(ii) whether the Court should certify a defendant class consisting of 250 some partners of the accounting firm of Grant Thornton; and (iii) whether the proposed settlements of this litigation are fair, adequate and reasonable.
Upon consideration of the testimony and report of the Special Master appointed by the Court to oversee discovery and to monitor and facilitate settlement negotiations, the testimony and report of the independent real estate appraiser appointed by the Court to evaluate certain real estate which is to be transferred as part of the settlements, numerous affidavits of counsel and expert witnesses and others, memoranda and documentary material in support of settlement, and considering the entire record of the litigation with which the Court is intimately familiar, the Court answers an unqualified "Yes" to each of these questions.
On May 19, 1995, this Court conducted a hearing concerning the adequacy, fairness and reasonableness of proposed class actions settlements of all but one of the related cases that have been consolidated for all pretrial purposes and designated as appropriate for multidistrict litigation pursuant to 28 U.S.C. § 1407 and an Order of the Judicial Panel on Multidistrict Litigation;
the proposed settlements are set forth in the stipulations of settlement filed in the "main class action" at MDL NO. 982, initially filed at Civil Action No. 92-0679 (Lovato, et al v. Chambers Development Company, Inc. et al), and the "derivative action" at Civil Action No. 92-1081 (Yeager, et al v. Rangos, et al) which is part of the main class action.
Regarding the main class action, the factual allegations of the Amended Consolidated Class Action Complaint (Amended Complaint) and this Court's legal conclusions in denying the various defendants' motions to dismiss are set forth fully in In Re: Chambers Development Sec. Lit., 848 F. Supp. 602 (W.D.Pa. 1994). This memorandum opinion on the fairness and adequacy of settlement presumes the reader's familiarity with the factual predicate set forth in that opinion; to the extent this presumption is incorrect, the reader is directed to that opinion.
The initial Complaint was filed in the Lovato action on March 18, 1992, at Civil Action 92-0679. The derivative action was filed on April 14, 1992.
The derivative complaint was filed on behalf of plaintiffs David and Sally Yeager pursuant to Fed. R. Civ. P. 23.1, on behalf of all other similarly situated shareholders, and derivatively on behalf of Chambers Development Company, against John G. Rangos, Sr., Chief Executive Officer of Chambers ("CEO"), and other members of Chambers' senior management and certain of its outside directors, as well as Grant Thornton, an accounting partnership which was Chambers' former independent auditor at most relevant times of the class period. The factual predicate for the derivative action is that which forms the basis for the Amended Complaint in the main class action with, however, certain nuances required by the derivative action device. Although named the nominal defendant in the shareholders' derivative action device, Chambers is the real party in interest, and any recoveries rendered to the derivative class of shareholder plaintiffs belong to Chambers, the corporation on whose behalf the derivative suit ostensibly was brought. Bell Atlantic Corp. v. Bolger, 2 F.3d 1304, 1307 n. 4 (3d Cir. 1993).
In summary, this litigation stems from allegations of fraudulent accounting policies and practices by Chambers and Grant Thornton regarding capitalization of normally expensed items, and the systematic dissemination of various material misrepresentations and omissions of material fact made by these defendants concerning the questionable nature of these accounting policies/practices, and of Chambers' earnings, assets and net worth, which consistently overstated earnings, exaggerated the state of Chambers' financial health, and artificially inflated the market price for its securities on the American Stock Exchange until the bottom fell-out of the market when Chambers corrected its accounting practices and announced that correction to the trading public initially on March 17, 1992,
The complaint in the derivative class action includes: claims for violations of section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n, and Securities and Exchange Commission ("SEC") Rule 14A-9 based upon allegations of materially false, incomplete and misleading proxy statements in 1990 and 1991 disseminated to its shareholders prior to the annual shareholders' meetings in those years at which Chambers' board of directors were elected (Derivative Complaint, Count I); for individual defendants' breach of fiduciary duties to the corporation (Count II); and against Grant Thornton for its alleged professional negligence as Chambers' independent auditors (Count III).
Derivative plaintiffs requested class certification, a declaration that the 1990 and 1991 proxy statements were materially false and misleading and the setting aside of the proxies voted as a result thereof, the setting aside of certain stock option plans which benefited individual Chambers defendants, monetary damages, injunctive relief in the form of internal safeguards to monitor against future abuses, interest, costs and counsel fees. (Derivative plaintiffs point out the section 14(a) misleading proxy statements claim now is moot "because the terms of the directors elected at the 1990 and 1991 annual meetings have expired." Memorandum in Support of Plaintiffs' Motion for Final Approval of the Proposed Settlement and In Support of Counsel's Application for Attorneys' Fees ("Derivative Memorandum"), Document No. 20 at Civil Action No. 92-1081 at 2 n. 1.)
By stipulation of the parties, Chambers and the individual defendants were relieved in November 1992, of their obligations to "move or otherwise respond to the derivative Complaint" until the earlier of several events, none of which has occurred. Therefore, neither Chambers nor the individual defendants have answered or responded to the derivative complaint. Derivative Memorandum at 3. Essentially, the derivative action has laid dormant since then, except to the extent counsel may have participated in any discovery and in negotiations attached to the main class action, until the stipulation of settlement was filed on February 24, 1995.
On March 7, 1994, two weeks after this Court denied the various motions to dismiss, the main class action plaintiffs moved this Court to certify the class pursuant to Fed.R.Civ.P. Rule 23(a) and Rule 23(b)(3), and sought to extend the class period beyond that charged in the Amended Complaint to include all purchasers of Chambers securities through October 20, 1992, upon allegations that subsequent to March 17, 1992, additional disclosures of additional accounting irregularities and further adjustments to previously reported profits produced additional negative impact upon the trading price of Chambers securities.
On April 29, 1994, the Court conducted a status/settlement conference to discuss with counsel their suggestions and recommendations with regard to methods of resolution of the outstanding issues in this case, including but not limited to settlement of the various claims asserted by all of the parties. At that time, the Court was made aware that class action plaintiffs had, not unexpectedly, upped the ante following this Court's ruling in their favor on the motions to dismiss. The Court concluded that this litigation required the appointment of a special master to aid the Court in the performance of its judicial duties, including the management of discovery and overseeing settlement negotiations. By Order of May 6, 1994, the Court held:
It is the court's finding that the appointment of a Special Master will best promote the mandate of Fed.R.Civ.P. Rule 1 "to secure the just, speedy, and inexpensive determination of every action." Therefore, pursuant to Fed.R.Civ.P. Rule 16, 26 and 53, and the inherent authority of this court to supervise and administer pending cases, the court hereby appoints John J. McLean, Jr., Esquire, . . . as Special Master, who shall be paid $ 225 per hour for performing his assigned duties. The court has determined the amount of compensation to be fair and equitable in light of the complex and difficult task to be assigned to the Special Master and particularly in consideration of his unique experience and qualifications.