" is one of the factors which courts consider in determining the fairness, reasonableness and adequacy of a settlement. In re Warner Communications Sec. Litig., 618 F. Supp. 735, 741 (S.D.N.Y. 1985) (citation omitted), aff'd, 798 F.2d 35 (2d Cir. 1986); Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir. 1975); see also Weinberger, 698 F.2d at 74; Ellis, 87 F.R.D. at 18; Boyd, 485 F. Supp. at 616-17.
Representative Plaintiffs' counsel conducted an extensive review and analysis of the information obtained through their investigation and the documents produced by non-parties. At the time the parties reached an agreement to settle, plaintiffs had sufficient information to assess the merits of their claims. Plaintiffs' counsel also consulted accounting and damage specialists to assist them in their analysis of the issues. As part of the settlement, defendants agreed to produce core documents and make Raster personnel available for interviews. Thus, the litigation had reached the stage where "the parties certainly have a clear view of the strengths and weaknesses of their cases." Warner Communications, 618 F. Supp. at 745; Ellis, 87 F.R.D. at 18; Boyd, 485 F. Supp. at 616-17. In this case, sufficient evidence was before the parties and their counsel to permit them to consider the strengths and weaknesses of their respective cases.
To determine whether the proposed settlement is fair, reasonable and adequate, the Court must balance against the continuing risks of litigation the benefits afforded to members of the Class and the immediacy and certainty of a substantial recovery. Girsh, 521 F.2d at 157; Boyd, 485 F. Supp. at 616-17; Warner Communications, 618 F. Supp. at 741. In the context of approving class action settlements, courts attempting to balance these factors have recognized "that stockholder litigation is notably difficult and notoriously uncertain." Lewis v. Newman, 59 F.R.D. 525, 528 (S.D.N.Y. 1973); see also Republic Nat'l Life Ins. Co. v. Beasley, 73 F.R.D. 658 (S.D.N.Y. 1977). A balance of these factors in this case supports approval of the settlement.
In order to prevail on the §10(b) claims at trial, plaintiffs would have the burden of establishing certain elements of liability. To establish liability plaintiffs would have to prove, inter alia, that the alleged misstatements were material, TSC Industries v. Northway, Inc., 426 U.S. 438 (1976), and made with scienter (actual knowledge or reckless disregard for the truth), Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976). Accordingly, in order to prevail in this litigation, plaintiffs would have to prove defendants participated in the public dissemination of misleading information, that the information was material to the investor in determining whether to invest in Raster stock, that the information materially affected the price of the stock, and that defendants withheld information either with actual intent to deceive, manipulate or defraud, or that defendants recklessly disregarded these facts and their consequences. See id.
In sum, plaintiffs have alleged that defendants concealed defects in the PiezoPrint 5000 product while issuing false and misleading positive statements touting it as a huge success that would substantially increase Raster's revenues and income. Although plaintiffs believe their claims have merit and that they could have prevailed, further litigation to establish liability in the face of defendants' denial of any wrongdoing posed significant risks. Moreover, while the evidence indicated that a variety of problems existed with regard to the PiezoPrint 5000, defendants would contest the seriousness of the problems and also claim that the effects of any problems did not become known to defendants until the end of the class period.
Throughout this litigation defendants asserted that plaintiffs would not be able to meet their burden of proof on liability issues. Defendants have denied the material allegations in the complaint. And in the absence of a settlement, defendants would likely continue to assert that plaintiffs' evidence does not establish any liability on the part of the defendants. Moreover, this action is subject to the provisions of the PSLRA. Therefore, surviving defendants' motion to dismiss or a subsequent motion for summary judgment would by no means be guaranteed, especially given the PSLRA's requirement that plaintiffs establish a strong inference that defendants acted knowingly or recklessly.
The risks of establishing liability posed by the conflicting testimony and evidence would be exacerbated by the following risks inherent in this type of litigation:
(a) The unpredictability of a lengthy and complex jury trial -- witnesses could suddenly become unavailable or jurors could react to the evidence in unforeseen ways;
(b) The risk that the jury would find that the misrepresentations were not material; and
(c) The risk that the jury would find that defendants reasonably believed in the appropriateness of their actions at the time and that plaintiffs failed to prove that defendants acted with scienter. Further, because discovery was far from being completed, plaintiffs also faced the risk that subsequent developments might undermine plaintiffs' ability to establish liability.
Even if plaintiffs were able to overcome the obstacles to establishing liability, counsel are mindful of the substantial risk in proving damages at trial. Plaintiffs believe that they would be able to establish that they suffered substantial damages as a result of defendants' conduct. However, plaintiffs also faced a real risk because there would likely be starkly contrasting testimony by each side's accounting and damage experts. Defendants' experts would likely contend that much or all of the loss experienced by class members was due to other market factors unrelated to any conduct of defendants, thereby limiting plaintiffs' potential recovery. See Warner Communications, 618 F. Supp. at 744-45 (approving settlement where "it is virtually impossible to predict with any certainty which testimony would be credited, and ultimately, which damages would be found to have been caused by actionable, rather than the myriad of nonactionable factors such as general market conditions"); see also Chatelain v. Prudential-Bache Sec., 805 F. Supp. 209, 214 (S.D.N.Y. 1992); Behrens v. Wometco Enterprises, Inc., 118 F.R.D. 534, 542 (S.D. Fla. 1988), aff'd, 899 F.2d 21 (11th Cir. 1990). Thus, even if plaintiffs prevailed in establishing liability, additional risks would remain in establishing the existence of damages.
The general measure of damages in §10(b) cases is the "out of pocket" measure. Randall v. Loftsgaarden, 478 U.S. 647, 662 (1986) (citing Blackie v. Barrack, 524 F.2d 891, 909 (9th Cir. 1975)); see also Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1436 (9th Cir. 1987). Under this measure, a defrauded buyer recovers the difference between the price paid for the security and the "fair value" of the security (i.e., value absent the fraud) as of the date of purchase. See Green v. Occidental Petroleum Corp., 541 F.2d 1335, 1344 (9th Cir. 1976); Sirota v. Solitron Devices, Inc., 673 F.2d 566, 577-78 (2d Cir. 1982); see generally Arnold S. Jacobs, The Measure of Damages in Rule 10b-5 Cases, 65 Geo. L.J. 1093, 1099-1102 (1977).
Because "fair value" is not synonymous with the market price of the security (the latter being inflated by the alleged fraud), expert testimony is necessary in order to fix the amount -- and indeed the existence -- of actual damages. See, e.g., Sirota, 673 F.2d at 576-78. Such an expert evaluation often is based not only on stock price history but on other, more elusive factors as well, including corporate asset value, cash flow, income and growth prospects for the future, industry and economic trends, the quality of management, the nature and amount of liabilities and many other variables. Defendants' damage experts would almost certainly reach different conclusions about true value than plaintiffs' experts. In the unavoidable "battle of experts," it is impossible to predict with any certainty which arguments would find favor with the jury.
While it is possible the aggregate class damages established at trial would exceed the amount of the proposed settlement, such result assumes that all significant liability and damage issues would be resolved in plaintiffs' favor. The jury may have found that defendants were responsible for misrepresentations but that the misrepresentations had little or no effect on the price of Raster stock during the class period. Therefore, the amount of damages plaintiffs would recover if successful at trial is uncertain at best.
In summary, although plaintiffs believe that their case is meritorious and that they would ultimately prevail in establishing liability and damages, their counsel's experience has taught them how the above-mentioned factors can make the outcome of a trial extremely uncertain. Moreover, even if plaintiffs were to prevail at trial, risks to the class remain. For example, in In re Apple Computer Sec. Litig., [1991 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶96,252 (N.D. Cal. 1991), the jury rendered a verdict for plaintiffs after an extended trial. Based upon the jury's findings, recoverable damages could have exceeded $100 million. However, weeks later, the court overturned the verdict, entering judgment n.o.v. for the individual defendants, and ordered a new trial with respect to the corporate defendant. In another case, the class won a jury verdict and a motion for j.n.o.v. was denied, but on appeal the judgment was reversed and the case dismissed. Backman v. Polaroid Corp., 910 F.2d 10 (1st Cir. 1990). See also West Virginia v. Chas. Pfizer & Co., 314 F. Supp. 710, 743-44 (S.D.N.Y. 1970) ("[i]t is known from past experience that no matter how confident one may be of the outcome of litigation, such confidence is often misplaced"), aff'd, 440 F.2d 1079 (2d Cir. 1971); Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979) (reversing $87 million judgment after trial); Trans World Airlines, Inc. v. Hughes, 312 F. Supp. 478 (S.D.N.Y. 1970), modified, 449 F.2d 51 (2d Cir. 1971), rev'd, 409 U.S. 363 (1973) (overturning $145 million judgment after years of appeals). Therefore, careful consideration of the above risks further supports approval of the settlement as fair, adequate and reasonable.
The immediacy and certainty of a recovery is a factor for the Court to balance in determining whether the proposed settlement is fair, adequate and reasonable. E.g., Girsh, 521 F.2d at 157. Courts consistently have held that "[t]he expense and possible duration of the litigation are major factors to be considered in evaluating the reasonableness of [a] settlement." Milstein, 600 F. Supp. at 267; Officers for Justice, 688 F.2d at 626; Boyd, 485 F. Supp. at 616-17; Bullock v. Administrator of Estate of Kircher, 84 F.R.D. 1, 10 (D.N.J. 1979). Therefore, the present settlement must also be balanced against the expense of achieving a more favorable result at trial. Young v. Katz, 447 F.2d 431, 433 (5th Cir. 1971).
Approval of the settlement will mean a prompt recovery for eligible class members. If not for this settlement, the case would have continued to be fiercely contested by all parties. Defendants have demonstrated a commitment to defend the case through trial and appeal, if necessary, and are represented by well-respected and capable counsel. A trial would occupy several attorneys on both sides for many weeks or months and would require substantial expert testimony on both sides. While Representative Plaintiffs' counsel believe they would ultimately prevail on the merits, the incursion of additional and very substantial expense due to trial would severely deplete any eventual recovery. Moreover, a judgment favorable to plaintiffs would, in light of the highly contested nature of virtually every aspect of the case, unquestionably be the subject of post-trial motions and appeals, which could prolong the case for several more years. See, e.g., Warner Communications, 618 F. Supp. at 745 (delay from appeals is a factor to be considered). Therefore, delay, not just at the trial stage, but through post-trial motions and the appellate process as well, could force members of the class to wait many years for any recovery, further reducing its value. Accordingly, early settlement of this litigation before significant additional resources have been expended will benefit the class. As a result of this settlement, class members will be compensated now rather than risk a wholly speculative payment of a potentially larger amount years from now.
It is important to balance the settlement against the numerous uncertainties that would exist in continuing the litigation. As the Ninth Circuit has made clear, the very essence of a settlement agreement is compromise, "a yielding of absolutes and an abandoning of highest hopes." Officers for Justice, 688 F.2d at 624.
"Naturally, the agreement reached normally embodies a compromise; in exchange for the saving of cost and elimination of risk, the parties each give up something they might have won had they proceeded with litigation . . . ."
Id. (citation omitted); Ellis, 87 F.R.D. at 19 (as a quid pro quo for not having to undergo the uncertainties and expenses of litigation, the plaintiffs must be willing to moderate the measure of their demands). Accordingly, the fact that the class potentially could have achieved a greater recovery after trial does not preclude the Court from finding that the settlement is within a "range of reasonableness" that is appropriate for approval. E.g., Warner Communications, 618 F. Supp. at 745.
There is a serious question regarding Raster's ability to pay a sizable judgment. Following Raster's announcement of the third and fourth quarter 1997 restatements, bankruptcy appeared to be a real possibility. Bankruptcy has been averted by a merger agreement that plaintiffs' counsel believe is contingent upon approval of this settlement. In plaintiffs' view, defendants' inability to withstand a substantial judgment is an important factor mitigating in favor of approval of the settlement.
In addition, the amount of available insurance coverage would have been a major constraint on the amount of any recovery after trial and hence also on any settlement. The insurance coverage was a wasting asset used to pay defense costs. If this case went to trial, defense costs would have substantially, if not completely, depleted available insurance proceeds. Plaintiffs' counsel recognized the significant uncertainty of collecting on any judgment after several more years of litigation due to Raster's poor financial condition and its questionable ability to fund any judgment absent insurance coverage.
Experienced counsel, negotiating at arm's length, have weighed these factors and endorse the settlement. As courts have stated, the view of the attorneys actively conducting the litigation, while not conclusive, "is entitled to significant weight." Fisher Bros. v. Cambridge-Lee Industries, Inc., 630 F. Supp. 482, 488 (E.D. Pa. 1985); Ellis, 87 F.R.D. at 18 ("the fact that experienced counsel involved in the case approved the settlement after hard-fought negotiations is entitled to considerable weight"). In approving a settlement, courts often focus on the "negotiating process by which the settlement was reached." Weinberger, 698 F.2d at 74, cited in Warner Communications, 618 F. Supp. at 741.
This action has been litigated by experienced and competent counsel on both sides of the case. The law firms representing plaintiffs are well known for their experience and success in class action securities litigation. Defense counsel are also from a law firm with an abundance of experience in this type of litigation. That such qualified and well-informed counsel, operating at arm's length, all endorse the settlement as being fair, reasonable and adequate to the class heavily favors this Court's approval of the settlement.
Notices of the settlement were sent to approximately 2,500 members of the class. The time period for objecting to the settlement expired on February 1, 1999. There have been no objections to the settlement. The absence of any objections by class members is an important factor in evaluating the fairness, reasonableness and adequacy of the settlement and supports approval of the settlement. Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974); Warner Communications, 618 F. Supp. at 746; Milstein, 600 F. Supp. at 267. In fact, the lack of objections may well evidence the fairness of the settlement. In re PaineWebber Ltd. Pshps. Litig., 171 F.R.D. 104, 126 (S.D.N.Y.), aff'd, 117 F.3d 721 (2d Cir. 1997).
This settlement is a good result, given the presence of skilled counsel for all parties, the complexity and expense if this litigation were to continue and eventually go to trial, the risks attendant to further litigation, the significant present benefit of the settlement to all members of the class and the arm's-length negotiations themselves. Moreover, the judicial system and the public benefit from the prompt resolution of potentially complex litigation. Therefore, plaintiffs respectfully request that this Court approve the settlement of this litigation as fair, reasonable and adequate.
DATED: February 11, 1999
Respectfully submitted,
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH
JOY ANN BULL
______________________________
JOY ANN BULL
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
REED R. KATHREIN
JEFFREY W. LAWRENCE
DAVID R. STICKNEY
222 Kearny Street, 10th Floor
San Francisco, CA 94108
Telephone: 415/288-4545
Lead Counsel for Plaintiffs
RASTER-G.SET\SH03623.BRF
DECLARATION OF SERVICE BY MAIL
PURSUANT TO NORTHERN DISTRICT LOCAL RULE 23-2(c)(2)
I, the undersigned, declare:
1. That declarant is and was, at all times herein mentioned, a citizen of the United States and a resident of the County of San Diego, over the age of 18 years, and not a party to or interested in the within action; that declarant's business address is 600 West Broadway, Suite 1800, San Diego, California 92101.
2. That on February 11, 1999, declarant served the NOTICE OF MOTION AND MOTION AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR FINAL APPROVAL OF SETTLEMENT by depositing a true copy thereof in a United States mailbox at San Diego, California in a sealed envelope with postage thereon fully prepaid and addressed to the parties listed on the attached Service List and that this document was forwarded to the following designated Internet site at:
http://securities.milberg.com
3. That there is a regular communication by mail between the place of mailing and the places so addressed.
I declare under penalty of perjury that the foregoing is true and correct. Executed this 11th day of February, 1999, at San Diego, California.
______________________________
SUSAN L. HAMILTON
1. In reviewing this settlement under Rule 23, the Court is not required to substitute its business judgment for that of these counsel, Steinberg v. Carey, 470 F. Supp. 471 (S.D.N.Y. 1979); the settlement should be approved if it is within a "range of reasonableness," Newman v. Stein, 464 F.2d 689, 693 (2d Cir. 1972).
2. The law always favors the compromise of disputed claims, Williams v. First Nat'l Bank, 216 U.S. 582, 595 (1910); In re Pacific Enterprises Sec. Litig., 47 F.3d 373, 378 (9th Cir. 1995); MWS Wire Industries, Inc. v. California Fine Wire Co., 797 F.2d 799, 802 (9th Cir. 1986), including those asserted in stockholder class actions, Weinberger v. Kendrick, 698 F.2d 61, 73 (2d Cir. 1982).
3. Pacific Enterprises, 47 F.3d at 377; Officers for Justice, 688 F.2d at 625; Marshall v. Holiday Magic, Inc., 550 F.2d 1173, 1178 (9th Cir. 1977).
4. Accord Malchman v. Davis, 761 F.2d 893, 903 (2d Cir. 1985); Milstein v. Huck, 600 F. Supp. 254, 262 (E.D.N.Y. 1984).