5 4 6 7 8 9 10 11 12 13 14 15 16 17
BERNSTEIN LITOWITZ BERGER & GROSSMANN LL P DAVID R . STICKNEY ( Bar No . 188574) TIMOTHY A . DeLANGE ( Bar No . 190768) BENJAMIN GALDSTON ( Bar No . 211114) 12481 High Bluff Drive, Suite 30 0 San Diego , CA 92130 Tel : [phone] Fax : [phone] -andMAX W. BERGER ROCHELLE FEDER HANSEN 1285 Avenue of the Americas New York, NY 1001 9
BARRACK, RODOS & BACINE LEONARD BARRACK GERALD J . RODOS
M . RICHARD KOMINS JEFFREY A. BARRACK 3300 Two Commerce Square 2001 Market Street Philadelphia, PA 1910 3 Tel: [phone] Fax : [phone] -andSTEPHEN R . BASSER (Bar No . 121590) 402 West Broadway, Suite 85 0 San Diego, CA 92101 Tel : [phone] Fax : [phone]
Tel. [phone] Fax: [phone]
Attorneys for Lead Plaintiff The New York State Common Retirement Fund and Co-Lead Counsel for the Class
UNITED STATES DISTRICT COUR T NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION
In re McKESSON HBOC, INC . Master File No . 99-CV-20743 RMW (PVT) SECURITIES LITIGATION And Related Case s
CLASS ACTIO N
Date : April 13, 2007 Time . 9 :00 a.m. Place: Courtroom 6, Fourth Floor Judge : The Honorable Ronald M. Whyt e
18 ] This Document Relates To : 19 20 21 22 23 24
ALL ACTIONS .
25 26 27 28
MOTION FOR FINAL APPROVAL OF CLASS ACTION SETTLEMENT WITH ARTHUR ANDERSEN LL P
NOTICE OF MOTION, MOTION AND MEMORANDUM OF LAW IN SUPPORT O F
NOTICE OF MOT ., MOT. AND MEMO IN SUPP . OF MOT. FOR FINAL APPROVAL OF CLASS ACTION SETTLEMEN T
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TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES ... .. .. . . . . . . . . . . . . . . . . . . . . . .. . . . . .. .. ...... ...... . ..... . ... ..... . . . . . . . . ... .. .... ..... . .. . ... ..... . ..... . ii 1 . INTRODUCTION . . . .... .. ... . . . . . . . . . .. . . . . . . . . . . . . . . . .. .. . ... .. . ... .. . . .. . . . ... ..... . . . . . . . . . .. . . . ..... . . .. .................. .2 I1 . HISTORY OF THE ACTION . . . .. . . . . . . . . . . . . . . . . . .. . ..... . ... . . . . .. . . . . .. .. .... .. .. . . . . . . . . . . .... ...... ...... ...... . ... .4
Ill. ARGUMENT . . . . . . . . . . . . .. .. .... . .. .. . . .. ... . . . .. . . . . . . . . . . . . . . . .. .. . . .. . . . . . . . . . . .. .. .... .. .. . . . . . . . . . . .. . . . ... .. . ..... . ... .. . . .. .7 A. The Se tt lement With Andersen Should B e Approved As Fair, Re asonable And Adequate . . . . . . . .. .. ..... ..... . . .. . . . . .. .. . ... . . . . .. . . . ... .. . . .. .7 1 . Standards For Approval Of A Class Action Se ttlement . .. ...... . . .... .... . .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. ...... ... . . . . . . . . . .. . . . . . . . . . . . . . . . . .. .7 2. The Settlement Amount Is Well Within Th e Range Of Reasonableness . . . . .. . . . . . . . . . . .. . . . . .. . . . . . . . . . .. . . . ... ..... . . . .. . . . . .. . . . . .. . . . . . . . . .. .. . 9 3 . The Settlement Was Achieved At A Stag e When Lead Plaintiff Was Fully Informe d About The Strengths And Weaknesses Of It s Claims Against Andersen ... ..... . . .... ...... ...... .... . . . . . . . . . . . . . . ... .. ......... . ...... ...... .. ...9 4 . The Settlement Appropriately Balances The Risks Of Litigation And The Benefit To The Settlement Class Of A Certai n Recovery .. .......... ...... .. .. . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .......... . .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0 5 . The Opinions Of Lead Plaintiff, Lead
Counsel, And The Settlement Cl ass Suppo rt The Settlement ... .. . ......... ...... .. ... . . . .. . . .. ... . . . .. . . . . . . . . . . . . . . . .. .. ..... ..... . .. . .. . . . ... . .. ....1 1
6 . Notice To The Settlement Class Meets Th e Requirements Of Due Process , The PSLRA ,
And Rule 23 . . . . . . . . . . . . . . . . ... .. .......... ...... ............ . . . . . . .. .. . . . . . . . . . .. .. . . .... .. .. .. ...... .... .1 3
B. The Single "Objection" By One Non -Class Membe r Lacks Merit . ... .. .... .. ... . .. ... . .. . . . . . . . . . . . . .. . . . ... .. . ... .. . . .. .. . ..... ..... ..... .. .. . . . . . . . . . . . . . . . .. . . . . .. . . . . . . . 1 5 C . The Plan Of Allocation Is Fair And Reasonable . . . . . . . . ..... . ......... .. .. . . . . . . . . . . . . . . . . . . . . . . . .1 6 IV . CONCLUSION . .. .. . . . . . . . . . .. . . . ....... .... .... ...... .. .. . . . . .. . . . . . . . . .. ... . . . .. . . . . . . . . . . .. .. . ... ..... .. ... . . . .. . . .. .. . . . . .. 1 8
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TABLE OF AUTHORITIE S
Case Page
Armour v . Network Assocs. , 171 F . Supp . 2d 1044 (N .D. Cal . 2001) . . . . . . .. . . . . .. .. . ... .. . ........ . . . . . . . . . .. . . ......... . .. .... ...... .. ... . .....12 Bowman v. Legato Sys., Inc. ,
195 F .R.D . 655 (N .D . Cal . 2000) .. . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .... .. .. . . . . . . . . . ... .. . .... . . ..... ...............1 2
In re Cal. Micro Devices Sec . Litig. , 965 F . Supp . 1327 (N .D. Cal. 1997) ... . .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . ......... .. ... . . . . . . . . . .. . . . ... . . . . .. .. . ... .. . . .1 7 In re Cendant Corp . Sec. Litig. , 109 F . Supp . 2d 235 (D .N .J . 2000), atfd, 264 F .3d 201 (3d Cir . 2001) . .. . . . . . . .. . . . . .. . . . . . . . . . . .1 7 Class Plaintiffs v. Seattle,
955 F .2d 1268 (9th Cir. 1992) . . . . . . . . . . .. .. . ..... .. .... ...... ..... .. .. . . . . . . . . . .. .. . ..... .......... .. .... ...... ...... ...1 6
In re dj Orthopedics, Inc . Sec. Litig. ,
Case No . 02-CV-2238-K, 2004 U .S. Dist, LEXIS 1145 7
(S.D. Cal. June 21, 2004) . ... . . . ... . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . .. . . . .... ..... . . . . . . . .. . . . . . . . . . . ... .. . . .. . . . . .7, 10, 1 2 Hanlon v. Chrysler Corp. ,
150 F .3d 1011 (9th Cir. 1998) ...... ......... .. ... . .. ... . .. ... . . . .. . . . . . . . . . .. .. . ... .. . .... .. ... . . . .. . . . . .. . . . . .. . . . . . .7 , 8 7,
In re Heritage Bond Litig . ,
MDL Case No . 02-ML-1425 DT, 2005 U .S. Dist. LEXIS 1355 5 (C.D . Cal. June 10, 2005) . . . . . . . . . . . . . . .. . . . . .. .. . ..... . ..... ............... . .. .. . . . . .. . . . . . . . . . .. .. . ..... . ... .. .... .. . ... .1 2 Maley v. Del Global Techs . Corp. ,
186 F . Supp . 2d 358 (S .D.N .Y. 2002) . . . . . . . . . . . . . . . . . . . . .. .. . . .. .. . ..... .... ...... .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 In re Mego Fin . Corp . Sec. Litig. ,
213 F.3d 454 (9th Cir. 2000) . ............ ..... . ..... . ... .. . . . ... . .. ... . . . . . . . . . .. . . . . .. .. ...... .... . . . . .. ..... . .. .... ...... 8
Nat'l Rural Telecomm. Coop. v. DirecTV, Inc . , 221 F .R.D . 523 (C .D . Cal . 2004) .- . ... .. . ..... . ... .. . ... .. ...... .......... .. ... . .. ... . . . .. . . . . .. . . . ... . . . . ..9, 10, 1 2 Ocers for Justice v. Civil Se rv. Comm
'ii ,
688 F .2d 615 (9th Cir . 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . ... . . . . .... ...... ... . . . .. . . . . .. . .8, 9, 1 0
In re Oracle Sec . Litig. ,
Case No . C-90-0931-VRW, 1994 U .S . Dist . LEXIS 21593 (N.D . Cal. June 16, 1994) .. .. . ... .. .... .. ...... . ... .. .... .. . ... .. ... . .. . .... ...... ...... .. .. . . . . . . . . . . . .. . . .. . . . ... .. .... ..1 6
In re Pac. Enters. Sec. Litig. , 47 F .3d 373 (9th Cir . 1995) . . . . . . . . . . .. . . . . . . . . . . . . . . . . .. . . . . .. . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . .... .. .. . . . . .. . . . . . . . . .. .. .1 0
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In re Veritas Software Corp. Sec. Litig. ,
Master File No . C-03-0283 MMC, 2005 U .S. Dist. LEXIS 3088 0
(N .D. Cal . Nov . 15, 2005) . . . . . . . . . . . .. .. ..... ..... . . . .. . . . . . . . . . . . . . . . . . . . . ... . . . ......... .. .. . . . . . . . . . ... .. . ... .. .....7, 7,1 4 In re WorldCom, Inc. Sec. Litig. ,
388 F. Supp . 2d 319 (S .D.N .Y 2005).. .. . .... .. .... .. .. . . . . . . . . . . . . . . . . . . . . . .. .. . ... .. . ... .. .. . . . . . . . . . . . .
Statutes, Rules & Rejlations 15 U.S .C . 78u4(a)(7) . .. . ........ . .. ... . .. ... . . . . . . . . . . . . . . .. .. . .. .. ..... . .. .. . . . . .. . . . . . . . . . . . . . . . .. . . . . .. ...... .. ... . . . .. . . . . .. . . ...14 Federal Rules of Civil Procedure Rule 23 . . . . . . . . . . . . . . . . .. .. ..... .. .... .. .... . . .. . . . . . . . . . . . . . . . . . . . .......... .2, 7, 13, 1 5
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TO: ALL PARTIES AND THEIR ATTORNEYS OF RECORD : 2 PLEASE TAKE NOTICE that, pursuant to the Court' s Order Preliminarily Approvin g
Se tt lement With A rthur Andersen LLP And Providing For Notice (filed J anuary 2 6, 2007), on I April 13, 2007, at 9:00 a.m., or as soon thereafter as counsel may be heard, before the Honorabl e Ronald M . Whyte, United States District Judge, at 280 South First Street, Courtroom 6, Fourth Floor, San Jose, California 95113, the Court-appointed Lead Plaintiff, the New York Stat e Common Retirement Fund, will, and hereby does, move for : 8 (i) Entry of the [Proposed] Final Judgment and Order of Dismissal finally approvin g
9 I the Settlement with Arthur Andersen LLP1 ; and 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The accompanying [Proposed] Final Judgment and Order of Dismissal is, with one exception, identical to the "Revised [Proposed] Final Judgment and Order of Dismissal," attached at Tab B to the Stipulation and [Proposed] Order Revising [Proposed] Preliminary Approval Order and [Proposed] Final Judgment and Order of Dismissal, and Withdrawing Objections to Preliminary Approval, filed with the Court on January 24, 2007 . The one exception is that the previously agreed upon version referred to the Comptroller of the State of New York as Alan G . Hevesi . Because Mr. Hevesi is no longer the Comptroller, reference to a specific person as the Comptroller has been deleted . 2 All terms not explicitly defined herein shall have the same definitions as set forth in the Stipulation .
NOTICE OF MOT ., MOT . AND MEMO IN SUPP . OF MOT . FOR FINAL APPROVAL OF CLASS ACTION SETTLEMEN T
(ii) Entry of the [Proposed] Order Approving Plan of Allocation of Settlemen t Proceeds . This Motion is based on the Stipulation and Agreement of Settlement Between Lea d Plaintiff and Defendant Arthur Andersen LLP dated as of December 19, 2006, and previously filed with this Court ("Stipulation")2 ; the accompanying Memorandum of Law ; the Joint Declaration of David R. Stickney and M . Richard Komins in Support of Final Approval of Class Action Settlement with Arthur Andersen LLP, the Plan of Allocation and An Award of Attorneys' Fees and Reimbursement of Expenses ("Joint Decl ."), which includes the following exhibits : (1) the Declaration of Maurice K. Peaslee in Support of Final Approval of Class Action Settlement with Arthur Andersen LLP, the Plan of Allocation and An Award of Attorneys' Fees and Reimbursement of Expenses ("Peaslee Decl .") ; (2) the Supplemental Affidavit of Steven D .
Master File No . 99-CV-20743 RMW (PVT)
1 11 Mueller Re : Report on Exclusion Requests Received ("Supp . Mueller Af") ; (3) lodestar an d 2 3 4 5 6 7 8 9 10 expense information ; and (4) expenditures from the Litigation Fund ; and all other pleadings file d in this case and such additional evidence or argument as may be presented at the hearing . 3
MEMORANDUM OF LAW INTRODUCTION
Lead Plaintiff, the New York State Common Retirement Fund ("NYSCRF"), on behalf o f the Settlement Class, has succeeded in achieving a $72 .5 million settlement with Arthur Andersen LLP ("Andersen"), the former independent auditor of HBO & Company ("HBOC") . This Settlement (the "Andersen Settlement"), together with the $960 million settlement with McKesson HBOC, Inc . ("McKesson") and HBO & Company ("HBOC") (the "McKesson Settlement") that Lead Plaintiff has already achieved on behalf of the Settlement Class, brings
12 13 14 15 16
the total recoveries so far to over $1 billion .4 On January 26, 2007, the Court issued an Order granting preliminary approval of this Settlement with Andersen, certifying the Settlement Class and providing for notice to the Settlement Class (the "Preliminary Approval Order") . In compliance with that Order, Lead Plaintiff caused notice to be issued to potential members of the Settlement Class . Pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, Lead Plaintif f
17 I now respectfully requests final approval of the proposed Settlement with Andersen and th e 18 19 proposed Plan of Allocation of the settlement proceeds . The Settlement was reached after more than seven years of litigation . See Joint Decl .
20 I 5-56 . Lead Plaintiffs prosecution required, among other things : multiple amendments to th e 21 22 23 24 25 26 27 28 3 Together with this Motion, Lead Counsel also moves for approval of its requested fees and reimbursement of expenses . See Notice of Motion, Motion and Memorandum of Law in Support of Lead Counsel's Application for an Award of Attorneys' Fees and Reimbursement of Expenses Related to the Settlement With Arthur Andersen LLP, filed herewith . 4 By Final Judgment and Order of Dismissal entered February 24, 2006, this Court granted final approval of the McKesson Settlement and the proposed plan of allocation of the settlement amount . Neither this settlement nor the McKesson Settlement resolves claims against the remaining defendant, Bear Steams & Co . Inc . ("Bear Stearns") .
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complaints, which resulted in sustained claims for violations of the Securities Exchange Act o f
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1934 (the "Exchange Act") against twelve separate defendants including Andersen ; extensive discovery coordinated with plaintiffs in related state court litigation ; and cooperation with the United States Attorney's Office . Id. Lead Counsel conducted an extensive investigation of the underlying facts, including analyzing and organizing over two million pages of documents, taking the depositions of over 75 witnesses, and consulting with experts in financial accounting, damages, investment banking and additional areas requiring specialized knowledge . Joint Decl . T9-49 . The Andersen Settlement was reached at a time when Lead Plaintiff and Lead Counsel were fully cognizant of the strengths and weaknesses of the case, the risks of continued litigation, and the substantial risk that Andersen's financial condition would prevent it from satisfying a judgment materially in excess of the amount recovered . Accordingly, Lead Plaintiff fully endorses the Andersen Settlement. See Peaslee Decl ., Exhibit ("Ex .") 1 to the Joint Decl .,
12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
at 11 .5 The $72 .5 million cash settlement (with potential for additional payments under the Stipulation) is an excellent result for the Settlement Class . It is especially significant when considered in light of the substantial risks to plaintiffs of continued litigation, and given Andersen's remaining net worth . Given the complexities of this litigation, the uncertainty of Andersen's ability to meaningfully satisfy any judgment in this action and the continued risks if the parties were to proceed to trial, the Andersen Settlement represents a reasonable resolution of the Settlement Class's claims against Andersen, and eliminates the risk that the Settlement Class might recover less - or nothing at all - from Andersen if those claims were not resolved now , The Lead Plaintiff participated in all aspects of the litigation and in the process that led to this settlement, and believes that the Andersen Settlement is fair, reasonable and in the best interests of the Settlement Class . Peaslee Decl., at 5-14 . In addition, the overwhelming support of absent Settlement Class Members is now clear . The deadline for objecting was March 27, 2007 . In response to over 292,000 Notices of the Andersen Settlement being mailed to potential Settlement Class Members, no Settlement Class Member has objected to the
5 Throughout, "Ex ." refers to Exhibits to the Joint Declaration .
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APPROVAL OF CLASS ACTION SETTLEMENT Master File No . 99-CV-20743 RMW (PVT) .3_
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Andersen Settlement or to the Plan of Allocation . To the contrary, the only "objection" is from Carlton Carden who objects to being excluded from participating in the Settlement . As recognized by this Court in rejecting similar objections in connection with the McKesson Settlement, one by the same individual, "[t]his in itself is some evidence that the settlement is fair and reasonable -- people are fighting to be included in the settlement ." See Order Overruling Objections to Final Settlement and Approving Settlement [Doc . No . 1441] ("Order Overruling Objections"), at p . 3 .
if .
HISTORY OF THE ACTION
Due to the Court's familiarity with this litigation and its recent final approval of the
McKesson Settlement, Lead Plaintiff will not repeat here the lengthy history of the litigation of this action, but will instead incorporate by reference Lead Plaintiffs memorandum of law in support of its motion for final approval of the McKesson Settlement, filed on January 13, 2006 [Doc . No . 1418] . The summary below provides information relevant specifically to Lead Plaintiff's prosecution of the claims against defendant Andersen . On November 14, 2000, Lead Plaintiff filed a Second Amended and Consolidated Clas s Action Complaint (the "Second Amended Complaint") alleging, among other things, claims against Andersen under Sections 10(b) and 14(a) of the Exchange Act and Rules I Ob-5 and 14a9 promulgated thereunder by the Securities and Exchange Commission ("SEC") . Andersen moved to dismiss the claims against it . By Order dated January 8, 2002, the Court denied Andersen's motion to dismiss . Andersen thereafter filed a motion for reconsideration of the denial of its motion to dismiss, which the Court subsequently denied . On February 15, 2002, Lead Plaintiff filed the operative complaint , the Third Amended and Consolidated Class Action Complaint (the "Third Amended Complaint"), which included the same claims against Andersen as were alleged in the Second Amended Complaint . With respect to Andersen, the Third Amended Complaint alleges that, beginning in 1997, Andersen issued materially false unqualified auditor's reports and quarterly review reports on HBOC's financial statements, which were contained in SEC filings and other communications to investors and shareholders of HBOC and McKesson, including, in some cases, the joint proxy statemen t
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I soliciting shareholder approval for the merger between McKesson and HBOC . These allegedl y false unqualified auditor's reports and quarterly review reports are alleged to have inflated th e I value of HBOC's securities, and to have misled McKesson shareholders in deciding whether t o E approve the merger with HBOC . On April 5, 2002, certain defendants, including Andersen, moved to dismiss the Thir d Amended Complaint . As to Andersen, the Court sustained claims for alleged violations o f Section 14(a) and Rule 14a-9 promulgated thereunder and for alleged violations of Section 10(b) 8 9 10 11 12 13 14 15 16 17 18 19 20 21 and Rule IOb-5 . The Court also sustained claims against McKesson, HBOC , Bear Stearns, an d the Individual Defendants for alleged violations of the federal securities laws . March 7, 2003, Andersen and the remaining defendants served their Answers . Beginning in January 2003, Lead Plaintiff, through Lead Counsel, conducted extensiv e pretrial discovery, and thoroughly analyzed the facts and claims against the defendants, includin g Andersen : (a) Prior to the start of formal discovery, Lead Counsel located and interviewe d witnesses about the facts leading to this litigation, and obtained documents authored by Bea r Stearns that, among other things, provided information that Lead Plaintiff used to alleg e Andersen' s violations of the federal securities laws ; (b) After formal discovery began, Lead Plaintiff, through Lead Counsel, serve d document requests on the named defendants, including Andersen, and served on relevant nonparties subpoenas for production of documents; (c) Andersen produced thousands of pages of documents, including copies of it s
On
22 I working papers for its audits and quarterly reviews of HBOC's financial statements for the year s 23 24 25 26 27 ended 1996, 1997, and 1998, and the fiscal quarters within those years . In addition, McKesson, HBOC and the other named defendants produced more than two million pages of documents to Lead Plaintiff, who, through counsel and with the assistance of expert consultants, reviewed such documents for their impact on the litigation; (d) Over several months of thorough review and analysis by teams of attorneys, and ,
28 I as to documents produced by Andersen and others, assisted by accounting and auditing experts ,
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these documents were logged, organized in an electronic database according to their relevance t o 2 I I the various components of the case, and analyzed ; an d 3 (e) Lead Plaintiff, through Lead Counsel, conducted numerous depositions by th e
4 II time the Settlement with Andersen was reached . Lead Counsel conducted the depositions o f 5 6 7 8 9 10 over 75 witnesses, including 11 witnesses currently or formerly associated with Andersen, including the audit engagement partner, concurring partner, audit manager, senior staff, and other participants in Andersen's audits, its quarterly reviews, and the procedures it performed in connection with the restatement of HBOC's and McKesson's financial statements, including members of HBOC's internal accounting and financial departments . On January 12, 2005, Lead Plaintiff and defendants McKesson and HBOC announce d that they had agreed to a settlement . In connection with the McKesson Settlement, the Court 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 The definition of the Settlement Class certified for purposes of the McKesson Settlement is the same definition as the "Settlement Class" certified for purposes of this Settlement with Andersen .
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certified a settlement class (the "Settlement Class") .6 After consideration of Bear Stearns's and Andersen's objections to the McKesson Settlement, the Court preliminarily and finally approved the McKesson Settlement . See Order Preliminarily Approving Settlement and Providing for
Notice filed September 28, 2005 [Doc . No . 1391] ; Final Judgment and Order of Dismissal file d
February 24, 2006 [Doc. No . 1443] .
The negotiations that ultimately resulted in the proposed Andersen Settlement wer e protracted and included numerous arm's-length settlement discussions between Lead Counsel and Lead Plaintiff, on the one hand, and Andersen and its general counsel on the other hand . Joint Decl., at 52-56 . In particular, and as a condition to maintaining those discussions, Lead Plaintiff required Andersen to provide detailed explanations and documents reflecting Andersen's financial condition . Id., at 52 . As a result of its extensive review and analysis of confidential Andersen financial documents, Lead Plaintiff was apprised of Andersen's ability (o r inability) to meaningfully satisfy a potential judgment in this action . Throughout the course o f the settlement negotiations, Lead Plaintiff continued to prepare the case for trial in accordanc e
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with the Court' s case management orders . Id, at 130-38 . On December 19, 2006, the partie s agreed to the terms of the Andersen Settlement and executed the Stipulation . On December 20, 2006, Lead Plaintiff moved for preliminary approval of the Anderse n
4 I) Settlement . On January 5, 2007, Bear Steams filed objections to preliminary approval, and, o n 5 6 7 8 9 10 11 12 13 1 . Standards For Approval Of A Class Action Settlement 14 As recognized by this Court in approving the McKesson Settlement, Federal Rule o f 15 Civil Procedure 23(e) lists the criteria for approving a settlement in a class action. See Order 16 Overruling Objections, at p . 7 . Rule 23 provides that a Court may approve a settlement if it is 17 "fair, reasonable, and adequate ." Fed. R . Civ . P . 23(e)(1)(C) . In evaluating whether a proposed 18 settlement meets these criteria, the Court may consider and balance several factors, including 19 some or all of the following : 20 21 22 23 24 25 26 27 28
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January 12, 2007, Lead Plaintiff filed its reply memorandum in further support of preliminary approval and responding to Bear Stearns's objections . The Settling Parties and Bear Steams met and conferred regarding Bear Stearns's objections, and agreed to certain revisions to the [Proposed] Preliminary Approval Order and to the [Proposed] Final Judgment and Order of Dismissal . As a result, Bear Steams withdrew its objections to preliminary approval, and the Court granted preliminary approval by Order filed January 26, 2007 .
Iii.
ARGUMENT
A. The Settlement With Andersen Should Be Approved As Fair Reasonable And Adequate
the strength of the plaintiffs' case ; the risk, expense, complexity, and likely duration of further litigation ; the risk of maintaining class action status throughout the trial; the amount offered in settlement ; the extent of discovery completed, and the stage of the proceedings ; the experience and views of counsel ; the presence of a governmental participant ; and the reaction of the class members to the proposed settlement . In re Veritas Software Corp . Sec. Litig., Master File No . C-03-0283 MMC, 2005 U . S. Dist. LEXIS at 30880, * 1 I (N .D . Cal . Nov . 15, 2005) (quoting Hanlon v. Chrysler Corp., 150 F .3d 1011, 1026 (9th Cir . 1998)) ; see also In re dj Orthopedics, Inc . Sec. Litig., Case No. 02-CV2238-K, 2004 U .S. Dist . LEXIS 11 457, at *6 (S .D. Cal . June 21, 2004) .
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The decision to approve or reject a settlement is committed to the sound discretion . of the trial court. See Hanlon, 150 F .3d at 1026; see also In re Mega Fin . Corp. Sec . Litig., 213 F .3 d 454, 458 (9th Cir. 2000). In exercising its discretion, "the court's intrusion upon what i s
4 I otherwise a private consensual agreement negotiated between the parties to a lawsuit must be 5 limited to the extent necessary to reach a reasoned judgment that the agreement is not the product
6 I of fraud or overreaching by, or collusion between, the negotiating parties, and that the settlement , 7 8 9 10 11 12 13 14 Id 15 Here, the Andersen Settlement was reached at a stage of the litigation in which Lead 16 Counsel and Lead Plaintiff had a firm grasp of the merits of the claims against Andersen and the 17 significant risks of further litigation and trial against it . Joint Decl ., at 57-63 . The negotiations 18 were undertaken at arm's length, between experienced counsel and a sophisticated, well19 informed Lead Plaintiff and defendant . Joint Decl ., at %52-55 . The $72.5 million recovery 20 from Andersen, in addition to the $960 million already paid in settlement by defendants 21 McKesson and HBOC, constitutes a substantial recovery, and no Settlement Class Member has 22 objected to any aspect of the Settlement. Based on such considerations, Lead Plaintiff and Lead 23 Counsel respectfully submit that the Andersen Settlement is an excellent recovery for the 24 Settlement Class and should be approved by the Court . See Joint Decl . '57-64 ; Peaslee Decl ., 25 at T$5-11, 14 . 26 27 28
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taken as a whole, is fair , reasonable and adequate to all concerned ." Officers for Justice v. Civi l Serv. Comm 'n, 688 F .2d 615, 625 (9th Cir. 1982). The Ninth Circuit defines the limits of th e inquiry to be made as follows : [T]he settlement or fairness hearing is not to be turned into a trial or rehearsal for trial on the merits . Neither the trial court nor this court is to reach any ultimate conclusions on the contested issues of fact and law which underlie the merits of the dispute, for it is the very uncertainty of outcome in litigation and avoidance of wasteful and expensive litigation that induce consensual settlements . The proposed settlement is not to be judged against a hypothetical or speculative measure of what might have been achieved by the negotiators .
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2. The Settlement Amount Is Well Within The Ran e Of Reasonablenes s The settlement amount of $72 .5 million in cash, plus accrued interest, represents a significant recovery in this action . The determination of whether a proposed settlement is reasonable cannot be determined by a mathematical equation yielding a particularized sum, but requires consideration of "the complete package taken as a whole, rather than the individual
6 7 8 9 10 11 12 13 a substantial benefit now, rather than a real risk of a smaller recovery, or no recovery at all, 14 15 16 17 18 19 20 investigated the alleged events and transactions . Subsequent to the Court's Order denying the 21 various motions to dismiss the Third Amended Complaint, Lead Counsel reviewed and analyzed 22 well over two million pages of documents, including volumes of documents produced by 23 Andersen . See Joint Decl ., at 13-49 . 24 25 26 27 28 As of December 19, 2006 (the day before Lead Plaintiff filed its motion for preliminar y approval of the Settlement with Andersen), Lead Counsel had conducted the depositions of ove r 75 witnesses, including 11 witnesses currently or formerly associated with Andersen . Joint Decl., at 39 . Through review and analysis of the documents and testimony elicited at th e
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component parts, that must be examined for overall fairness." Nat'l Rural Telecomm . Coop . v. DirecTV, Inc ., 221 F .R.D. 523, 527 (C .D. Cal. 2004) (quoting Officers for Justice, 688 F .2d at 628) . The Andersen Settlement, in addition to the $960 million McKesson Se ttlement, constitutes a very substantial recovery for the benefit of the Settlement Class . Taken together, partial settlements in this action now exceed $1 billion . In this light, the amount of the Andersen Settlement is extraordinary . The Andersen Settlement provides Settlement Class Members with
against Andersen, should Lead Plaintiff proceed to trial against it, as detailed below . See Joint Decl ., at 57-63 . 3 . The Settlement Was Achieved At A Stage When Lead Plaintiff Was Fully Informed About Th e Strengths And Weaknesses Of Its Claims Against Andersen As detailed in the Joint Declaration, the Andersen Settlement was not achieved until afte r over seven years of contested litigation . From the outset, Lead Counsel extensively analyzed and
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depositions, Lead Counsel obtained valuable information regarding the allegations agains t
2 11 Andersen and the defenses it asserted . Lead Counsel also consulted extensively with expert s 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 retained to review and advise on the issues germane to Lead Plaintiff's claims against Anderse n and other defendants, including the damages that Lead Plaintiff would seek to prove at trial . Id. ,
at 40-41 .
Further, as a condition to maintaining settlement discussions, Lead Plaintiff require d Andersen to provide detailed explanations and documents showing its financial condition . As a result of Lead Plaintiff's extensive review and analysis of confidential Andersen financial documents, it was apprised of Andersen's ability to meaningfully satisfy a potential judgment in this action . Id., at 52 . The litigation against Andersen had undoubtedly advanced to a stage where Lead Plaintiff had a clear view of the strengths and weaknesses of its case against Andersen, as well as Andersen's ability to pay . See dj Orthopedics, 2004 U .S . Dist . LEXIS 11457, at *8 (approving settlement where parties were "informed as to the strengths and weaknesses of the claims") . 4. The Settlement Appropriately Balances The Risks Of Litigation And The Benefit To The Settlement Class Of A Certain Recove A court evaluating a proposed class action settlement should balance the risks o f establishing liability and damages against the benefits afforded the class , and the immediacy and certainty of a substantial recovery against the risks of continuing litigation . See DirecTV, 221 L .R.D. at 527 ("Given the risk and uncertainty of the litigation, the benefits to the Class of the settlement make the se ttlement fair, just and reasonable ."); see also Officers for Justice , 688 F.2d at 625 (the expense and possible duration of the litigation are major factors to be considered in evaluating the reasonableness of a se ttlement). Courts attempting to balance these factors
recognize that "[ w]hen reviewing complex class action se ttlements , we have a ` strong judicial policy that favors settlements ."' In re Pac. Enters . Sec. Litig., 47 F .3d 373, 378 (9th Cir . 1995)
I (citation omitted) .
The risks involved in the continued litigation against Andersen were primary drivers o f the Andersen Settlement . The case against Andersen involves the interpretation and applicatio n
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of complicated accounting rules and auditing standards . The case raises challenging factual scenarios and legal defenses, including issues related to the falsity of Andersen's statements, materiality, loss causation, the rebuttable fraud-on-the-market presumption, and damages . This would have been particularly difficult to prove here, because Andersen argued that it was misled by certain of the Individual Defendants, some of whom have pleaded guilty to various charges, ranging from securities fraud, to aiding and abetting securities fraud, to insider trading . In addition, the proportionate liability and judgment reduction provisions of the PSLRA , under which a defendant may be obligated to pay only for the portion of damages for which the defendant is held responsible, may have placed a high proportion of liability on certain other defendants (including those who have pleaded guilty, and/or McKesson and HBOC), and a correspondingly small proportion of liability on Andersen . And finally, the Andersen Se tt lement was also based, in large measure, on the realizatio n that even if Lead Plaintiff had been successful at trial in proving liability, damages and a high proportion of responsibility against Andersen, the Settlement Class would have faced significant limitations on collecting from Andersen . As a result, Lead Plaintiff undertook a careful review and analysis of confidential Andersen financial documents, and determined that the present Andersen Settlement provided a much better return for the Settlement Class compared to what the Settlement Class might have eventually recovered even if Lead Plaintiff were 100% successful at trial . Indeed, to provide additional comfort to Lead Plaintiff that the Settlement Class would be receiving a fair amount through the Andersen Settlement in light of Andersen's financial condition, a term of the Andersen Settlement is that Andersen may be required to make certain additional "Contingent Payments" if it makes payments to its partners or principals in repayment of certain subordinated notes, or if it makes certain payments to resolve other lega l
actions.
5 . The Opinions Of Lead Plaintiff, Lead Counsel, And The Settlement Class Support The Settlemen t The sophisticated institutional investor Lead Plaintiff, NYSCRF, and experienced Lea d Counsel, after participating in long and arduous arm's-length negotiations, fully endorse th e
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Andersen Se ttlement after weighing the risks of continued litigation against Andersen and the substantial benefit provided to the Settlement Class . See Peaslee Decl ., at 11 ; Joint Decl ., at 157-64 . The views of experienced attorneys in class action litigation, while not conclusive, ar e entitled to "[gjreat weight ." In re Heritage Bond Litig., MDL Case No . 02-ML-1425 DT, 2005 U .S . Dist . LEXIS 13555, at *32 (C .D. Cal . June 10, 2005) (" A presumption of correctness is said to `attach to a class settlement reached in arm's-length negotiations between experienced capable counsel after meaningful discovery "') (quoting M anual for Complex Litigation (Third) 30 .42 (1995)) ; see also dj Orthopedics, 2004 U .S. Dist. LEXIS 11457, at *9 ("Finally, the cou rt finds it particularly noteworthy and significant that counsel for both sides , counsel experienced in class action litigation, strongly favor the proposed se ttlement.") . Further, under the regime put in place with the enactment of the Private Securitie s Litigation Reform Act of 1995 ("PSLRA"), a lead plaintiff' s approval of a se ttlement should be accorded " special weight because [it ] may have a better understanding of the case than most members of the class ." DirecTV,, 221 F .R.D. at 528 (quoting MANUAL FOR COMPLEX LITIGATION (THIRD) 30.44 (1995)) . Congress enacted the PSLRA in large part to encourage sophisticated institutional investors to take con trol of securities class actions and "increase the likelihood that parties with significant holdings in issuers, whose interests are more strongly aligned with the class of shareholders , will participate in the litigation and exercise control over the selection and actions of plaintiffs counsel." Heritage Bond, 2005 U .S . Dist. LEXIS 13555, at #1 4-* 15
(quoting H .R. CONF . REP. No. 104-369, 104th Cong ., 1st Sess . 32 (1995), reprinted in 1995 U.S .C .C .A.N . 730) . Here, NYSCRF is " exactly the type of lead plaintiff envisioned by Congress when i t instituted the lead plaintiff requirements ." Armour v. Network Assocs ., 171 F . Supp. 2d 1044, 1051 (N .D. Cal. 2001) (quoting Bowman v. Legato Sys., Inc., 195 F .R.D. 655, 657 (N .D. Cal . 2000)) . Lead Plaintiff was actively involved and informed about the claims against Andersen -and the other defendants - throughout the litigation . Peaslee Decl ., at 3-10 . Further, Lead Plaintiff was intimately involved in overseeing and participating in the lengthy negotiations that led to the Settlement with Andersen . Id., at 9 . From the outset of settlement negotiations, Lea d
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Plaintiff was actively involved and, with the assistance of Lead Counsel, made the decision t o
2 1 reach the Andersen Settlement . Peaslee Decl ., at 9-10 . The fact that the Lead Plaintiff has 3
4 approved and supports the Andersen Settlement is to be given great weight, and is compellin g evidence that the Andersen Settlement is fair, reasonable and adequate and, therefore, should b e
5 ~ I approved . 6 In addition , in response to over 292,000 Notices of the Andersen Se ttlement being mailed
7 I out to the Settlement Class, Lead Counsel has received no objections to the Andersen Settlemen t 8 9 by Settlement Class Members . Moreover, Lead Counsel has received only seven requests for exclusion from the Andersen Settlement . Supp . Mueller Aff., Ex . 2, at 13 . See Heritage Bond,
I0 112005 U .S . Dist. LEXIS 13555, at *34-*35 ("the lack of class members that have manifested an y 11 12 13 14 15 16 17 18 19 20 The notice program, which was previously approved by the Court and mirrors the notic e 21 program utilized for the McKesson Settlement, has been instituted in accordance with the 22 Federal Rules of Civil Procedure, which call for "the best notice practicable under the 23 circumstances, including individual notice to all members who can be identified through 24 reasonable effort ." Fed . R. Civ . P. 23(c)(2)(B) . The Court directed Lead Plaintiff to cause, no 25 later than February 9, 2007, the mailing of Notice of Proposed Settlement of Class Action with 26 Arthur Andersen LLP (the "Notice") and the Proof of Claim and Release (the "Proof of Claim") 27 to all members of the Settlement Class, using for this purpose the database of the names an d 28
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disapproval of the Settlement further demonstrates the fairness, adequacy and reasonableness of the Settlement"); see also Nat '1 Rural, 221 F .R.D. at 529 ("It is established that the absence of a large number of objections to a proposed class action settlement raises a strong presumption that the terms of a proposed class settlement action are favorable to the class members ."). Indeed, as this Court previously noted when approving of the McKesson Settlement, the only objection, which is an objection to being excluded from the Settlement, actually provides additional evidence that the settlement is fair and reasonable - "people are fighting to be included in the settlement." Order Overruling Objections, at p . 3 . 6 . Notice To The Settlement Class Meets Th e Requirements Of Due Process, The PSLRA, And Rule 2 3
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addresses of members of the Settlement Class created by the Claims Administrator for the McKesson Settlement . The Court also directed Lead Plaintiff to cause the Summary Notice for Publication ("Publication Notice") to be published in The Wall Street Journal and elec...