1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 TODD SCHUENEMAN et al., Case No.: 3:10-CV-01959-CAB-(BLM)
12 Plaintiffs, AMENDED FINAL APPROVAL OF 13 v. CLASS SETTLEMENT AND AWARDS OF ATTORNEYS’ FEES, 14 ARENA PHARMACEUTICALS, INC. et COSTS AND EXPENSES al., 15 [Doc. No. 158, 159] Defendants. 16
17 This matter is before the Court on Lead Plaintiff’s unopposed motion for final 18 approval of class action settlement and Lead Counsel’s motion for an award of attorneys’ 19 fees, costs and expenses. [Doc. Nos. 158, 159.] The Court held a hearing on the motions 20 on April 12, 2018. As discussed below, the motion for final approval is granted, and the 21 motion for attorneys’ fees, costs and expenses is granted in part. 22 I. Background 23 This putative class action lawsuit began on September 20, 2010,1 when a complaint 24 was filed alleging various violations of the Securities Exchange Act of 1934 (“Exchange 25 26
27 1 This is the lead case of a consolidated class action that includes Case Nos. 10cv1961, 10cv1977, 28 1 Act”) and the Securities Act of 1933 (the “Securities Act”). On November 1, 2011, Lead 2 Plaintiff filed a Consolidated Amended Class Action Complaint for violations of the 3 federal securities laws that was subsequently amended on May 13, 2013. [Doc. Nos. 43, 4 59.] 5 On November 7, 2017, after over seven years of pending litigation, including an 6 appeal to the Ninth Circuit, the parties notified the Court that they had reached a settlement. 7 [Doc. Nos. 152, 153.] 8 The Stipulation and Agreement of Settlement (“Settlement”) provides for settlement 9 and full release of all claims against Defendants2 for securities fraud violations. It 10 authorizes a recovery of $24,000,000, consisting of $12,025,000 in cash and Arena 11 common stock to be issued with a value of $11,975,000 (“Settlement Shares”)3. [Doc. No. 12 154 at ¶ 1.24.] The Settlement defines the class as “all Persons who purchased Arena 13 common stock between March 17, 2008 and January 27, 2011, inclusive, and were 14 damaged thereby.” [Doc. No. 154 at ¶ 1.26.] The average distribution is estimated to be 15 $0.13 per damaged share before deduction of Court-approved fees and expenses. [Doc. 16 No. 160-2 at 94.] The Net Settlement Fund shall be distributed to Authorized Claimants as 17 proscribed by the Plan of Allocation, with each claimant’s share of the Net Settlement Fund 18 being based upon the recognized loss formula described in the Notice [Doc. No. 154 at ¶ 19 1.20; Doc. No. 160-2 at 21-26.] Additionally, the settlement authorizes: (1) payment of up 20 to $250,000.00 in class administrator fees; (2) the payment of taxes and tax expense; (3) a 21 fee and expense award to lead counsel; and (4) payment of a class representative award. 22 [Doc. No. 154 at ¶¶ 3.11, 6.4, 7.1, 7.2.] The separately filed motion for attorneys’ fees 23 informs that Lead Counsel is seeking 30 percent of the cash consideration and 30 percent 24
25 26 2 The “Defendants” are Arena Pharmaceuticals, Inc. (the “Company”), Jack Lief, Robert E. Hoffman, Dominic P. Behan, William R. Shanahan, and Christy Anderson. 27 3 Arena has the option to pay all or part of the Settlement Shares in cash at the time Arena is to issue the Settlement Shares. [See Doc. No. 152, ¶ 3.4.] 28 1 of the Settlement Shares, reimbursement of $251,213.10 in litigation expenses, and a 2 $17,500 representative award for Lead Plaintiff. [Doc. No. 159.] 3 On November 7, 2017, Lead Plaintiff filed an unopposed motion for preliminary 4 approval of the settlement. [Doc. No. 153.] The Court granted the motion and 5 preliminarily approved the settlement on November 20, 2017. [Doc. No. 156.] The 6 preliminary approval order set a final approval hearing for April 12, 2018. The final 7 approval hearing took place as scheduled. Counsel for both parties attended. No class 8 members filed objections to the settlement, and no class members attended the hearing. 9 However, two class member requested exclusion from the settlement. 10 II. Final Approval of Settlement 11 A. Certification of the Settlement Class 12 The settlement here envisions certification of a class of “all Persons who purchased 13 Arena common stock between March 17, 2008 and January 27, 2011, inclusive, and were 14 damaged thereby.” [Doc. No. 154 at ¶ 1.26.] 15 When considering a motion for approval of a Rule 23 class action the Court must 16 perform the threshold task of certifying the class. See generally Millan v. Cascade Water 17 Servs. Inc., 310 F.R.D. 593, 602-607 (E.D. Cal. 2015). The Court must “ascertain whether 18 the proposed settlement class satisfies the requirements of Rule 23(a) of the Federal Rules 19 of Civil Procedure applicable to all class actions, namely: (1) numerosity, (2) commonality, 20 (3) typicality, and (4) adequacy of representation.” Hanlon v. Chrysler Corp., 150 F.3d 21 1011, 1019 (9th Cir. 1998). Additionally, the Court must determine whether class counsel 22 is adequate and whether “the action is maintainable under Rule 23(b)(1), (2), or (3).” In re 23 Mego Fin. Corp. Sec. Litig., 213 F.3d 454, 462 (9th Cir. 2000) (quoting Amchen Prod. v. 24 Windsor, 521 U.S. 591, 614 (1997)). 25 1. Numerosity 26 This requirement is satisfied if the class is “so numerous that joinder of all members 27 is impracticable.” Fed. R. Civ. P. 23(a)(1). “A class greater than forty members often 28 satisfies this requirement. . . .” Waller v. Hewlett-Packard Co., 295 F.R.D. 472, 482 (S.D. 1 Cal. 2013) (citing Californians for Disability Rights, Inc. v. Cal. Dep’t of Transp., 249 2 F.R.D. 334, 346 (N.D. Cal. 2008)). Here, notice packets were mailed to 139,542 potential 3 class members. Joinder of all these potential plaintiffs would be impracticable. 4 Accordingly, this requirement has been met. 5 2. Commonality 6 This requirement is satisfied if “there are questions of law or fact common to the 7 class.” Fed. R. Civ. P. 23(a)(2). “To satisfy this commonality requirement, plaintiffs need 8 only point to a single issue common to the class.” Vasquez v. Coast Valley Roofing, Inc., 9 670 F. Supp. 2d 1114, 1121 (E.D. Cal. 2009). Here, the commonality requirement is 10 satisfied because all of the class claims involve common questions of law and fact 11 surrounding Defendants’ purported violations of the federal securities laws as evidenced 12 by their alleged failure to disclose material facts regarding the development of the weight 13 loss drug Lorcaserin to investors and by the making of false and misleading statements 14 about the drug. 15 3. Typicality 16 This requirement is satisfied if “the claims or defenses of the representative parties 17 are typical of the claims or defenses of the class.” Fed. R. Civ. P. 23(a)(3). “The test of 18 typicality is whether other members have the same or similar injury, whether the action is 19 based on conduct which is not unique to the named plaintiffs, and whether other class 20 members have been injured by the same course of conduct.” Hanon v. Dataproducts Corp., 21 976 F.2d 497, 508 (9th Cir. 1992) (internal quotations and citation omitted). Here, the 22 typicality requirement is satisfied because the claims of lead Plaintiff and the class are the 23 same. The wrongful conduct alleged in the complaint is not unique to the class 24 representative, and the damages to the class members, if any, are similar insofar as they 25 relate to violations of the federal securities laws. 26 4. Adequacy of Class Representative and Class Counsel 27 The final Rule 23(a) requirement is that “the representative parties will fairly and 28 adequately protect the interests of the class.” Fed. R. Civ. P. 23(a)(4). This requires the 1 Court address two questions: “(a) do the named plaintiffs and their counsel have any 2 conflicts of interest with other class members and (b) will the named plaintiffs and their 3 counsel prosecute the action vigorously on behalf of the class.” In re Mego, 213 F.3d at 4 462. A court certifying a class must consider: “(i) the work counsel has done in identifying 5 or investigating potential claims in the action; (ii) counsel’s experience in handling class 6 actions, other complex litigation, and the types of claims asserted in the action; (iii) 7 counsel’s knowledge of the applicable law; and (iv) the resources that counsel will commit 8 to representing the class.” Fed. R. Civ. P. 23(g)(1)(A). The Court may also consider “any 9 other matter pertinent to counsel’s ability to fairly and adequately represent the interests of 10 the class.” Id. at 23(g)(1)(B). Ultimately, when only one applicant seeks appointment as 11 class counsel, the court must determine that “[c]lass counsel . . . fairly and adequately 12 represent the interests of the class.” Id. at 23(g)(4). 13 Here, there is no obvious conflict between Schwartz’s interests and those of the class 14 members. Similarly, the Court is unaware of any reason that would warrant altering its 15 earlier determination that Lead Counsel can adequately represent the interest of the class. 16 Furthermore, no Class Member has filed an objection challenging the adequacy of the 17 representative parties. Accordingly, the Court finds this element satisfied for the purposes 18 of certification of the settlement class. 19 5. Predominance and Superiority 20 “In addition to meeting the conditions imposed by Rule 23(a), the parties seeking 21 class certification must show that the action is maintainable under Fed. R. Civ. P. 23(b)(1), 22 (2) or (3).” Hanlon, 150 F.3d at 1022. “Rule 23 (b)(3) permits a party to maintain a class 23 action if . . . the court finds that questions of law or fact common to class members 24 predominate over any questions affecting only individual members, and that a class action 25 is superior to other available methods for fairly and efficiently adjudicating the 26 controversy. Conn. Ret. Plans & Trust Funds v. Amgen Inc., 660 F.3d 1170, 1173 (9th Cir. 27 2011), aff’d, 133 S. Ct. 1184 (2013) (citing Fed. R. Civ. P. 23(b)(3)). The “predominance 28 inquiry tests whether proposed classes are sufficiently cohesive to warrant adjudication by 1 representation.” Hanlon, 150 F.3d at 1022-23 (quoting Amchen Prods, Inc., 521 U.S. at 2 623). It requires an examination into whether there are “legal or factual questions that 3 qualify each class member’s case as a genuine controversy.” Id. The superiority inquiry 4 “requires determination of whether the objectives of the particular class action procedure 5 will be achieved in the particular case.” Id. at 123. 6 Here, all of the class members were allegedly subject to Defendants’ purported 7 federal securities laws violations. The legal and factual questions common to each class 8 member’s claim predominate over any questions affecting individual class members. The 9 relatively limited potential recovery for the class members as compared with the costs 10 litigating the claims also support the conclusion that a class action is superior to other 11 methods for adjudicating this controversy. Accordingly, the Court finds that the 12 predominance and superiority inquiries have been satisfied. 13 In light of the foregoing, the Court conditionally certifies the Rule 23 class for the 14 purposes of settlement. 15 B. Legal Standard for Final Approval of Class Settlement 16 Where, as here, a settlement is reached prior to formal class certification, there is an 17 even greater potential for a breach of fiduciary duty owed the class, therefore “such 18 agreements must withstand an even higher level of scrutiny for evidence of collusion or 19 other conflicts of interest than is ordinarily required under Rule 23(e) before securing the 20 court’s approval as fair.” In re Bluetooth Headset Products Liab. Litig., 654 F.3d 935, 946 21 (9th Cir. 2011). 22 Federal Rule of Civil Procedure 23(e) provides that “[t]he claims, issues, or defenses 23 of a certified class may be settled, voluntarily dismissed, or compromised only with the 24 court’s approval.” Fed. R. Civ. Pro. 23(e). “Adequate notice is critical to court approval 25 of a class settlement under Rule 23(e).” Hanlon, 150 F.3d at 1025. The Rule also “requires 26 the district court to determine whether a proposed settlement is fundamentally fair, 27 adequate, and reasonable.” Id. at 1026. In making this determination the Court is required 28 to “evaluate the fairness of a settlement as a whole, rather than assessing its individual 1 components.” Lane v. Facebook, Inc., 696 F.3d 811, 818-19 (9th Cir. 2012). Because a 2 “settlement is the offspring of compromise; the question we address is not whether the final 3 product could be prettier, smarter or snazzier, but whether it is fair, adequate and free from 4 collusion.” Hanlon, 150 F.3d at 1027. 5 In assessing a settlement proposal the district court is required to balance a number 6 of factors, namely: 7 the strength of the plaintiff’s case; the risk, expense, complexity, and likely duration of further litigation; the risk of maintaining class action status 8 throughout the trial; the amount offered in settlement; the extent of discovery 9 completed and the stage of the proceedings; the experience and views of counsel; the presence of a governmental participant; and the reaction of the 10 class members to the proposed settlement. 11 Id. at 1026. 12 C. Analysis 13 1. Adequacy of Notice 14 The Court approved notice of this class action and proposed settlement in the 15 Preliminary Approval Order. The claims administrator distributed 139,542 Notice Packets 16 to potential class members that included A Proof of Claim and Release form. The Notice 17 advised the Class of the terms of the Settlement, of their rights: (1) to receive their share 18 of the Settlement by submitting a claim form; (2) to object to the Settlement and to appear 19 at the Final Approval Hearing, (3) to request exclusion from the Settlement; (4) the manner 20 and timing for doing any of these acts; (5) the date and time set for the final approval 21 hearing; and (6) the binding effect of the judgment if they chose to do nothing. Adequate 22 periods of time were provided for each of these procedures. No class members objected to 23 the settlement or the adequacy of the Notice, and only two class member requested 24 exclusion from the class. Accordingly, the Court finds that the Class received adequate 25 notice. 26
28 1 2. Strength of Plaintiffs’ Case; Risk of Further Litigation; and Risk of Maintaining Class Action Status 2 3 As a result of the preferable nature of Settlement over the uncertainties, expense and 4 length of litigation “when assessing the strength of plaintiff’s case, the court does not reach 5 any ultimate conclusions regarding the contested issues of fact and the law that underlie 6 the merits of this litigation.” Four in One Co. v. S.K. Foods, L.P., No. 2:08-CV-3017 KJM 7 EFB, 2014 WL 4078238, at *7 (E.D. Cal. Aug. 14, 2014) (internal quotations omitted). 8 Similarly, “a proposed settlement is not to be judged against a speculative measure of what 9 might have been awarded in a judgment in favor of the class.” Nat’l Rural Telecomms. 10 Coop. v. DIRECTV, Inc., 221 F.R.D. 523, 526 (C.D. Cal. 2004). 11 Here, the Settlement has been reached after over seven years of pending litigation, 12 including an appeal to the Ninth Circuit. Plaintiff’s claims at issue in the settlement involve 13 disputed legal issues. The inherent risk of further litigation in this matter is known to all 14 involved with the case. Proceeding with this case presents very real risks regarding class 15 certification, summary judgment, Daubert and in limine motions, proving the necessary 16 scienter, reliance and damages if the case proceeded to trial, and a possible unfavorable 17 decision on the merits. See Fernandez v. Victoria Secret Stores, LLC, No. CV 06-04149 18 MMM (SHx), 2008 WL 8150856, at *6 (C.D. Cal. July 21, 2008) (“Because both parties 19 face extended, expensive future litigation, and because both faced the very real possibility 20 that they would not prevail, this factor supports approval of the settlement.”). While 21 Plaintiff believes in the merits of his case, Defendants have strong defenses to class 22 liability, reliance and damages determinations, and there is no guarantee that Plaintiff will 23 prevail. The Court finds these risks weigh in favor of settlement. 24 3. The Amount Offered in Settlement 25 “Basic to [the process of deciding whether a proposed settlement is fair, reasonable 26 and adequate] * * * is the need to compare the terms of the compromise with the likely 27 rewards of litigation.” In re TD Ameritrade Accountholder Litig., 226 F.R.D. 418, 422 28 (N.D. Cal. 2009) (quoting Protective Comm. for Indep. Stockholders of TMT Trailer Ferry 1 Inc. v. Anderson, 390 U.S. 414, 424-25, (1968)). However, “[t]he fact that a proposed 2 settlement may only amount to a fraction of the potential recovery does not, in and of itself, 3 mean that the proposed settlement is grossly inadequate and should be disapproved.” 4 Linney v. Cellular Alaska P’ship, 151 F.3d 1234, 1242 (9th Cir. 1998) (citation omitted). 5 Here, the Settlement authorizes a recovery of $24,000,000, less Court-awarded fees 6 and expenses and the costs of administering the Settlement.5 The average distribution is 7 estimated to be $0.13 per damaged share before deduction of Court-approved fees and 8 expenses. Furthermore, the Company is currently experiencing a financial downturn and 9 has limited insurance coverage, meaning that continued litigation could result in there 10 being little to no money being available down the road to satisfy any later judgment. In 11 light of the risks associated with continuing this litigation, the Court finds that a payout in 12 this amount appears reasonable and weighs in favor of approval of the settlement. 13 4. Extent of Discovery and the Stage of the Proceedings 14 When assessing a settlement courts focus on whether the “parties have sufficient 15 information to make an informed decision about settlement.” In re Mego, 213 F.3d at 459 16 (quoting Linney, 151 F.3d at 1239). In the context of class action settlements extensive 17 “formal discovery is not a necessary ticket to the bargaining table where the parties have 18 sufficient information to make an informed decision about settlement.” Linney, 151 F.3d 19 at 1239 (internal quotation marks and citation omitted). 20 21
22 5 The Settlement calls for the payment of $250,000.00 in class administrator fees to the Claims 23 Administrator. In connection with final approval of the settlement, the Court reviewed the affidavit of Jennifer M. Bareither detailing the work performed by Garden City Group LLC., and found that paying 24 this amount in administrative costs reasonable. [Doc. No. 160-2.] On May 21, 2020, Plaintiffs filed a 25 motion for disbursement of settlement funds that asked for additional funds out of the settlement for the class administrator and included a declaration of Stephanie Amin-Giwner detailing the work performed 26 by the administrator. [Doc. No. 179.] Upon review of these materials, the Court granted the motion in part to allow the disbursement of up to $400,000.00 from the settlement fund to the claims administrator. 27 [Doc. No. 182.] Accordingly, this order is amended primarily to increase the amount permitted to be paid to the claims administrator out of the settlement fund from $250,000 to $400,000. 28 1 Here, the Settlement has been negotiated after years of pending litigation and 2 meaningful discovery has occurred. Counsel has litigated this action through three rounds 3 of motions to dismiss and a successful appeal, engaged in investigation, research and 4 analysis of the class claims, participated in an arm’s-length mediation session, and obtained 5 ample discovery. This history evidences the parties’ significant knowledge regarding the 6 relevant facts, law, and strengths and weaknesses of their claims and defenses. 7 Consequently, the Court finds this factor weighs in favor of approval of the settlement. 8 5. Experience of Counsel 9 “The recommendations of plaintiffs’ counsel should be given a presumption of 10 reasonableness.” In re Omnivision Technologies, Inc., 559 F. Supp. 2d 1036, 1043 (N.D. 11 Cal. 2008) (citing Boyd v. Bechtel Corp., 485 F. Supp. 610, 622 (N.D. Cal. 1979)). Here, 12 Lead Counsel has provided a declaration detailing their experience in litigating federal 13 class action securities cases. Lead Counsel declares that their support of the Settlement is 14 based on an assessment of the strengths and weaknesses of the case, their extensive 15 experience in litigating class and securities actions, and an assessment of the risks of 16 proceeding with the litigation compared to the certain value of settlement at this time. In 17 light of the foregoing, and according the appropriate weight to the judgment of counsel, 18 the Court finds this factor weighs in favor of the settlement. 19 6. Reaction of Class Members 20 “It is established that the absence of a large number of objections to a proposed class 21 action settlement raises a strong presumption that the terms of a proposed class settlement 22 are favorable to the class members.” Nat’l Rural Telecomm. Coop., Inc., 221 F.R.D. at 529 23 (citations omitted). Here, only two class members have opted out of the class and no 24 objections to the settlement have been received. Id. (the absence of a single objection “is 25 compelling evidence that the Proposed Settlement is fair, just, reasonable, and adequate.”). 26 Accordingly, the Court finds this weighs in favor of settlement. 27 28 1 7. Other Factors 2 The Court must also demonstrate that the settlement is “not[] the product of collusion 3 among the negotiating parties.” In re Bluetooth, 654 F.3d at 947 (quoting In re Mego, 213 4 F.3d at 458) (alteration in original) (providing three examples of signs of collusion, namely 5 (1) counsel receives a disproportionate distribution of the settlement, or counsel is amply 6 rewarded but class members receive no monetary distribution; (2) the presence of a “clear 7 sailing” arrangement providing for payment of attorneys’ fees; and (3) a provision that fees 8 not awarded revert to defendants rather than be added to the class fund.). See also, Young 9 v. Polo Retail, LLC, No. C-02-4546 VRW, 2007 WL 951821, *3 (N.D. Cal. Mar. 28, 2007) 10 (adding factors “(9) the procedure by which the settlements were arrived at, see MANUAL 11 FOR COMPLEX LITITGATION (FOURTH) § 21.6 (2004), and (10) the role taken by the plaintiff 12 in that process.”). 13 Here, the parties reached agreement after participating in a day long formal 14 mediation before a neutral third party, former Unties States District Judge Layn. R. Phillips. 15 See Satchell v. Fed. Express Corp., No. C03-2659 SI, 2007 WL 1114010, at *4 (N.D. Cal. 16 Apr. 13, 2007) (“[t]he assistance of an experienced mediator in the settlement process 17 confirms that the settlement is noncollusive.”). Judge Phillips has provided a declaration 18 to the Court in support of the Settlement attesting that “the parties’ settlement is the product 19 of vigorous and independent advocacy and arm’s-length negotiation conducted in good 20 faith.” [Doc. No. 160-1 at ¶ 10.] Further, he declares the Settlement “represents a well- 21 reasoned and sound resolution of the highly uncertain litigation and that the result is fair, 22 adequate, reasonable and in the best interests of the Settlement Class.” [Id. at 2-8, ¶ 12.] 23 Additionally, Lead Counsel is not receiving a disproportionate share of the settlement and 24 the class members will receive monetary compensation, the Stipulation does not contain a 25 clear sailing provision, and any unclaimed funds will either be redistributed to eligible 26 Class Members or donated to the Legal Aid Society of San Diego. Moreover, Lead 27 Counsel represent that the Lead Plaintiff was actively involved in the case, including 28 1 litigation and settlement. Accordingly, the Court finds these factors weigh in favor of 2 settlement. 3 8. Balancing of the Factors 4 “Ultimately, the district court’s determination is nothing more than an amalgam of 5 delicate balancing, gross approximations and rough justice.” Officers for Justice v. Civil 6 Service Comm’n of City and Cnty. of S.F., 688 F.2d 615, 625 (9th Cir. 1982) (citation 7 omitted). “[It must not be overlooked that voluntary conciliation and settlement are the 8 preferred means of dispute resolution. This is especially true in complex class action 9 litigation.” Id. Having considered the relevant factors, the Court finds they all weigh 10 heavily in favor of settlement. As a consequence, the Court finds the settlement 11 fundamentally fair, adequate and reasonable. 12 III. Approval of Plan of Allocation 13 “Approval of a plan of allocation of settlement proceeds in a class action under 14 FRCP 23 is governed by the same standards of review applicable to approval of settlement 15 as a whole: the plan must be fair, reasonable and adequate.” In re Oracle Sec. Litig., No. 16 C-90-0931-VRW, 1994 WL 502054, at *1-2 (N.D. Cal. June 16, 1994) (citing Class Pls. 17 v. City of Seattle, 955 F.2d 1268, 1284-85 (9th Cir. 1992)). See also In re Heritage Bond 18 Litig., No. 02-ML-1475 DT, 2005 WL 1594403 at 11 (C.D. Cal. 2005). The allocation 19 formula used in a plan of allocation “need only have a reasonable, rational basis, 20 particularly if recommended by experienced and competent counsel.” Maley v. Del Global 21 Tech. Corp., 186 F. Supp. 2d 358, 367 (S.D.N.Y. 2002) (citation omitted). A plan which 22 “fairly treats class members by awarding a pro rata share to every Authorized Claimant, 23 [even as it] sensibly makes interclass distinctions based upon, inter alia, the relative 24 strengths and weaknesses of class members' individual claims and the timing of purchases 25 of the securities at issue” should be approved as fair and reasonable. In re MicroStrategy, 26 Inc., Sec, Litig., 148 F. Supp. 2d 654, 669 (E.D. Va. 2001) (citation omitted). 27 Here, the Plan of Allocation (the “Plan”) generally treats all class members’ losses 28 in the same way and awards a pro rata share to every Authorized Claimant. The Plan 1 provides that the Claims Administrator shall determine each Authorized Claimant’s share 2 of the Net Settlement Fund based upon the Recognized Loss formula described in the 3 Notice and calculated in accordance with the “90-day look back” provision of the PSLRA. 4 The calculation of Recognized Loss will depend on several factors, including when and in 5 what amounts the stock was purchased in the Class Period, whether the stocks were sold, 6 and if they were, when they were sold and for what amounts. A Claimant’s Recognized 7 Claim shall be the sum of his, her or its Recognized Loss Amounts. The Net Settlement 8 Fund will be distributed to Authorized Claimants on a pro rata basis based on the relative 9 size of their respective Recognized Claim. Each claimant’s Distribution Amount will be 10 calculated by dividing the Authorized Claimant’s Recognized Claim by the total 11 Recognized Claims of all Authorized Claimants, multiplied by the total amount in the Net 12 Settlement Fund. If any Authorized Claimant’s Distribution Amount is less than $10.00 it 13 will not be included in the calculation and no distribution will be made to such Authorized 14 Claimant. To the extent a Claimant had a market share gain with respect to his, her, or its 15 overall transactions in Arena common stock during the Class Period, the value of 16 Claimant’s Recognized Claim shall be Zero. A Claimant’s overall market gain or loss 17 during the Class Period shall be determined by the Claims Administrator in accordance 18 with the provisions set forth in the Notice. The Plan also sets forth how any unclaimed 19 distributions or remaining balance in the Net Settlement Fund will be dispersed. 20 Additionally, the Plan was completely disclosed in the 139,542 Notice Packet mailed to 21 potential Class Members and no objections to the Plan have been filed. Furthermore, it has 22 been recommended by Lead Counsel after careful consideration and analysis, and with the 23 assistance of a damages expert6. [Doc. No. 160, 43-47.] Accordingly, the Court concludes 24 that the Plan is fair and adequate. 25
26 6 Lead counsel attests that “[t]he Plan of Allocation was created with the assistance of a consulting 27 damages expert, and reflects the assumption that the price of Arena common stock was artificially inflated from March 17, 2008 through September 16, 2010, and from December 22, 2010 through January 27, 28 1 IV. Attorneys’ Fees 2 “In a certified class action, the court may award reasonable attorney’s fees and 3 nontaxable costs that are authorized by law or by the parties’ agreement.” Fed. R. Civ. P. 4 23(h). However, “courts have an independent obligation to ensure that the award, like the 5 settlement itself, is reasonable, even if the parties have already agreed to an amount.” In 6 re Bluetooth, 654 F.3d at 946. That Defendants agreed in the settlement not to oppose 7 counsel’s request for 30% of the cash consideration and 30% of the Settlement Shares 8 “does not detract from the need carefully to scrutinize the fee award.” Staton v. Boeing 9 Co., 327 F.3d 938, 964 (9th Cir. 2003). 10 When settlement leads to the creation of a common fund, courts can determine the 11 reasonableness of a request for attorneys’ fees using either the common fund method or the 12 lodestar calculation. See In re Bluetooth, 654 F.3d at 944-45 (encourage courts to “guard 13 against an unreasonable result by cross-checking their calculations against a second 14 method.”). The Ninth Circuit has: 15 established 25 percent of the fund as the ‘benchmark’ award that should be given in common fund cases. The benchmark percentage should be adjusted, 16 or replaced by a lodestar calculation7, when special circumstances indicate 17 that the percentage recovery would be either too small or too large in light of the hours devoted to the case or other relevant factors. 18
19 Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301, 1311 (9th Cir. 1990). 20 When employing their discretion and utilizing the percentage-of-recovery method, federal 21 “courts typically calculate 25% of the [common settlement] fund as the ‘benchmark’ for a 22 reasonable fee award.” In re Bluetooth, 654 F.3d at 942. In assessing the reasonableness 23 24
25 26 damages set forth in Section 10(b) of the Exchange and Rule 10b-5 promulgated thereunder by the SEC.” [Doc. No. 160 at 44, ¶ 164.] 27 7 To calculate the loadstar amount, the district court should “multipl[y] the number of hours reasonable spent in achieving the results obtained by a reasonable hourly rate.” Friend v. Kolodziczak, 72 F.3d 1386, 28 1 of the award in common fund percentage award cases, the Ninth Circuit has provided a 2 non-exhaustive list of factors to be used, including: 3 the extent to which class counsel achieved exceptional results for the class, whether the case was risky for class counsel, whether counsel’s performance 4 generated benefits beyond the cash settlement fund, the market rate for the 5 particular field of law (in some circumstances), the burdens class counsel experienced while litigating the case (e.g. cost, duration, foregoing other 6 work), and whether the case was handled on a contingency basis. 7 In re Online DVD-Rental Antitrust Litig., 779 F.3d 934, 954-55 (9th Cir. 2015). 8 Here, Lead Counsel’s request for 30% of the cash consideration and 30% of the 9 settlement shares results in a recovery tantamount to $7,200,000.8 Lead Counsel submits 10 that the award is fair and reasonable in light of the considerable risks associated with the 11 case, the seven years it devoted to pursuing the litigation, the recovery obtained, and the 12 skill and expertise required to prosecute and resolve the claims asserted. Further, Lead 13 Counsel asserts that the Settlement “is a testament to Counsels’ hard work, expertise in the 14 harsh realities of federal class action securities litigation, ingenuity and the quality of legal 15 representation.” [Doc. No. 159-1 at 11.] 16 As the Court previously acknowledged, the settlement amount of $24,000,000 17 confers substantial benefits upon the Settlement Class, particularly in light of the risks 18 associated with continuing this litigation to trial and weighs in favor of the fee amount. 19 Lead Counsel has achieved success in successfully appealing the dismissal order and the 20 litigation as a whole involved some complicated and labor intensive claims and issues 21 which weighs in favor of the award. See In re Heritage Bond., 2005 WL 1594403, at *20 22 (“the novelty, difficulty and complexity of the issues involved are significant factors in 23 determining a fee award.) The experience of Lead Counsel in litigating class actions of 24 this type also support the request. Moreover, the reaction of the Class to the settlement has 25 26
27 8 $3,607,500 (30% of $12,025,000 cash settlement) + $3,592,500 (30% of the Settlement Shares valued 28 1 been positive, with only two class members requesting exclusion, which supports the fee 2 application. 3 But, while Lead Counsel had responsibility for litigating this case over a seven year 4 period, the Court is mindful of the limited nature of the litigation that occurred in that time 5 period. In terms of actual litigation of the case, from the initial filing in September, 2010, 6 to the dismissal in March, 2014, the case had not proceeded beyond motions to dismiss the 7 complaint. From dismissal of the complaint in March, 2014, to the remand from the 8 appellate court and spread of the mandate in January, 2017, there was no active litigation 9 in this matter. Discovery effectively began in May, 2017, and ended in November, 2017, 10 with notice of settlement. No depositions had been taken, the plaintiff had not yet moved 11 for class certification and motions for summary judgment had not been briefed. In light of 12 this, the Court has concerns regarding the reasonableness of awarding Lead Counsel such 13 a high percentage. To cross check the reasonableness of the requested percentage award, 14 the Court considers the loadstar calculation provide by Plaintiff. 15 In support of their fee request, Counsel has submitted a lodestar calculation. Counsel 16 declares that they have worked an aggregate of 6,678.65 hours on the case, and the 17 calculated lodestar fee on these hours is $3,711,903.9 Lead Counsel’s loadstar calculation 18 results in a multiplier of 1.94. Counsel calculate the lodestar with hourly rates for attorneys 19 from the firms of Kaplan Fox & Kilsheimer LLP (“Kaplan Fox”), Stris & Maher, and Wolf 20 Haldenstein Adler Freeman & Hertz LLP (“Wolf Haldenstein”) ranging from $995 to $350 21 an hour. Included in the lodestar calculation was work performed by law clerks billed at 22 $230 an hour and paralegal work billed at $155 to $310 hour.10 In support, Counsel has 23
24 25 9 It is attested that: (1) the Kaplan Fox firm expended 5703.75 hours on the case, and that the calculated lodestar fee on these hours is $3,150,547.50; Stris & Maher expended 96 hours on the case, and that the 26 calculated lodestar fee on these hours is $555,695.00 [Doc. No. 160-4]; Wolf Haldenstein expended 10 hours on the case, and that the calculated lodestar fee on these hours is $5,660.00 [Doc. No. 160-5]. 27 10 Paralegals Moonsammy and Weiland are billed at $310 an hour, Weiland at $300, McAndrew and Powley at $275, Gomes at $270, Ng at $235, Hukill at $230, and Rodriguez at $155. At the submitted 28 1 submitted declaration attesting to the hours worked and billing rates, and the firms’ 2 profiles, and attorney biographies. [Doc. Nos. 160, 160-3, 160-4, 160-5.] Counsel assert 3 that “using plaintiffs’ counsel’s aggregate “lodestar” as a cross check confirms the 4 reasonableness of the requested fee.” [Doc. No. 160 at ¶ 190.] 5 While the Court need not engage in a full-blown lodestar analysis when the primary 6 basis remains the percentage method, the calculation is meant to provide a “useful 7 perspective on the reasonableness of a given percentage award.” Vizcaino v. Microsoft 8 Corp., 290 F.3d 1043, 1050 (9th Cir. 2002). Thus, although the Court need not closely 9 scrutinize each claimed attorney-hour some review is required. Here, Counsel bases its 10 loadstar calculation on average hourly rates ranging from $350 to $995 an hour, yet no 11 evidence has been provided demonstrating the reasonableness of these rates. Accordingly, 12 based on its experience and knowledge of prevailing rates in the community, the Court 13 exercises it discretion and finds that the upper echelons of these rates are not reasonable 14 compared to the prevailing market rates in the San Diego community for attorneys of their 15 experience and ability. See, e.g., Viveros v. Donahue, CV 10-08593 MMM (Ex), 2013 WL 16 1224848, at *2 (C.D. Cal. 2013) (“When an applicant fails to meet her burden of 17 establishing the reasonableness of the requested rate, the court may exercise its discretion 18 to determine reasonable hourly rates based on its experience and knowledge of prevailing 19 rates in the community.”) (collecting cases). Further, the hourly rates of $270 to $310 20 Kaplan Fox is submitting for its paralegals is not borne out by the Court’s knowledge of 21 the comparable rates of the community or by co-counsel Wolf Haldenstein’s submission 22 which sets it paralegal hourly rate at $230 and $210. There is no evidence before the Court 23 that would warrant remunerating the paralegal services of Kaplan Fox at such high rate. 24 See Robinson v. Chand, No. Civ. S-05-1080 DFL DAD, 2007 WL 1300450, at *2 (E.D. 25 Cal. May 2, 2007) (“for fees to be reasonable, paralegal work should be billed at an 26 appropriate rate, regardless of the status of the person actually undertaking the work.”) 27 Finally, the Court also takes issue with the 6,678.65 hours Counsel asserts they have 28 worked on this case. Aside from including three tables summarizing the number of hours 1 each employee at the firms worked and identifying the employees’ hourly rate, no evidence 2 to support the number of hours worked or details regarding the type of work performed by 3 each individual has been provided. Therefore, the Court cannot perform any review of the 4 hours claimed to see if they are reasonable or should be disallowed. Without more evidence 5 to support the number of hours worked and the rate of some of the attorneys and Kaplan 6 Fox support staff, the Court finds the lodestar calculation unreliable and of little help in 7 confirming if the submission is reliable. See Fernandez, 2008 WL 8150856, at * 14 (the 8 loadstar calculation “serves as a point of comparison by which to assess the reasonableness 9 of a percentage award”). 10 In light of the foregoing, the Court finds an award of 15 percent of the common fund 11 more reasonable. See Spann v. J.C. Penney Corp., 211 F. Supp. 3d 1244, 1263 (C.D. Cal. 12 2016) (“As always, when determining attorneys’ fees the district court [is] guided by the 13 fundamental principles that fee awards out of common funds be reasonable under the 14 circumstances.”) (quoting Glass v. UBS Fin. Servs., Inc., 2007 WL 221862, at * 14 (N.D. 15 Cal. 2007) aff’d, 331 Fed. Appx. 452 (9th Cir. 2009)). Accordingly, the Court awards Lead 16 Counsel attorneys’ fees in the amount of 15% of the cash consideration ($1,803,750.00) 17 and 15% of the settlement shares (valued at $1,796,250.00) which results in an award 18 equaling $3,600,000. 19 V. Costs 20 Attorneys are entitled to recover “those out-of-pocket expenses that would normally 21 be charged to a fee paying client.” Harris v. Marhoefer, 24 F.3d 16, 19 (9th Cir. 1994). 22 Lead Counsel asserts that it has incurred $251,313.10 in costs over the course of this 23 litigation but provide very little evidence to support the costs incurred. Defendants do not 24 oppose the costs. 25 The Court has reviewed the request and finds two particular expense items troubling. 26 Lead Counsel requests reimbursement in the amount of $32,712.33 in “Travel/Meals” and 27 $65,819.00 for payment of “Experts and Consultants,” yet the declaration filed in support 28 provides only three sentences in relation to these expenses with no supporting 1 documentation justifying these costs. The Court is unable to ascertain why these excessive 2 expenses were incurred in relation to the Settled Claims and therefore declines to reimburse 3 the monies spent on them. As a consequence, the Court awards $152,781.7711 in fees. 4 VI. Class Representative Payments 5 For the reasons set forth in the Court’s December 9, 2019 order [Doc. No. 177], lead 6 plaintiff Carl Schwartz is not entitled to any payment out of the settlement fund beyond his 7 pro rata share of recovery. 8 VII. Conclusion 9 In light of the foregoing, it is hereby ORDERED as follows: 10 1. The Court GRANTS final approval of the proposed Settlement and Plan of 11 Allocation [Doc. No. 158]; 12 2. The Court GRANTS IN PART Lead Counsel’s motion for attorneys’ fees, costs 13 and class representative payments [Doc. No. 159]; 14 3. The Court GRANTS Lead Counsel attorneys’ fees in the amount of 15% of the 15 cash consideration ($1,803,750.00) and 15% of the settlement shares, which 16 results in a fee award equaling $3,600,000, and $152,781.77 in costs from the 17 Settlement fund; 18 4. The Court DENIES the request for a class representative award to Lead Plaintiff 19 Carl Schwartz to be paid from the settlement fund; 20 5. The Court GRANTS final approval of $400,000 in settlement administration 21 costs to be paid from the settlement fund to Garden City Group, LLC/Epiq Class 22 Action & Claims Solutions, Inc.; 23 6. The two class members who asked to opt out of the settlement are excluded from 24 the class; 25 26 27 28 1 7. The Court retains continuing jurisdiction over this settlement solely for the 2 purposes of enforcing the agreement, addressing settlement administration 3 matters, and addressing such post-judgment matters as may be appropriate under 4 Court rules and applicable law; and 5 8. Judgment is hereby entered on the terms set forth above. The Clerk of the Court 6 shall close this case. 7 Itis SO ORDERED. 8 ||Dated: June 12, 2020 € □ 9 Hon. Cathy Ann Bencivengo 10 United States District Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28