According to the Docket dated May 16, 2000, the Court dismisses the lawsuit in its entirety, with prejudice and without costs, except as otherwise provided in the stipulation. The Court authorized payments from the Gross Settlement Fund of Class Counsel in the amounts of $300,000.00 for attorneys' fees and $86,987.86 for costs and expenses, plus interest and $31,155.76 for all costs associated with notice and settlement administration through August 30, 1999 terminating case.
Prior to the Court's dismissal, Notice was sent to the class and there was no opposition to the proposed settlement. For the reasons stated in open court and all of the findings in the proposed order of final judgment of dismissal, the Court recommends to Judge Andersen that he enter the order of final judgment of dismissal in the form proposed by the parties. All matters relating to the referral of this action having been resolve, the case is returned to the assigned judge.
The Court overruled the objections and adopted the magistrate's report and recommendation. Thus, auditors' motion to dismiss the complaint based on the one-year statute of limitations was denied. The motion to dismiss based on the three-year statute of repose was granted in part and denied in part.
The Court found that the three-year repose period for Section 10(b) and Rule 10b-5 claims began to run when auditors made an affirmative misrepresentation. In consequence, claims based on purchases made in reliance on a Form 10-K issued more than three years before suit was filed were barred.
More specifically, purchasers filed a class action against auditors following other purchasers filing of individual actions. The court held that although pleadings filed in related actions and disclosures in SEC Form 10-K filings might have created suspicious circumstances as to auditors' knowledge and activities, these documents did not conclusively provide inquiry notice of auditors' supposed recklessness or intentional misconduct. It was an equally reasonable inference that these documents merely put purchasers on notice that auditors acted only in a negligent manner. The court found that purchasers had inquiry notice of the instant claim against auditors only when they received auditors' work papers, less than one year before they filed this action. The court further held that the repose period was triggered by the alleged misrepresentation rather than by an individual's purchase of a security.
The original Complaint alleges, among other things, that Arthur Andersen, LLP, the outside auditor for Discovery Zone during the Class Period, violated generally accepted accounting principles ("GAAP") and generally accepted auditing standards ("GAAS") in issuing an unqualified or "clean" audit opinion with respect to Discovery Zone's 1993 and 1994 year-end financial statements.