LERACH 1 COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP 2 LESLEY E. WEAVER (191305) ELIZABETH A. ACEVEDO (227347) 3 100 Pine Street, Suite 2600 San Francisco, CA 94111 4 Telephone: [phone] (fax) 5 and WILLIAM S. LERACH (68581) 6 TOR GRONBORG (179109) JEFFREY D. LIGHT (159515) 7 401 B Street, Suite 1600 San Diego, CA 92101 8 Telephone: [phone] (fax) 9 Lead Counsel for Plaintiffs 10 11 12 13 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA ) ) ) ) ) ) ) ) Master File No. C-04-2942-SI CLASS ACTION NOTICE OF MOTION AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF FINAL APPROVAL OF SETTLEMENT AND PLAN OF ALLOCATION OF SETTLEMENT PROCEEDS DATE: June 22, 2005 TIME: 4:00 p.m. COURTROOM: The Honorable Susan Illston
In re NASSDA CORPORATION 14 SECURITIES LITIGATION 15 16 17 18 19 20 21 22 23 24 25 26 27 28 This Document Relates To: ALL ACTIONS.
1 2 3 I. 4 II. 5 6 7 8 9 10 11 12 13 14 IV. 15 V. 16 17 18 19 20 21 22 23 24 25 26 27 28 B. C. III.
TABLE OF CONTENTS Page PRELIMINARY STATEMENT .........................................................................................1 THE STANDARDS FOR JUDICIAL APPROVAL OF CLASS ACTION SETTLEMENTS..................................................................................................................3 THE SETTLEMENT MEETS THE NINTH CIRCUIT STANDARD FOR APPROVAL ........................................................................................................................5 A. The Settlement Appropriately Balances the Risks of Litigation and the Benefit to the Class of a Certain Recovery..............................................................5 1. 2. Continued Litigation Posed Substantial Risk in Establishing Liability and Damages .................................................................................6 Balancing the Certainty of an Immediate Recovery Against the Expense and Likely Duration of Trial Favors Settlement ...........................9
The Parties Could Identify the Strengths and Weaknesses of Their Cases ...........10 The Recommendations of Experienced Counsel Heavily Favor Approval of the Settlement ....................................................................................................11
THE PLAN OF ALLOCATION IS FAIR AND REASONABLE....................................11 CONCLUSION..................................................................................................................13
NOTICE OF MOTION AND POINTS & AUTHORITIES IN SUPPORT OF SETTLEMENT AND PLAN OF ALLOCATION - C-04-2942-SI
-i-
1 2
TABLE OF AUTHORITIES Page
3 Backman v. Polaroid Corp., 910 F.2d 10 (1st Cir. 1990)..................................................................................................8 4 Beecher v. Able, 5 575 F.2d 1010 (2d Cir. 1978).............................................................................................12 6 Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979).................................................................................................8 7 Boyd v. Bechtel Corp., 8 485 F. Supp. 610 (N.D. Cal. 1979) ........................................................................4, 5, 9, 10 9 Bullock v. Administrator of Estate of Kircher, 84 F.R.D. 1 (D.N.J. 1979)....................................................................................................9 10 Class Plaintiffs v. Seattle, 11 955 F.2d 1268 (9th Cir. 1992) .......................................................................................4, 12 12 Ellis v. Naval Air Rework Facility, 87 F.R.D. 15 (N.D. Cal. 1980), 13 aff'd, 661 F.2d 939 (9th Cir. 1981) ..........................................................................4, 10, 11 14 Fisher Bros. v. Cambridge-Lee Indus., Inc., 630 F. Supp. 482 (E.D. Pa. 1985) ......................................................................................11 15 Girsh v. Jepson, 16 521 F.2d 153 (3d Cir. 1975).......................................................................................5, 9, 10 17 Green v. Occidental Petroleum Corp., 541 F.2d 1335 (9th Cir. 1976) .............................................................................................7 18 In re Apple Computer Sec. Litig., 19 [1991 Transfer Binder] Fed. Sec. L. Rep. (CCH) 96,252 (N.D. Cal. 1991).....................................................................................................8 20 In re Chambers Dev. Sec. Litig., 21 912 F. Supp. 822 (W.D. Pa. 1995).....................................................................................10 22 In re Chicken Antitrust Litig. Am. Poultry, 669 F.2d 228 (5th Cir. 1982) .............................................................................................12 23 In re Gulf Oil/Cities Serv. Tender Offer Litig., 24 142 F.R.D. 588 (S.D.N.Y. 1992) .......................................................................................12 25 In re IKON Office Solutions, Inc., 194 F.R.D. 166 (E.D. Pa. 2000).........................................................................................12 26 In re Mego Fin. Corp. Sec. Litig., 27 213 F.3d 454 (9th Cir. 2000) .......................................................................................10, 11 28
NOTICE OF MOTION AND POINTS & AUTHORITIES IN SUPPORT OF SETTLEMENT AND PLAN OF ALLOCATION - C-04-2942-SI
- ii -
1 2 Page
3 In re Metawave Comm'n Corp. Sec. Litig., 298 F. Supp. 2d 1056 (W.D. Wash. 2003)...........................................................................5 4 In re Pacific Enters. Sec. Litig., 5 47 F.3d 373 (9th Cir. 1995) .................................................................................................3 6 In re Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions, 148 F.3d 283 (3d Cir. 1998)...............................................................................................10 7 In re Silicon Graphics Sec. Litig., 8 183 F.3d 970 (9th Cir. 1999) ...............................................................................................5 9 In re Warner Communications Sec. Litig., 618 F. Supp. 735 (S.D.N.Y. 1985), 10 aff'd, 798 F.2d 35 (2d Cir. 1986) ...........................................................................5, 7, 9, 10 11 In re Washington Pub. Power Supply Sys. Sec. Litig., 720 F. Supp. 1379 (D. Ariz. 1989), aff'd sub nom. 12 Class Plaintiffs v. Seattle, 955 F.2d 1268 (9th Cir. 1992) ...................................................4 13 Lewis v. Newman, 59 F.R.D. 525 (S.D.N.Y. 1973) ...........................................................................................5 14 M. Berenson Co. v. Faneuil Hall Marketplace, Inc., 15 671 F. Supp. 819 (D. Mass. 1987) .......................................................................................4 16 MWS Wire Indus., Inc. v. California Fine Wire Co., 797 F.2d 799 (9th Cir. 1986) ...............................................................................................3 17 Malchman v. Davis, 18 761 F.2d 893 (2d Cir. 1985).................................................................................................5 19 Marshall v. Holiday Magic, Inc., 550 F.2d 1173 (9th Cir. 1977) .............................................................................................3 20 McGonigle v. Combs, 21 968 F.2d 810 (9th Cir. 1992) ...............................................................................................6 22 Milstein v. Huck, 600 F. Supp. 254 (E.D.N.Y. 1984) ..................................................................................5, 9 23 Newman v. Stein, 24 464 F.2d 689 (2d Cir. 1972).................................................................................................3 25 Officers for Justice v. Civil Service Comm'n, 688 F.2d 615 (9th Cir. 1982) .......................................................................................3, 4, 9 26 Republic Nat'l Life Ins. Co. v. Beasley, 27 73 F.R.D. 658 (S.D.N.Y. 1977) ...........................................................................................5 28
NOTICE OF MOTION AND POINTS & AUTHORITIES IN SUPPORT OF SETTLEMENT AND PLAN OF ALLOCATION - C-04-2942-SI
- iii -
1 2 Page
3 Steinberg v. Carey, 470 F. Supp. 471 (S.D.N.Y. 1979).......................................................................................3 4 Torrisi v. Tucson Elec. Power Co., 5 8 F.3d 1370 (9th Cir. 1993) .................................................................................................4 6 Trans World Airlines, Inc. v. Hughes, 312 F. Supp. 478 (S.D.N.Y. 1970), modified, 7 449 F.2d 51 (2d Cir. 1971), rev'd, 409 U.S. 363 (1973)......................................................9 8 Utility Reform Project v. Bonneville Power Admin., 869 F.2d 437 (9th Cir. 1989) ...............................................................................................3 9 Van Bronkhorst v. Safeco Corp., 10 529 F.2d 943 (9th Cir. 1976) ...............................................................................................3 11 Weinberger v. Kendrick, 698 F.2d 61 (2d Cir. 1982).............................................................................................3, 10 12 West Virginia v. Chas. Pfizer & Co., 13 314 F. Supp. 710 (S.D.N.Y. 1970), aff'd, 440 F.2d 1079 (2d Cir. 1971) ............................8 14 White v. NFL, 822 F. Supp. 1389 (D. Minn. 1993)...................................................................................12 15 Williams v. First Nat'l Bank, 16 216 U.S. 582, 30 S. Ct. 441, 54 L. Ed. 625 (1910)..............................................................3 17 Young v. Katz, 447 F.2d 431 (5th Cir. 1971) ...............................................................................................9 18 19 STATUTES, RULES AND REGULATIONS 20 15 U.S.C. 78j(b)......................................................................................................................2, 5, 6, 7 21 78t(a) .............................................................................................................................2, 6 22 Federal Rules of Civil Procedure Rule 23 ...................................................................................................................3, 11 23 Rule 23(e).............................................................................................................................3 24 17 C.F.R. 240.10b-5 ...........................................................................................................................6 25 26 SECONDARY AUTHORITIES 27 Manual for Complex Litigation (3d ed. 1995) 30.42...................................................................................................................................4 28
NOTICE OF MOTION AND POINTS & AUTHORITIES IN SUPPORT OF SETTLEMENT AND PLAN OF ALLOCATION - C-04-2942-SI
- iv -
1 TO: 2
ALL PARTIES AND THEIR ATTORNEYS OF RECORD PLEASE TAKE NOTICE that, pursuant to an Order of the Court filed on April 13, 2005, on
3 June 22, 2005, at 4:00 p.m., or as soon thereafter as counsel may be heard, at the United States 4 Courthouse, 450 Golden Gate Avenue, San Francisco, California, before the Honorable Susan 5 Illston, Lead Plaintiff will and hereby does move for a judgment finally approving the settlement of 6 this action and dismissing it with prejudice and approval of the Plan of Allocation of settlement 7 proceeds. Lead Plaintiff's motion is based on the Memorandum of Points and Authorities in Support 8 of Final Approval of Settlement and Plan of Allocation of Settlement Proceeds, the declarations of 9 counsel for the Lead Plaintiff, the Stipulation of Settlement dated as of January 20, 2005, all other 10 pleadings and matters of record, and such additional evidence or argument as may be presented at 11 the hearing. 12 13 I. 14 MEMORANDUM OF POINTS AND AUTHORITIES PRELIMINARY STATEMENT Lead Plaintiff respectfully submits this memorandum of points and authorities in support of
15 its motion for final approval of the settlement of this action for cash consideration of $9,000,000 and 16 approval of the Plan of Allocation of settlement proceeds. The terms of the settlement are set forth 17 in the Stipulation of Settlement dated as of January 20, 2005 ("Stipulation") which was previously 18 submitted to the Court. The settlement is on behalf of all Persons who purchased Nassda 19 Corporation ("Nassda" or the "Company") common stock at any time during the period commencing 20 on December 13, 2001 through and including June 11, 2004 ("Settlement Class").1 The settlement 21 reached is the result of arm's-length negotiations between counsel with extensive experience and 22 expertise in securities class action litigation. The settlement amount represents approximately 41% 23 of the estimated damages suffered by the Settlement Class and by any measure is an excellent 24 25
1 Excluded from the Settlement Class are Defendants, members of the immediate families of 26 the Individual Defendants, any entity in which any Defendant has or had a controlling interest, directors and officers of Nassda, and the legal representatives, heirs, successors or assigns of any 27 such excluded person.
28
NOTICE OF MOTION AND POINTS & AUTHORITIES IN SUPPORT OF SETTLEMENT AND PLAN OF ALLOCATION - C-04-2942-SI
-1-
1 resolution of this Litigation. Settlement Class Members will receive an immediate and substantial 2 benefit without the considerable delay, risk, uncertainty and expense of continued litigation. 3 The first of only two lawsuits was filed in this Court on July 20, 2004, asserting that the price
4 of Nassda common stock was artificially inflated during the period December 13, 2001 through June 5 11, 2004 (the "Litigation"). The Litigation asserts claims under 10(b) and 20(a) of the Securities 6 Exchange Act of 1934. On November 4, 2004, the NECA-IBEW Pension Fund ("NECA") was 7 appointed Lead Plaintiff and its choice of counsel, Lerach Coughlin Stoia Geller Rudman & Robbins 8 LLP was appointed Lead Counsel. Lead Plaintiff alleges that throughout the Class Period, 9 Defendants allegedly misled investors regarding the potential infringement of trade secrets and 10 patents concerning Nassda's primary Hierarchical Storage and Isomorphic Matching software 11 products and as a result, Nassda's financial results were allegedly inflated and its stock price 12 artificially inflated. An overview of the case is set forth in the Declaration of Tor Gronborg in 13 Support of Motion for (1) Final Approval of Settlement and Plan of Allocation of Settlement 14 Proceeds, and (2) Lead Counsel's Application for an Award of Attorneys' Fees and Reimbursement 15 of Expenses ("Gronborg Declaration"), submitted herewith. The Court is respectfully referred to the 16 Gronborg Declaration for a detailed discussion of the factual and procedural history of the Litigation, 17 counsel's efforts on behalf of the Settlement Class and the factors bearing on the reasonableness of 18 the settlement, Plan of Allocation, and counsel's request for an award of attorneys' fees and 19 expenses. 20 Lead Counsel who are well respected and experienced in prosecuting securities class actions
21 have concluded that the settlement is an excellent result and clearly in the best interest of the 22 Settlement Class. This conclusion is based on, among other things, the outstanding immediate 23 recovery when weighed against the substantial risks, expense and delay presented in continuing this 24 litigation, a complete analysis of the relevant legal authorities and evidence obtained as a result of 25 counsel's extensive investigation, the Defendants' ability to pay any judgment, and past experience 26 in litigating other complex class actions similar to the present action. Thus, Lead Counsel 27 respectfully submit that the settlement is eminently fair, reasonable and adequate and should be 28
NOTICE OF MOTION AND POINTS & AUTHORITIES IN SUPPORT OF SETTLEMENT AND PLAN OF ALLOCATION - C-04-2942-SI
-2-
1 approved by this Court. Moreover, the Plan of Allocation of settlement proceeds tracks the theory of 2 damages asserted and is necessarily fair, reasonable and adequate.2 3 II. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 In reviewing this settlement under Rule 23, the Court is not required to substitute its business judgment for that of these counsel, Steinberg v. Carey, 470 F. Supp. 471 (S.D.N.Y. 1979); the 22 settlement should be approved if it is within a "range of reasonableness," Newman v. Stein, 464 F.2d 23 689, 693 (2d Cir. 1972). 3 The law always 24 U.S. 582, 595, 30 S. Ct. favors the compromise of disputed claims, Williams v. First Nat'l Bank, 216 441, 54 L. Ed. 625 (1910); In re Pacific Enters. Sec. Litig., 47 F.3d 373, 378 (9th Cir. 1995); MWS Wire Indus., Inc. v. California Fine Wire Co., 797 F.2d 799, 802 (9th Cir. 25 1986); including those asserted in stockholder class actions, Weinberger v. Kendrick, 698 F.2d 61, 26 73 (2d Cir. 1982).
4 Pacific Enters., 47 27 Marshall v. Holiday Magic,F.3d at 377 (citation omitted); Officers for Justice, 688 F.2d at 625; Inc., 550 F.2d 1173, 1178 (9th Cir. 1977). 28 2
THE STANDARDS FOR JUDICIAL APPROVAL OF CLASS ACTION SETTLEMENTS It is well established in the Ninth Circuit that "voluntary conciliation and settlement are the
preferred means of dispute resolution." Officers for Justice v. Civil Service Comm'n, 688 F.2d 615, 625 (9th Cir. 1982). Class action suits readily lend themselves to compromise because of the difficulties of proof, the uncertainties of the outcome and the typical length of the litigation. "[T]here is an overriding public interest in settling and quieting litigation," and this is "particularly true in class action suits." Van Bronkhorst v. Safeco Corp., 529 F.2d 943, 950 (9th Cir. 1976); Utility Reform Project v. Bonneville Power Admin., 869 F.2d 437, 443 (9th Cir. 1989).3 In approving a proposed settlement of a class action under Federal Rule of Civil Procedure 23(e), the Court must find that the proposed settlement is "`fair, adequate and reasonable.'"4 The Ninth Circuit has provided factors which may be considered in evaluating the fairness of a class action settlement: Although Rule 23(e) is silent respecting the standard by which a proposed settlement is to be evaluated, the universally applied standard is whether the settlement is fundamentally fair, adequate and reasonable. The district court's ultimate determination will necessarily involve a balancing of several factors which may include, among others, some or all of the following: the strength of 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
NOTICE OF MOTION AND POINTS & AUTHORITIES IN SUPPORT OF SETTLEMENT AND PLAN OF ALLOCATION - C-04-2942-SI
-3-
1 2 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
and views of counsel; the presence of a governmental participant; and the reaction of the class members to the proposed settlement. Officers for Justice, 688 F.2d at 625 (citations omitted). Accord Torrisi v. Tucson Elec. Power Co., 8 F.3d 1370, 1375 (9th Cir. 1993); In re Washington Pub. Power Supply Sys. Sec. Litig., 720 F. Supp. 1379 (D. Ariz. 1989), aff'd sub nom. Class Plaintiffs v. Seattle, 955 F.2d 1268 (9th Cir. 1992). The district court must exercise sound discretion in approving a settlement. Torrisi, 8 F.3d at 1375; Ellis v. Naval Air Rework Facility, 87 F.R.D. 15, 18 (N.D. Cal. 1980), aff'd, 661 F.2d 939 (9th Cir. 1981). In exercising its discretion, "the court's intrusion upon what is otherwise a private consensual agreement negotiated between the parties to a lawsuit must be limited to the extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties, and that the settlement, taken as a whole, is fair, reasonable and adequate to all concerned." Officers for Justice, 688 F.2d at 625. The Ninth Circuit defines the limits of the inquiry to be made by the Court in the following manner: Therefore, the 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. Id. (emphasis in original). As explained below and in the Gronborg Declaration, application of these criteria shows that this settlement warrants the Court's approval. Moreover, "[t]he recommendations of plaintiffs' counsel should be given a presumption of reasonableness." Boyd v. Bechtel Corp., 485 F. Supp. 610, 622 (N.D. Cal. 1979). The presumption of reasonableness in this action is fully warranted because the settlement is the product of arm'slength negotiations and was conducted by capable counsel who are well experienced in securities law litigation. M. Berenson Co. v. Faneuil Hall Marketplace, Inc., 671 F. Supp. 819, 822 (D. Mass. 1987); Ellis, 87 F.R.D. at 18 ("the fact that experienced counsel involved in the case the approved settlement after hard-fought negotiations is entitled to considerable weight"); Manual for Complex
NOTICE OF MOTION AND POINTS & AUTHORITIES IN SUPPORT OF SETTLEMENT AND PLAN OF ALLOCATION - C-04-2942-SI
-4-
1 Litigation 30.42 (3d ed. 1995).5 Here, it is the considered judgment of experienced counsel after 2 extensive investigation and settlement negotiations that this settlement for $9 million in cash is an 3 excellent result for the Settlement Class. 4 III. 5 6 7 THE SETTLEMENT MEETS THE NINTH CIRCUIT STANDARD FOR APPROVAL A. The Settlement Appropriately Balances the Risks of Litigation and the Benefit to the Class of a Certain Recovery
To determine whether the proposed settlement is fair, reasonable and adequate, the Court
8 must balance the continuing risks of litigation against the benefits afforded to members of the class 9 and the immediacy and certainty of a substantial recovery. Girsh v. Jepson, 521 F.2d 153, 157 (3d 10 Cir. 1975); Boyd, 485 F. Supp. at 616-17; In re Warner Communications Sec. Litig., 618 F. Supp. 11 735, 741 (S.D.N.Y. 1985), aff'd, 798 F.2d 35 (2d Cir. 1986). In the context of approving class 12 action settlements, courts attempting to balance these factors have recognized "that stockholder 13 litigation is notably difficult and notoriously uncertain." Lewis v. Newman, 59 F.R.D. 525, 528 14 (S.D.N.Y. 1973); see also Republic Nat'l Life Ins. Co. v. Beasley, 73 F.R.D. 658 (S.D.N.Y. 1977). 15 A balance of these factors in this Litigation supports approval of the settlement, particularly
16 in light of the risks presented by the Private Securities Litigation Reform Act of 1995 ("PSLRA") 17 and the Ninth Circuit's decisions in In re Silicon Graphics Sec. Litig., 183 F.3d 970 (9th Cir. 1999) 18 and its progeny. The Ninth Circuit's decisions in Silicon Graphics and its progeny interpreted the 19 PSLRA's heightened pleading standards in a very expansive manner and established what is 20 commonly accepted to be the most stringent standards of any Circuit to pleading a 10(b) claim. 21 While Lead Plaintiff believes that allegations in an amended complaint would be sufficiently
22 detailed, there was a real risk that the plaintiffs' allegations would be dismissed at the pleading stage 23 because of the heightened pleading standards in the Ninth Circuit that make it very difficult to meet 24 the "strong inference of scienter" standard. See, e.g., In re Metawave Comm'n Corp. Sec. Litig., 298 25 F. Supp. 2d 1056 (W.D. Wash. 2003) (court dismissed with prejudice case involving allegations of 26
5 Accord Malchman 27 254, 262 (E.D.N.Y. 1984).v. Davis, 761 F.2d 893, 903 (2d Cir. 1985); Milstein v. Huck, 600 F. Supp. 28
NOTICE OF MOTION AND POINTS & AUTHORITIES IN SUPPORT OF SETTLEMENT AND PLAN OF ALLOCATION - C-04-2942-SI
-5-
1 significant accounting manipulations and restatements supported by information from confidential 2 witnesses). 3 As discussed herein and in the Gronborg Declaration, the risks of continued litigation when
4 weighed against the substantial and certain recovery for the Settlement Class confirms the 5 reasonableness of the settlement. The settlement is unquestionably better than another distinct 6 possibility no or little recovery for the Settlement Class. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1. Continued Litigation Posed Substantial Risk in Establishing Liability and Damages
Even if Lead Plaintiff got past the pleading stage, which was by no means guaranteed, as in every complex case of this kind, it would have faced formidable obstacles to recovery, both with respect to liability and damages. The principal claims asserted in the Litigation on behalf of the class were based on 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. To prevail on its 10(b) claims Lead Plaintiff would bear the burden of establishing (1) a misstatement or omission, (2) of material fact, (3) made with scienter, (4) on which plaintiff relied, and (5) that causes loss. McGonigle v. Combs, 968 F.2d 810, 817 (9th Cir. 1992). Thus, Lead Plaintiff would have to prove that Defendants were responsible for material misstatements or omissions of fact in connection with Nassda common stock, that the Settlement Class justifiably relied upon Defendants' misconduct, that Defendants acted with the requisite scienter and that the Settlement Class suffered damages as a result of Defendants' conduct. Here, Lead Plaintiff alleged that the value of Nassda common stock was artificially inflated during the Class Period because of Defendants' failure to disclose Nassda's alleged illegal use of another company's patents and trade secrets. Throughout the course of the litigation and settlement talks, Defendants asserted that they possessed credible defenses to the claims asserted, denied all allegations and insisted there was no basis for liability. Moreover, at the time the initial action was filed through the commencement of settlement negotiations, Lead Plaintiff and Lead Counsel were aware that a possible adverse judgment in the patent and trade secret litigation filed against Nassda would potentially cripple the Company, affecting its ability to continue selling and collecting revenues from its main products and requiring payout of potentially significant damages.
NOTICE OF MOTION AND POINTS & AUTHORITIES IN SUPPORT OF SETTLEMENT AND PLAN OF ALLOCATION - C-04-2942-SI
-6-
1
The Litigation entailed a number of complex issues including the misappropriation of patents
2 and trade secrets. Assuming Lead Plaintiff survived Defendants' motions to dismiss and summary 3 judgment, presenting these complex issues to a jury posed a particular risk to Lead Plaintiff's hope 4 for success at trial. Lead Plaintiff could not be certain that the jury would be able to understand 5 these matters well enough to reach a factual determination in the class's favor. 6 The risks of establishing liability posed by the complexity of the issues would be exacerbated
7 by risks inherent in all shareholder litigation, including the unpredictability of a lengthy and complex 8 jury trial, the risk that the jury would react to evidence in unforeseen ways, the risk that a jury would 9 find that some or all of the alleged misrepresentations were not material and the risk that the jury 10 would find that Defendants reasonably believed in the appropriateness of their actions and that Lead 11 Plaintiff failed to prove that Defendants acted with scienter. Thus, assuming that Lead Plaintiff 12 survived Defendants' anticipated motions to dismiss and summary judgment, it nevertheless faced 13 the significant risk that Defendants' arguments might have found favor with a jury and resulted in 14 the class losing at trial. 15 Even if Lead Plaintiff was to overcome the significant risks of proving liability, it would still
16 face the risks of proving damages. The traditional measure of damages for a defrauded investor 17 under 10(b) is the difference between the price paid for the securities and the "fair value" of the 18 investment in the absence of fraud at the time of the purchase, the difference being the artificial 19 inflation caused by the defendants' misstatements and/or omissions. See Green v. Occidental 20 Petroleum Corp., 541 F.2d 1335, 1344 (9th Cir. 1976). 21 While Lead Plaintiff believes that it would be able to establish that the Settlement Class
22 suffered damages in the amount of approximately $22 million, the determination of damages is a 23 complicated and uncertain process involving conflicting expert testimony. Defendants' experts 24 would likely contend that much of the loss experienced by Settlement Class Members was due to 25 other factors completely unrelated to any actionable conduct of Defendants, thereby limiting 26 plaintiffs' potential recovery. See Warner Communications, 618 F. Supp. at 744-45 (approving 27 settlement where "it is virtually impossible to predict with any certainty which testimony would be 28 credited, and ultimately, which damages would be found to have been caused by actionable, rather
NOTICE OF MOTION AND POINTS & AUTHORITIES IN SUPPORT OF SETTLEMENT AND PLAN OF ALLOCATION - C-04-2942-SI
-7-
1 than the myriad of nonactionable factors such as general market conditions"). Expert testimony 2 could rest on many subjective assumptions, any of which could be rejected by a jury as speculative 3 or unreliable. At trial, the damage assessments of Lead Plaintiff's and Defendants' experts were sure 4 to vary substantially, and in the end, this crucial element at trial would be reduced to a "battle of 5 experts." The reaction of a jury to such expert testimony is highly unpredictable and in such a battle, 6 Lead Plaintiff's counsel recognize the possibility that a jury could be swayed by convincing experts 7 for the Defendants, and find that there were no damages or only a fraction of the amount of damages 8 Lead Plaintiff contended. 9 While it is likely the aggregate class damages that could have been established at trial would
10 have exceeded the amount of the proposed settlement, such result assumes that all significant 11 liability and damage issues would have been resolved in Lead Plaintiff's favor. Therefore, the 12 amount of damages the Settlement Class would recover if successful at trial is uncertain at best. 13 In summary, although Lead Plaintiff believes that its case is meritorious and that it would
14 ultimately prevail in establishing liability and damages, success at the motion to dismiss or summary 15 judgment stage or trial is never certain, and because Defendants would have mounted on aggressive 16 defense, the settlement eliminates the significant risks of continued litigation, and the potential for 17 lengthy, costly and uncertain litigation and appeals. Moreover, even if Lead Plaintiff was to prevail 18 at trial, risks to the class would remain. For example, in In re Apple Computer Sec. Litig., [1991 19 Transfer Binder] Fed. Sec. L. Rep. (CCH) 96,252 (N.D. Cal. 1991), a case litigated and tried in this 20 District, the jury rendered a verdict for plaintiffs after an extended trial. Based upon the jury's 21 findings, recoverable damages could have exceeded $100 million. However, weeks later, Judge 22 Ware overturned the verdict, entering judgment n.o.v. for the individual defendants, and ordered a 23 new trial with respect to the corporate defendant. In another case, the class won a jury verdict and a 24 motion for j.n.o.v. was denied, but on appeal the judgment was reversed and the case dismissed. 25 Backman v. Polaroid Corp., 910 F.2d 10 (1st Cir. 1990). See also West Virginia v. Chas. Pfizer & 26 Co., 314 F. Supp. 710, 743-44 (S.D.N.Y. 1970) ("[i]t is known from past experience that no matter 27 how confident one may be of the outcome of litigation, such confidence is often misplaced"), aff'd, 28 440 F.2d 1079 (2d Cir. 1971); Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir.
NOTICE OF MOTION AND POINTS & AUTHORITIES IN SUPPORT OF SETTLEMENT AND PLAN OF ALLOCATION - C-04-2942-SI
-8-
1 1979) (reversing $87 million judgment after trial); Trans World Airlines, Inc. v. Hughes, 312 F. 2 Supp. 478 (S.D.N.Y. 1970), modified, 449 F.2d 51 (2d Cir. 1971), rev'd, 409 U.S. 363 (1973) 3 (overturning $145 million judgment after years of appeals). Therefore, careful consideration of the 4 above risks supports approval of the settlement as fair, adequate and reasonable. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
NOTICE OF MOTION AND POINTS & AUTHORITIES IN SUPPORT OF SETTLEMENT AND PLAN OF ALLOCATION - C-04-2942-SI
2.
Balancing the Certainty of an Immediate Recovery Against the Expense and Likely Duration of Trial Favors Settlement
The immediacy and certainty of a recovery is a factor for the Court to balance in determining whether the proposed settlement is fair, adequate and reasonable. E.g., Girsh, 521 F.2d at 157. Courts consistently have held that "[t]he expense and possible duration of the litigation are major factors to be considered in evaluating the reasonableness of [a] settlement." Milstein, 600 F. Supp. at 267; Officers for Justice, 688 F.2d at 626; Boyd, 485 F. Supp. at 616-17; Bullock v. Administrator of Estate of Kircher, 84 F.R.D. 1, 10 (D.N.J. 1979). Therefore, the present settlement must also be balanced against the expense of achieving a more favorable result at trial. Young v. Katz, 447 F.2d 431, 433 (5th Cir. 1971). Approval of the settlement will mean a present recovery of approximately 41% of Lead Plaintiff's estimate of the damages suffered by Settlement Class Members. If not for this settlement, the case would have continued through Defendants' motion to dismiss, summary judgment and trial. While Lead Counsel believe they would ultimately prevail on the merits, the incursion of additional and very substantial expense to litigate up to trial would severely deplete any eve...