In Re Facebook, Inc., IPO Securities and Derivative Litigation

• Court: Court of Appeals for the Second Circuit
• Decided: December 27, 2016
• Docket: 15-3983(L)
• Status: Unpublished

Opinion

15-3983(L) In re Facebook, Inc., IPO Securities and Derivative Litigation

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 ‘SUMMARY ORDER’). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

1 At a stated term of the United States Court of Appeals for 2 the Second Circuit, held at the Thurgood Marshall United States 3 Courthouse, 40 Foley Square, in the City of New York, on the 4 27th day of December, two thousand sixteen. 5 6 PRESENT: DENNIS JACOBS, 7 JOSÉ A. CABRANES, 8 BARRINGTON D. PARKER, JR., 9 Circuit Judges. 10 11 - - - - - - - - - - - - - - - - - - - -X 12 In re Facebook, Inc., IPO Securities and 13 Derivative Litigation 14 15 Facebook, Inc., Mark Zuckerberg, Sheryl 16 K. Sandberg, David Ebersman, David M. 17 Spillane, Marc L. Andreessen, Erskine 18 B. Bowles, James W. Breyer, Donald E. 19 Graham, Reed Hastings, Peter A. Thiel, 20 Morgan Stanley & Co. LLC, J.P. Morgan 21 Securities LLC, Goldman, Sachs & Co., 22 Merrill Lynch, Pierce, Fenner & Smith 23 Incorporated, Barclays Capital Inc., 24 Allen & Company LLC, Citigroup Global 25 Markets Inc., Credit Suisse Securities 26 (USA) LLC, Deutsche Bank Securities 27 Incorporated, RBC Capital Markets LLC, 28 Wells Fargo Securities, LLC, Blaylock 29 Robert Van LLC, BMO Capital Markets 30 Corp., C.L. King & Associates, Inc.,

1 1 Cabrera Capital Markets, LLC, Castleoak 2 Securities, L.P., Cowen And Company, 3 LLC, E*Trade Securities LLC, Itau Bba 4 USA Securities, Inc., Lazard Capital 5 Markets LLC, Lebenthal & Co., LLC, Loop 6 Capital Markets LLC, M.R. Beal & 7 Company, Macquarie Capital (USA) Inc., 8 Muriel Siebert & Co., Inc., Oppenheimer 9 & Co. Inc., Pacific Crest Securities 10 LLC, Piper Jaffray & Co., Raymond James 11 & Associates, Inc., Samuel A. Ramirez 12 & Company, Inc., Stifel, Nicolaus & 13 Company, Incorporated, The Williams 14 Capital Group, L.P., William Blair & 15 Company, LLC, 16 Intervenors-Appellants, 17 18 -v.- 15-3983(L) 19 15-3986(con) 20 15-3987(con) 21 15-3990(con) 22 North Carolina Department of State 23 Treasurer, Arkansas Teacher Retirement 24 System, Fresno County Employees’ 25 Retirement Association, Sharon Morley, 26 Jose G. Galvan, Mary Jane Lule Galvan, 27 Eric Rand, Paul Melton, Lynn Melton, 28 Intervenors-Appellees, 29 30 NASDAQ OMX Group, Inc., The NASDAQ Stock 31 Market, LLC, Robert Greifeld, Anna M. 32 Ewing, 33 Defendants-Appellees, 34 35 T3 Trading Group, LLC, Avatar 36 Securities LLC, Philip Goldberg, Steve 37 Jarvis, Atish Gandhi, Colin Suzman, 38 Meredith Bailey, Faisal Sarni, 39 Plaintiffs-Appellees.* 40 41 - - - - - - - - - - - - - - - - - - - -X

* The Clerk of Court is respectfully directed to amend the official caption to conform with the above. 2 1 2 FOR INTERVENORS-APPELLANTS: RICHARD D. BERNSTEIN, Willkie Farr 3 & Gallagher LLP, Washington, DC, 4 5 Andrew Brian Clubock, Susan E. 6 Engel, Kirkland & Ellis LLP, New 7 York, NY and Washington, DC, 8 9 James P. Rouhandeh, Charles 10 Duggan, Andrew Ditchfield, Davis 11 Polk & Wardwell LLP, New York, NY. 12 13 14 FOR INTERVENORS-APPELLEES: JOHN J. RIZIO-HAMILTON, Salvatore 15 J. Graziano, Bernstein Litowitz 16 Berger & Grossmann LLP, New York, 17 NY, 18 19 Thomas A. Dubbs, James W. Johnson, 20 Thomas G. Hoffman Jr., Labaton 21 Sucharow LLP, New York, NY, 22 23 Steven E. Fineman, Lieff Cabraser 24 Heimann & Bernstein LLP, New York, 25 NY, 26 27 Frank R. Schirripa, Hach Rose 28 Schirripa & Cheverie LLP, New York, 29 NY. 30 31 FOR DEFENDANTS-APPELLEES: PAUL LANTIERI III, William A. 32 Slaughter, Stephen J. Kastenberg, 33 Ballard Spahr LLP, Philadelphia, 34 PA. 35 36 FOR PLAINTIFFS-APPELLEES: Vincent R. Cappucci, Jordan 37 Abraham Cortez, Entwistle & 38 Cappucci LLP, New York, NY, 39 40 Douglas G. Thompson, Michael G. 41 Mclellan, Finkelstein Thompson 42 LLP, Washington, DC, 43

3 1 Christopher Lovell, Victor E. 2 Stewart, Lovell Stewart Halebian 3 Jacobson LLP, New York, NY. 4 5 6 Appeal from a judgment of the United States District Court 7 for the Southern District of New York (Sweet, J.). 8 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED AND 9 DECREED that the judgment of the district court be AFFIRMED. 10 11 Facebook, Inc., et al. appeal as intervenors from the final 12 judgment of the United States District Court (Sweet, J.) 13 approving a class action settlement in this securities case 14 stemming from the initial public offering (“IPO”) of Facebook 15 stock. We assume the parties’ familiarity with the underlying 16 facts, the procedural history, and the issues presented for 17 review. 18 The appellants intervene to vindicate their interests as 19 defendants in separate but related litigation. The Judicial 20 Panel on Multidistrict Litigation transferred two groups of 21 actions relating to the Facebook IPO to the same judge in the 22 Southern District of New York, who consolidated them into two 23 class actions: a “Nasdaq action” (pleading claims against 24 various Nasdaq defendants arising from investor losses allegedly 25 caused by technical malfunctions on the exchange on the day of 26 the IPO) and a “Facebook action” (pleading claims against various 27 Facebook and underwriter defendants arising from investor losses 28 allegedly caused by misrepresentations and omissions in the IPO 29 prospectus). This appeal arises from the settlement of the 30 Nasdaq action. The parties in this action are satisfied with 31 the settlement. The appellants are the defendants in the 32 Facebook action, which is ongoing. 33 The appellants do not challenge the terms of the settlement 34 vis-à-vis the parties in the settled case. Though they objected 35 to it in the district court and now at least formally challenge 36 its approval, they do not object to its substance--that is, no 37 one disputes the settlement’s fairness, nor is there a genuine 38 dispute about its form. The dispute on appeal concerns the 39 judgment credit provision, which, consistent with the Private 40 Securities Litigation Reform Act (“PSLRA”) and the law of this 41 Circuit, provides that any judgment against the Facebook 42 defendants arising from the same matters alleged in the Nasdaq 43 complaint will be reduced by the greater of (a) the amount that 44 corresponds to the percentage of responsibility of the Nasdaq

4 1 defendants for the damages awarded in the Facebook action [the 2 “proportional responsibility” deduction], or (b) the amount 3 paid by the Nasdaq defendants to the common plaintiffs for common 4 damages [the “pro-tanto” deduction] (or (c) a third quantity 5 not relevant here). See generally 15 U.S.C. § 78u-4(f)(7)(B). 6 Appellants object to the inclusion of the phrase “for common 7 damages,” but they do not argue that they are entitled to a 8 judgment credit for damages that are not common; nor does there 9 appear to be any serious contention that the wording of the 10 settlement fails to conform to the law. Rather, appellants 11 object to any implication that the damages alleged in the two 12 actions may not be common, and that the issue is left to be 13 litigated and decided in the Facebook action. They argue that 14 all of the damages to the common plaintiffs are common, that 15 appellants should therefore receive judgment credit in the 16 Facebook action for the full amount of the Nasdaq settlement 17 paid to common plaintiffs, and that the district court was 18 obligated to decide that issue in connection with the Nasdaq 19 settlement. 20 Appellants’ objection, therefore, is not truly an objection 21 to the terms of settlement at all, but is to the district court’s 22 decision to defer the question of common damages to be decided 23 in the Facebook action. They argue that the district court 24 lacked the authority to enter final judgment without first 25 deciding whether the damages in the two actions are indeed common 26 damages, because the PSLRA requires the district court to resolve 27 such issues and because the failure to resolve them violates 28 principles of finality. We disagree. 29 The PSLRA provides that nonsettling defendants are entitled 30 to a judgment credit for a settlement by another defendant. See 31 15 U.S.C. § 78u-4(f)(7)(B). This in effect codifies the 32 common-law “one satisfaction rule, which provides that a 33 plaintiff is entitled to only one satisfaction for each 34 injury.” Singer v. Olympia Brewing Co., 878 F.2d 596, 600 (2d 35 Cir. 1989). Under this rule, “a nonsettling defendant is 36 entitled to a credit of the settlement amount against any 37 judgment obtained by the plaintiff against the nonsettling 38 defendant as long as both the settlement and judgment represent 39 common damages.” Id. 40 Class settlements of federal securities claims have 41 frequently been approved when they have provided a judgment 42 reduction formula that gives nonsettling defendants credit for 43 the greater of (1) “the settlement amount for common damages,” 44 or (2) “the ‘proportionate share’ of the settling defendants’

5 1 fault as proven at trial.” Gerber v. MTC Elec. Techs. Co., 2 Ltd., 329 F.3d 297, 302-3 (2d Cir. 2003). This “capped 3 proportionate share” formula complies with the one satisfaction 4 rule because it “ensures that a judgment credit is at least the 5 amount of the settlement for common damages.” Id. at 303. The 6 settlement under review calls for application of that formula. 7 Appellants cite Denney v. Deutsche Bank AG, 443 F.3d 253 8 (2d Cir. 2006), for a more expansive view of what the PSLRA 9 requires, but they misconstrue the case. Denney observed that, 10 “[o]rdinarily, the potential harshness of a bar order [depriving 11 non-settling defendants of contribution claims against settling 12 defendants] is mitigated by a judgment credit provision that 13 protects a nonsettling party from paying damages exceeding its 14 own liability”; but that the judgment credit provision under 15 review in that case 16 simply provide[d] that nonsettling parties shall 17 be “sufficiently” compensated, without 18 specifying how such compensation shall be 19 calculated. The use of the word 20 “sufficiently”--if read to mean “fully,” as the 21 district court urges--might provide nonsettling 22 parties with some peace of mind. But they are 23 unfairly prejudiced by the failure to specify how 24 that full and sufficient compensation will be 25 calculated. 26 27 Id. at 274. Denney emphasized the utility of knowing in advance 28 of trial whether a proportionate, pro rata, or pro tanto 29 methodology will apply to any judgment credit and accordingly 30 remanded “for modification of the judgment credit and/or bar 31 order provisions.” Id. at 276. Denney did not, however, 32 require deciding whether or to what extent damages are common 33 between two actions before approving settlement in one of them. 34 It required only that a settlement with a bar order specify the 35 methodology of any eventual judgment credit. The settlement 36 under review does so specify the methodology. 37 Appellants’ argument that the settlement approval violates 38 principles of finality is no more persuasive. Indeed, the 39 Nasdaq action is done, and the judgment is final. All parties 40 in that action are satisfied, and the judgment can be executed. 41 “[F]inality implies that, after the entry of judgment, the court 42 will concern itself with nothing other than the mechanics of 43 execution.” Int’l Controls Corp. v. Vesco, 535 F.2d 742, 747 44 (2d Cir. 1976). With respect to the Nasdaq action, that finality

6 1 is achieved. The open question of whether and to what extent 2 damages are common with the Facebook action will have no effect 3 whatsoever on the Nasdaq action, and can be litigated just as 4 well in the Facebook action. 5 Accordingly, and finding no merit in Appellants’ other 6 arguments, we hereby AFFIRM the judgment of the district court.

7 FOR THE COURT: 8 CATHERINE O’HAGAN WOLFE, CLERK