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POZZI v. SMITH

January 24, 1997

DIANNE D. POZZI, individually and on behalf of all those similarly situated, Plaintiffs,
v.
DAVID W. SMITH, DAVID H. YOUNG, ANTHONY R. DRURY, AND QUAD SYSTEMS CORPORATION, Defendants.



The opinion of the court was delivered by: ROBRENO

 EDUARDO C. ROBRENO, J.

 January 24, 1997

 I. BACKGROUND

 This securities litigation involves a consolidated class action brought in federal district court in the Eastern District of Pennsylvania. The complaint was filed on March 10, 1995 by Diane D. Pozzi, on her own behalf and that of all other persons who purchased common shares of Defendant Quad Systems Corporation ("Quad"), a computer software firm, between December 23, 1994 and March 7, 1995 ("the class period"). Named as defendants were Quad and several individuals who had served as officers or directors of Quad during the class period (Quad and the individual defendants are hereinafter referred to as "Defendants").

 The complaint alleges violations of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, the rules and regulations of the Securities and Exchange Commission ("SEC") promulgated thereunder, and the common law of negligent misrepresentation. Specifically, Plaintiffs allege that, during the class period, Defendants misrepresented and failed to disclose in publicly disseminated materials and public statements material facts concerning its efforts to resolve certain software problems with their QSP-2 product, demand for their products, and their future business prospects. Plaintiffs claim that, as a result of the misrepresentations and omissions of material facts, the class members were induced to purchase Quad stock at artificially inflated prices and therefore suffered substantial financial losses resulting from purchases of Quad stock during the class period.

 The proposed settlement provides for creation of a fund of $ 2,450,000 in cash in addition to interest which has accrued on the settlement fund since June 1995. After deductions of the expenses of notice and settlement administration, attorneys' fees and costs, and the class representative fee, the net settlement fund will be distributed to those class members submitting valid claims.

 In accordance with the Plan of Distribution described in the settlement mailed to the class on October 18, 1996, the settlement fund will be allocated pro-rata among class members. The amount each class member will receive will be determined under a complex formula which factors the amount of the damages suffered by class members at different times during the class period ("the Recognized Loss").

 On August 28, 1996, the Court held a hearing on Plaintiffs' request for conditional certification of the class and approval of the notice of settlement, award of attorneys' fees and reimbursement for litigation expenses, and award of a class representative fee. (doc. 48) After entertaining arguments from counsel on the issues, the Court conditionally certified the class, and granted preliminary approval to the settlement. On October 18, 1996, approximately 2,000 notices of the terms of the settlement were mailed to members of the class. Moreover, pursuant to the Court's Order, a summary notice was published in the national edition of the Wall Street Journal. No objections were filed by class members and none opted out of the class. On December 13, 1996, the Court conducted a final hearing on the Plaintiffs' request for final certification of the class, entry of a final judgment and order under Rule 54(b) of the Federal Rules of Civil Procedure, final approval of the settlement, award of attorneys' fees and reimbursement for litigation expenses, and award of a class representative fee. (doc. 58) No objectors appeared at the hearing.

 Since the date of the final hearing, at the Court's request, counsel for Plaintiffs have furnished the Court further documentation in support of the amount claimed in costs and expenses, and the amount of time that the class representative has spent on matters relating to this litigation. The Court now sets forth its conclusions.

 II. DISCUSSION

 1. Final Certification of the Class

 The class was conditionally certified for the purpose of concluding the settlement between the parties. The Third Circuit has declared that class actions created for the purpose of settlement are recognized under the general scheme of Federal Rule of Civil Procedure 23, provided that the class meets the certification requirements under the Rule. See In Re General Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 792-97 (3d Cir.), cert. denied, U.S. , 116 S. Ct. 88, 133 L. Ed. 2d 45 (1995). The Third Circuit has also directed district courts to "make findings because the legitimacy of settlement classes depends upon fidelity to the fundaments of Rule 23." Id. at 794. Since the Court has already made preliminary findings in this case, the issue is whether these findings should be made final.

 To obtain class certification, Plaintiffs "must satisfy all of the requirements of Rule 23(a) *fn1" and come within one provision of Rule 23(b)." Georgine v. Amchem Products, Inc., 83 F.3d 610, 624 (3d Cir. 1996). Plaintiffs contend that they meet the requirements of 23(a) as well as 23(b)(3). *fn2" This Court earlier found the criteria of Rule 23(a) and 23(b)(3) to be fully satisfied and gave its conditional approval to the class. (docs. 46 and 52)

 The parties have represented to the Court that to their knowledge there have been no material changes in conditions subsequent to the Court's provisional certification of the class, and the Court, after conducting a hearing, is not aware of any additional information which would alter its initial findings. Therefore, the Court concludes that final certification of the class is appropriate.

 2. Certification of Final Judgment

 Plaintiffs seek certification of a final judgment and order under Fed.R.Civ.P. 54(b) *fn3" . Both Plaintiffs and the Defendants emphasize the need for finality and contend that in the absence of certification of a final judgment under Rule 54(b), the settlement may be subject to attack by third parties. The parties complain that in such an event distribution of the settlement fund would have to await the ordinary appellate process.

 In the instant case, there are no outstanding non-adjudicated claims or other claims pending against the settlement. Therefore, the Court finds that the Plaintiffs' generalized and speculative contention of prospective harm is not the "infrequent and harsh case" to warrant entry of a Rule 54(b) final judgment. Nor have Plaintiffs made any showing to satisfy the Court that their case presents any sort of exigencies to justify Rule 54(b) treatment.

 3. Approval of Settlement

 The parties seek final court approval of their settlement in the amount of $ 2,450,000 in cash in addition to interest which has accrued on the settlement fund since June 1995. The class now has been afforded notice of the settlement's proposed terms and an opportunity to comment on them. Prior to granting a request for final approval to the settlement, the Court must find it to be "fair, adequate, and reasonable." Walsh v. Great Atlantic & Pacific Tea Co., 726 F.2d 956, 965 (3d Cir. 1983). Significant weight should be attributed "to the belief of experienced counsel that settlement is in the best interest of the class." Austin v. Pennsylvania Dep't. of Corrections, 876 F. Supp. 1437, 1472 (E.D. Pa. 1995). However, due to the risk that a collusive settlement agreement may be reached that fails to satisfy the class, a reviewing court must ascertain that the settlement was the product of "good faith, arms length negotiations" before granting its approval. Lake v. Nationwide Bank, 900 F. Supp. 726, 732 (E.D. Pa. 1995). See also, 2 H. Newberg, Newberg on Class Actions, § 11.41 at 11-88 (3rd ed. 1992).

 "In order for the determination that the settlement is fair, reasonable, and adequate 'to survive appellate review, the district court must show it has explored comprehensively all relevant factors." In re General Motors, 55 F.3d at 805 (citing Malchman v. Davis, 706 F.2d 426, 434 (2d Cir. 1983). In conducting this analysis, the Third Circuit has instructed district courts to inform their ...


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