Class action complaints have been filed in the U.S. District Courts for the Eastern District of Virginia Southern District of New York. The original lawsuit alleges that Mills violated federal securities laws by issuing false or misleading public statements. Specifically, the complaint alleges that Mills and various of its officers, throughout the class period, overstated the Company's net income and funds from operations in violation of Generally Accepted the Exchange Accounting Principles ("GAAP"), and misrepresented the adequacy and quality of its internal controls over financial reporting.
The complaint alleges that on or around October 31, 2005, Mills announced that its third quarter results would be delayed because the company needed additional time to review its accounting, and further announced the Company expected results to be lower than initially anticipated. On January 6, 2006, Mills announced that that: (1) it needed to restate its financial results for fiscal year 2000 through the third quarter of 2005; (2) that it had internal control weaknesses and deficiencies in regards to its accounting practices; (3) that it would write off ten predevelopment business projects, constituting a $71 million charge; (4) that 17 executives and/or officers were either terminated or retired; (5) that a $4.1 million dollar loan would not be repaid and that Mills had facts available in 2000 sufficient to make this determination, but that the $4.1 million loan had been improperly reported in all of Mills' financials from 2000 through the third quarter of 2005; (6) that Mills was in default of certain provisions of its line of credit and other project-related loans; (7) that Mills had entered into a new $150 million credit line to provide short term liquidity; and (8) disclosed that investors should no longer rely on its financial statements for the period from fiscal year 2000 through the third quarter of 2005. Thereafter, on January 12, 2006, Mills announced that the Securities and Exchange Commission (the "SEC") had launched an informal investigation into its earlier announcement that a restatement of its financials for nearly five years would be required.
The complaint further alleges that in response to the October 31, 2005 announcement, the price of Mills common stock dropped from a closing price of $53.50 on October 31, 2005 to close at $45.68 per share on November 1, 2005 -- a dramatic drop of nearly 15%. As a result of the subsequent January 6, 2006 announcement, the price of Mills common stock further dropped from a close of $42.23 on January 6, 2006 to a close of $41.05 on January 10, 2006, constituting an additional decline of 3%.
On January 23, 2006, the plaintiff in the first filed complaint dismissed her complaint. The case is continuing in another class action complaint, Berlin v. The Mills Corporation et al., case number 06-CV-00077. On March 31, 2006, the Court entered the Order granting the motion to consolidate the actions, establishing 06-CV-00077 as the Master Docket. On June 1, 2006, the Court entered the Memorandum Order granting the State Systems' Motion for Appointment as Lead Plaintiff and granting the State Systems' Motion for Appointment of Barrack, Rodos & Bacine and Bernstein, Litowitz, Berger & Grossman LLP as Lead Counsel. On July 27, 2007, the lead plaintiffs filed a Consolidated Class Action Complaint. Numerous motions to dismiss the Consolidated Class Action Complaint were filed on September 13 and 14, 2007. On December 5, 2007, U.S. District Judge Liam O'Grady issued the Order granting the defendants’ motions to dismiss without prejudice. The plaintiffs were allowed to file an amended complaint, and on January 18, 2008, the plaintiffs filed a Consolidated Amended Class Action Complaint. The defendants responded by filing numerous motions to dismiss on February 22 and 25, 2008. On April 28, 2008, U.S. District Judge Liam O'Grady issued the Order denying the defendants’ motions to dismiss.
During discovery, the lead plaintiffs filed a motion for class certification dated August 15, 2008. On January 15, 2009, the lead plaintiffs filed a motion for preliminary approval of the settlement, motion for preliminary certification of the settlement class and, motion for approval of notice of the settlement class. The pending settlement is with the Mills Defendants. On March 4, 2009, District Judge Liam O'Grady preliminarily approved the settlement and certified the action with the Mills Defendants. The settlement was scheduled to be held on June 18, 2009. It was further ordered that the Court will hold a jury trial for the remaining parties in this case on November 2, 2009.
On February 6, 2009, the Court heard argument on Lead Plaintiffs' Motion to Amend, as well as the KanAm Defendants' Stay Motion. Thereafter, on February 9, 2009, the Court entered an order granting the Motion to Amend and denying the Stay Motion. On February 27, 2009, the Court heard argument on the KanAm Defendants' motion to dismiss the Second Amended Complaint, and stated that the Court would issue an order denying the KanAm Defendants' motion. Thereafter, on March 3, 2009, the Court entered an order denying the KanAm Defendants' motion to dismiss the
Second Amended Complaint. On March 13, 2009, the KanAm Defendants filed their Answer to Lead Plaintiffs' Second Amended Complaint.
On March 31, 2009, the Court granted class certification for the following subclasses: (1) As against Defendant Ernst & Young, all persons who purchased or otherwise acquired Mills common and preferred stock, during the period from March 28, 2002 through August 10, 2006, and who were damaged thereby; (2) As against the KanAm Defendants, all persons who purchased or otherwise acquired Mills common and preferred stock, during the period from February 27, 2001 through August 10,2006, and who were damaged thereby. On June 8, 2009, the Court entered the Order that the Final Settlement Hearing scheduled for Thursday, June 18, 2009, was premature and was removed from the docket.
On June 12, 2009, a motion for an Order Preliminarily Approving Settlements with Ernst & Young LLP and the KanAm Defendants was filed. On June 22, 2009, District Judge Liam O'Grady signed the Order Preliminary Approving E&Y and KanAm Settlements. A Final Settlement Hearing is set for October 8, 2009. The settlement with E&Y is in the amount of $29.75 million in cash, and the settlement with KanAm Defendants is in the amount of $8 million in cash. The pending settlement with Mills Defendants is in the amount of $165 million in cash plus interest. The total settlement does not include the remaining defendants, the Individual Defendants or the Underwriter Defendants.
On September 17, 2009, the date of the Settlement Fairness Hearing for the E&Y and KanAm Settlements was changed to November 19, 2009. On December 23 and 24, 2009, District Judge Liam O'Grady signed the Judgment and Order approving the settlements with the Mills Defendants, Defendant Ernst & Young LLP and the KanAm Defendants. Judge O’Grady also approved the plan of allocation and awarded Lead Counsel attorneys' fees in the amount of 18 % of the $202.75 million Total Settlement Amount and $3,094,764.86 in reimbursement of litigation expenses.
On January 21, 2010, a defendant filed a Notice of Appeal regarding the settlement. On February 2, 2010, an objector filed another Notice of Appeal regarding the award of attorneys' fees and expenses. In April 2010, the parties agreed to dismissal of the appeal in the Fourth Circuit Court of Appeals.
On December 15, 2010 the Court issued an order approving a distribution plan for the Total Net Settlement Fund and for reimbursement of additional expenses incurred in the prosecution of the Action that were not previously applied for.