The opinion of the court was delivered by: ROBRENO
Plaintiffs in this securities class action have moved the Court for a final judgment and order under Rule 54(b) of the Federal Rules of Civil Procedure, final approval of two settlements with a total value of $ 1,125,000, $ 375,000 in attorneys' fees representing 33.3% of the common fund, $ 204,316.26 in out-of-pocket expenses, and $ 5000 in a class representative fee. For the reasons that follow, the Court will grant entry of a final judgment under Rule 54(b), will approve the two settlements, will award plaintiffs' counsel attorneys' fees in the amount of $ 281,250 representing 25% of the common fund, and $ 184,730.73 in out-of-pocket expenses, and will award class representative Frank Seidman $ 1280 as reimbursement for the reasonable value of the time he spent on matters relating to this litigation.
This securities litigation involves a consolidated class action brought in federal district court in the Eastern District of Pennsylvania. On March 26, 1992, plaintiffs Frank and Kathleen Seidman ("plaintiffs") filed a complaint, on behalf of themselves and all other persons who purchased common shares of defendant American Mobile Systems, Inc. ("AMS") between July 1, 1990, and March 24, 1992, ("the class period"). Named as defendants in the complaint were AMS and William J. Young, who had served as the Director, President, Chief Executive Officer ("CEO"), and Chief Financial Officer ("CFO") of AMS during the class period.
Plaintiffs' complaint against AMS alleged 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 alleged that during the class period, Young, in his capacity as President and CEO of AMS, directed the unauthorized transfer of $ 4.1 million from the accounts of AMS to other entities controlled by Young, and that AMS failed to disclose in publicly disseminated materials and public statements material facts concerning Young's unauthorized transfer of AMS funds and the resultant impact upon AMS's financial condition. Plaintiffs claimed that, as a result of the misrepresentations and omissions of material facts by AMS, they were induced to purchase AMS stock at artificially inflated prices. Therefore, plaintiffs alleged, they suffered substantial financial losses resulting from purchases of AMS stock during the class period.
On August 7, 1992, AMS moved to dismiss the complaint. The Court denied the motion. On August 28, 1992, the clerk entered a default against Young for failure to appear, plead, or otherwise defend himself in this case.
On March 24, 1993, plaintiffs filed a class action complaint, on behalf of themselves and all other individuals who purchased shares of AMS common stock during the class period, against defendant Deloitte and Touche ("D&T"), the accounting firm which audited AMS's financial condition during this period. Plaintiffs' complaint against D&T alleged violations of Sections 10(b) and 20(a) of the Securities and Exchange Act and the rules and regulations of the SEC promulgated thereunder. Plaintiffs alleged that D&T knowingly and recklessly failed to disclose adverse material facts about the financial condition of AMS in reports filed with the SEC and in other documents disseminated to members of the investing public during the class period. Plaintiffs further alleged that D&T knew or was reckless in not knowing that Young was engaged in a scheme of unauthorized transfers of funds into and out of AMS's accounts. Therefore, plaintiffs claimed, they suffered substantial financial losses from D&T's failure to disclose material information regarding AMS stock which caused in part AMS stock to be traded at artificially inflated prices during the class period.
On May 28, 1993, D&T moved to dismiss the complaint. The Court denied the motion.
On July 26, 1993, following a hearing, the Court ordered both cases consolidated. On August 5, 1993, plaintiffs filed a consolidated complaint which named as defendants AMS, D&T, and Young. Plaintiffs' consolidated complaint tracked the allegations made in the earlier complaints. Both AMS and D&T filed answers to the complaint and asserted affirmative defenses thereto.
On August 5, 1993, plaintiffs filed a motion for class certification in the consolidated action. On September 30, 1994, after a hearing, the Court conditionally certified the following class:
all persons who purchased or acquired the common stock of defendant American Mobile Systems, Inc. during the period from July 1, 1990 until March 2, 1992, and who sustained damages as a result of such purchases. American Mobile Systems, Inc., Deloitte & Touche, all Deloitte & Touche partners, all present and former officers and directors of American Mobile Systems, Inc., all members of the immediate families of the foregoing individuals, and any entity affiliated with or controlled by the foregoing individuals or the defendants shall be excluded from the class.
On May 19, 1994, D&T moved for partial summary judgment on the issues of secondary liability. The Court granted the motion on March 14, 1995.
In May 1996, plaintiffs agreed to a settlement with D&T. The D&T settlement provided for payment to the class of $ 350,000 in cash.
On August 12, 1996, on the eve of trial submissions, plaintiffs agreed to a settlement with AMS. The AMS settlement provided for the following payments to the class: (1) $ 200,000 in cash; (2) $ 225,000 in either cash or common stock of Nextel Communications, Inc. ("Nextel")
valued as of the date the AMS settlement; and (3) 18-month warrants to purchase shares of Nextel common stock valued by the parties at $ 350,000 as of August 1, 1996.
After deductions of the expenses of notice and settlement administration, attorneys' fees and costs, and a class representative fee, both settlement funds will be distributed to those class members submitting valid claims.
In accordance with the Plan of Distribution described in the settlements mailed to the class, both settlement funds will be allocated pro-rata among class members. The amount each class member shall receive will be determined under a formula which factors the varying levels of damages suffered by class members during different times during the class period ("the Recognized Loss").
On October 22, 1996, the Court held a hearing on plaintiffs' request for conditional approval of the settlements, award of attorneys' fees and reimbursement for litigation expenses, and award of a class representative fee. Upon entertaining arguments from counsel on the issues, the Court granted preliminary approval to the settlements and the requested fees. Thereafter, approximately 2,000 notices were mailed by AMS and D&T to class members. Subsequently, pursuant to the Court's order, summary notices for both settlements were published in the national edition of the Wall Street Journal. No objections were filed by class members to the D&T settlement and none opted out of the class.
On January 3, 1997, the Court conducted a final hearing regarding entry of a final judgment and order under Rule 54(b) of the Federal Rules of Civil Procedure, approval of the settlements, award of attorneys' fees and reimbursement for litigation expenses, and award of a class representative fee. No objectors appeared at the hearing.
Since the date of the final hearing, the Court has requested and the parties have furnished the Court with additional submissions regarding counsel's request for reimbursement of expenses and payment of a fee to the class representative. The Court now sets forth its conclusions.
1. Certification of Final Judgment
Plaintiffs seek certification of a final judgment and order under Fed.R.Civ.P. 54(b)
in connection with the settlements. Both plaintiffs and the defendants emphasize the need for finality and complain that in the absence of a certification of a final judgment under Rule 54(b), the distribution of the settlement fund will have to await the ordinary appellate process.
Rule 54(b) is designed to "facilitate the entry of judgment on one or more claims, as to one or more parties, in a multi-claim/multi-party action." Allis-Chalmers Corp. v. Philadelphia Electric Co., 521 F.2d 360, 363 (3d Cir. 1975). The "rule attempts to strike a balance between the undesirability of piecemeal appeals and the need for making review available at a time that best serves the needs of the parties." Id. "Ordinarily an application for a [Rule] 54(b) order requires the [district court] judge to exercise considered discretion, weighing the overall policy against piecemeal appeals against whatever exigencies the case may present." Bogosian v. Gulf Oil Corp., 561 F.2d 434, 441 (3d Cir. 1977) (quoting Panichella v. Pennsylvania RR., 252 F.2d 452, 455 (3d Cir. 1958)). Certification of a final judgment under Rule 54(b) is generally disfavored "[and] should not be entered routinely or as a courtesy or accommodation to counsel." The power which this Rule confers upon the trial judge should be used only in the 'infrequent and harsh case' as an instrument for the improved administration of justice." Allis-Chalmers, 521 F.2d at 366.
The Court finds that this is one of the "infrequent and harsh" cases where Rule 54(b) certification applies and therefore will grant plaintiffs' request for entry of a final judgment and order. Having been advised by plaintiffs that in the future they may seek to collect damages from the yet-to-be found third defendant in this case, William C. Young, the Court concludes that there is no just reason for the delay of having the distribution of the settlement fund await the ordinary appellate process while plaintiffs continue with their efforts to locate Young and prosecute their case against him. Therefore, the Court is satisfied that plaintiffs' specific and concrete contention of prospective harm warrants Rule 54(b) treatment.
2. Approval of the Settlements
The parties seek final court approval of the AMS settlement for $ 775,000. The AMS settlement is comprised of the following amounts: (1) $ 200,000 in cash; (2) $ 225,000 in cash or payable in shares of Nextel common stock
; and (3) 18-month warrants for Nextel common stock valued by the parties at $ 350,000 as of August 1, 1996.
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 of 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, Newberg on Class Actions, Vol. 2, § 11.41 at 11-88 (3d 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 Corp. Pick-Up Truck Fuel Tank, 55 F.3d 768, 805, (3d Cir.), cert. denied, 133 L. Ed. 2d 45, 116 S. Ct. 88 (1995) (citing Malchman v. Davis, 706 F.2d 426, 434 (2d Cir. 1983). In conducting this analysis, the Third Circuit has instructed district courts ...