In Re Facebook, Inc., IPO SEC. & Derivative Litig.

Second Circuit

In Re Facebook, Inc., IPO SEC. & Derivative Litig.

CourtCourt of Appeals for the Second Circuit

DecidedSeptember 23, 2020

Docket18-3845

StatusUnpublished

This text of In Re Facebook, Inc., IPO SEC. & Derivative Litig. (In Re Facebook, Inc., IPO SEC. & Derivative Litig.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

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In Re Facebook, Inc., IPO SEC. & Derivative Litig., (2d Cir. 2020).

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Opinion

18-3845 In re Facebook, Inc., IPO Sec. & Derivative Litig.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION ASUMMARY ORDER@). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 23rd day of September, two thousand twenty.

PRESENT: DENNIS JACOBS, GERARD E. LYNCH, RICHARD J. SULLIVAN, Circuit Judges. _____________________________________

In re: Facebook, Inc., IPO Class Action Settlement*

_____________________________________

FOR PLAINTIFFS-APPELLEES: JOHN JAMES RIZIO- HAMILTON (Salvatore J. Graziano, on the brief), Bernstein Litowitz Berger & Grossmann LLP, New York, NY; Thomas A. Dubbs, James W. Johnson, Thomas G. Hoffman, Jr., Labaton Sucharow LLP, New York, NY; Frank R. Schirripa, Hach Rose Schirripa & Cheverie LLP, New York, NY; Nicholas Diamand, Lieff,

* For the purposes of this summary order, the above caption has been shortened. The full caption is attached as Addendum A. Cabraser, Heimann & Bernstein, LLP, New York, NY.

FOR DEFENDANTS-APPELLEES: CHARLES S. DUGGAN (James P. Rouhandeh, Andrew Ditchfield, on the brief), Davis Polk & Wardwell LLP, New York, NY; Andrew B. Clubok, Susan E. Engel, Samir Deger- Sen, Latham & Watkins LLP, Washington, DC.

FOR OBJECTOR-APPELLANT: James J. Hayes, pro se, Annandale, VA.

Appeal from a judgment of the United States District Court for the Southern District of

New York (Sweet, J.).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the judgment of the district court is AFFIRMED.

Objector-Appellant James J. Hayes, proceeding pro se, appeals the district court’s decision

approving the settlement of a multi-district securities class action. Several institutional and

individual plaintiffs, on behalf of similarly situated investors, sued Facebook, Inc., several of its

directors and officers, and the underwriters of Facebook’s 2012 initial public offering (“IPO”),

claiming that they misled investors about Facebook’s revenue prior to the IPO in violation of the

Securities Act of 1933 (the “Securities Act”). The district court appointed certain institutional

investors as Lead Plaintiffs pursuant to the Private Securities Litigation Reform Act, 15 U.S.C.

§ 77z-1(a)(3)(B). The district court later certified two subclasses: an institutional investor

2 subclass and an individual retail investor subclass, and appointed certain individual plaintiffs as

Class Representatives of the retail investor subclass. After years of litigation, the parties settled

the action for $35 million. In August and September 2018, Hayes filed pro se objections to the

settlement, primarily arguing that the Lead Plaintiffs erred in failing to raise fraud claims under

the Securities Exchange Act of 1934 (the “Exchange Act”) against one of the underwriter

defendants, Morgan Stanley & Co. LLC. Hayes had previously contacted the Lead Plaintiffs and

Class Counsel, in 2015, protesting their failure to raise Exchange Act claims in the action; counsel

responded that they had declined to bring such claims for strategic reasons. The district court

rejected Hayes’s objections and approved the settlement in November 2018. We assume the

parties’ familiarity with the underlying facts, the procedural history of the case, and the issues on

appeal.

A class action settlement must be “fair, reasonable, and adequate.” Fed. R. Civ. P.

23(e)(2). We review a district court’s “determination that a settlement in a class action lawsuit is

fair, reasonable, and adequate” for abuse of discretion. McReynolds v. Richards-Cantave, 588

F.3d 790, 800 (2d Cir. 2009) (internal quotation marks omitted). In determining the procedural

fairness of a settlement, a court considers whether “the settlement resulted from arm’s-length

negotiations,” and whether class counsel “possessed the experience and ability, and ha[d] engaged

in the discovery, necessary to effective representation of the class’s interests.” D’Amato v.

Deutsche Bank, 236 F.3d 78, 85 (2d Cir. 2001) (internal quotation marks omitted). A district

court must also consider a host of other factors to assess the settlement’s substantive fairness. See

McReynolds, 588 F.3d at 804.

3 Here, the district court considered all the relevant factors in its thorough November 26,

2018 opinion approving the settlement. On appeal, Hayes does not challenge the court’s holding

that the settlement was procedurally and substantively fair. Instead, he primarily reiterates his

argument that the Lead Plaintiffs and Class Counsel should have raised fraud claims against

Morgan Stanley pursuant to the Exchange Act. But, as the district court correctly held, Lead

Plaintiffs and Class Counsel acted well within their discretion in choosing not to raise such claims.

See Maywalt v. Parker & Parsley Petroleum Co., 67 F.3d 1072, 1080 (2d Cir. 1995) (holding that

the district court did not abuse its discretion in rejecting objector’s “mere proffer of the prospect

of a claim” that the lead plaintiffs had not raised); cf. Hevesi v. Citigroup Inc., 366 F.3d 70, 82

n.13 (2d Cir. 2004) (noting that lead plaintiffs in securities class actions “exercise control over the

litigation as a whole”). Further, Hayes knew since at least October 2015 that Lead Plaintiffs were

not raising Exchange Act claims, and he could have brought an individual action raising such a

claim if he so wished.

Hayes also argues that there was a conflict of interest between the Lead Plaintiffs and the

retail investor subclass because only the retail investor subclass could raise his proposed Exchange

Act claims. As an initial matter, Hayes failed to timely raise this argument in district court, raising

it for the first time in a letter filed after the settlement hearing and over a month after objections

were due. Further, the Class Representatives included class members from both the institutional

investor subclass and the individual retail subclass. In any event, our Court has previously held

that the presence of potential claims under both Exchange Act and Securities Act claims in the

same action does not create a “fundamental conflict.” See In re Flag Telecom Holdings, Ltd. Sec.

Litig., 574 F.3d 29, 35 (2d Cir. 2009); see also Hevesi, 366 F.3d at 82, 82 n.13 (holding that district

4 courts are not required to choose lead plaintiffs that have standing to sue “on every available cause

of action” because requiring “a different lead plaintiff [to] be appointed to bring every single

available claim would contravene the main purpose of having a lead plaintiff—namely, to

empower one or several investors with a major stake in the litigation to exercise control over the

litigation as a whole”).

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