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West Palm Beach Police Pension Fund v. DFC Global Corp.

United States District Court, E.D. Pennsylvania

September 20, 2017

WEST PALM BEACH POLICE PENSION FUND, on behalf of itself and all others similarly situated, Plaintiffs,
DFC GLOBAL CORP., et al., Defendants.


          Schiller, J.

         The parties in this complex securities fraud litigation involving the payday lending industry have reached a settlement. The parties have moved for final approval of the settlement and plan of allocation, as well as for an award of attorneys' fees and reimbursement of litigation expenses. For the reasons that follow, the motions for final approval and attorneys' fees and costs shall be granted.

         I. BACKGROUND

         A. Facts

         DFC Global was a provider of alternative financial services, including unsecured short-term consumer loans, also known as payday loans. (Jt. Decl. of Golan and Rizio-Hamilton in Supp. of (1) Lead Pls.' Mot. for Final Approval of Class Action Settlement and Plan of Allocation; and (2) Co-Lead Counsel's Mot. for an Award of Att'ys' Fees and Reimbursement of Litig. Expenses [Jt. Decl] ¶ 13.) Plaintiffs filed a class action lawsuit on behalf of all persons who purchased shares of DFC Global common stock during the class period, specifically between January 28, 2011 and February 3, 2014. Plaintiffs sought relief under § 10(b) of the Securities Exchange Act of 1934 and Rule 10b- 5, alleging that DFC Global and a number of DFC Global executives carried out a scheme to deceive the investing public through false statements and material omissions. Plaintiffs also sought relief under § 20(a) of the Securities Exchange Act of 1934, alleging controlling person liability against several executives. Finally, Plaintiffs brought claims pursuant to the Securities Act of 1933.

         Plaintiffs contended that Defendants made materially false and misleading statements about DFC Global's true financial and operating condition and the nature of its lending practices in its U.K. payday lending operations, which caused the price of DFC Global common stock to be artificially inflated during the class period. Plaintiffs also claimed that investors were damaged when the truth was revealed and the price of the stock declined. (Id. ¶ 20.) The Complaint alleged that DFC Global and certain executives made a series of misstatements and omissions about DFC's short-term payday portfolio, as well as misstatements about the conservative and selective practices DFC Global employed. (Id. ¶ 21.) Relying on information from former employees, Plaintiffs claimed that DFC Global's lending practices “were far from conservative or prudent and that DFC routinely lent to borrowers without conducting any affordability checks.” (Id. ¶ 22.) DFC Global permitted borrowers to roll over loans that the borrowers could not afford to repay, enriching DFC Global with fees. (Id. ¶ 23.) “The Complaint also alleged that DFC's loan loss reserves were understated as a result of its poor lending practices, its failure to adequately monitor the quality of its loans, and its failure to properly account for loans that were rolled over.” (Id. ¶ 25.)

         B. History of the Litigation

         On November 20, 2013, Plaintiffs filed a class action complaint in this Court. On April 9, 2014, following a round of briefing regarding which party should act as lead plaintiff and which law firm should act as lead counsel, this Court appointed as lead plaintiff the institutional investor group comprised of West Palm Beach Police Pension Fund, the Arkansas Teachers Retirement System, the Macomb County Employees Retirement System, and the Laborers' District Council and Contractors' Pension Fund of Ohio. The Court also approved Lead Plaintiffs' selection of Barrack, Rodos & Bacine and Bernstein Litowitz Berger & Grossman LLP as co-lead counsel. On April 22, 2014, this litigation was consolidated with a related case filed in this District. Lead Plaintiffs filed a Consolidated Class Action Complaint on July 21, 2014.

         Co-Lead Counsel performed significant due diligence prior to filing the Complaint. The attorneys reviewed SEC filings, reports by securities and financial analysts, transcripts of DFC Global's earnings conference calls and publicly available presentations of DFC Global, analyzed DFC Global's press releases and media reports, consulted with industry and regulatory consultants and accounting experts, and analyzed information obtained from confidential witnesses who had previously worked at DFC Global. (Jt. Decl. ¶ 18.)

         On October 3, 2014, Defendants filed motions to dismiss the complaint, to which Plaintiffs responded on December 2, 2014. On June 16, 2015, the Court denied the motions to dismiss, and on August 3, 2015, Defendants filed their answers to the Consolidated Class Action Complaint. Discovery commenced in July 2015. (Jt. Decl. ¶ 33.) During discovery, counsel for the parties conducted a number of meet and confer sessions. (Jt. Decl. ¶ 34.) Ultimately, Defendants produced over 1.7 millions pages of documents, and Lead Plaintiffs produced thousands of pages of documents. (Jt. Decl. ¶ 36.) A total of thirteen depositions were taken, including six depositions of Lead Plaintiffs' representatives and financial advisors, two depositions of expert witnesses taken in connection with Lead Plaintiffs' motion for class certification, and five depositions of current and former employees of DFC Global. (Jt. Decl. ¶ 38.)

         On October 2, 2015, Lead Plaintiffs filed a motion for class certification, to which Defendants responded on February 12, 2016. Some supplemental briefing on the motion followed, and on August 4, 2016, the Court granted the motion for class certification. The parties subsequently engaged in extensive settlement discussions and reached an agreement, which will be described in great detail below.

         On March 8, 2017, the Court entered an order that preliminarily approved the settlement, approved the proposed notice to the class, and set procedures and deadlines to see the litigation to its conclusion, should the Court grant final approval of the settlement. (Jt. Decl. ¶ 60.)

         C. Settlement Terms

         The Class consists of:

All persons or entities who purchased or otherwise acquired common stock issued by DFC Global Corporation (“DFC Global”) between January 28, 2011, and February 3, 2014, inclusive (“Class Period”), and were damaged thereby. Included within the Class are persons or entities who purchased shares of DFC Global stock on the open market and/or in a registered public offering on or about April 7, 2011. Excluded from the Class are: (a) Defendants; (b) members of the immediate families of the Individual Defendants; (c) any directors, officers, and partners of DFC Global or the Underwriter Defendants during the Class Period and members of their immediate families; (d) the subsidiaries, parents and affiliates of DFC Global and the Underwriter Defendants; (e) any firm, trust, corporation or other entity in which any Defendant has or had a controlling interest; and (f) the legal representatives, heirs, successors and assigns of any such excluded party.

         Under the settlement agreement, members of the class have agreed to “fully, finally and forever compromise[], settle[], release[], resolve[], relinquish[], waive[] and discharge[]” all of their claims against Defendants. (Settlement Agreement ¶ 4.) In consideration for terminating the litigation and providing releases to Defendants, “the DFC Global Defendants shall pay” $30, 000, 000.00 in cash into an escrow account. (Id. ¶ 7.) The cash shall be used to pay authorized claimants, any taxes owed, notice and administrative costs, litigation expenses authorized by the Court, and attorneys' fees awarded by the Court. (Id. ¶ 8.) The settlement agreement further included provisions for notice and settlement administration, “including but not limited to the process of receiving, reviewing and approving or denying Claims, under Lead Counsel's supervision and subject to the jurisdiction of the Court.” (Id. ¶ 17.) A claims administrator was tasked with determining the validity of a claim and the pro rata share of the settlement fund based on the allocation plan proposed in the notice. (Id. ¶¶ 19, 23.)


         A. Settlement

         “The claims, issues, or defenses of a certified class may be settled, voluntarily dismissed, or compromised only with the court's approval.” Fed.R.Civ.P. 23(e). Because the settlement would bind class members, this Court may only approve the settlement upon a finding that it is “fair, reasonable, and adequate.” Fed.R.Civ.P. 23(e)(2). “[T]he district court acts as a fiduciary who must serve as a guardian of the rights of absent class members . . . . [T]he court cannot accept a settlement that the proponents have not shown to be fair, reasonable and adequate.” In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 785 (3d Cir. 1995). However, “[t]he decision of whether to approve a proposed settlement of a class action is left to the sound discretion of the district court.” Girsh v. Jepson, 521 F.2d 153, 156 (3d Cir. 1975); see also Walsh v. Great Atl. & Pac. Tea Co., Inc., 726 F.2d 956, 965 (3d Cir. 1983). The law looks favorably upon class action settlements to conserve scarce judicial resources. Gen. Motors, 55 F.3d at 784. Indeed, a court may apply an initial presumption of fairness to a class action settlement when the negotiations occurred at arm's length, the parties engaged in sufficient discovery, those advocating for the settlement were experienced in similar litigation, and only a small fraction of the class objected. In re Nat'l Football League Players Concussion Injury Litig., 821 F.3d 410, 436 (3d Cir. 2016).

         The decision of whether a settlement is fair, reasonable, and adequate is guided by the nine-factor test enunciated in Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975). The Girsh test directs the court to examine: (1) the complexity, expense, and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through the trial; (7) the ability of the defendants to withstand a greater settlement; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; and (9) the range of reasonableness of the settlement fund in light of all the attendant risks of litigation. Girsh, 521 F.2d at 157. More recently, the Third Circuit Court of Appeals has expanded upon the Girsh factors to include several permissive and non-exhaustive factors: (1) the maturity of the underlying substantive issues; (2) the existence and probable outcome of claims by other classes and subclasses; (3) the comparison between the results achieved by the settlement for individual class or subclass members and the results achieved-or likely to be achieved-for other claimants; (4) whether class or subclass members are accorded the right to opt out of the settlement; (5) whether any provisions for attorneys' fees are reasonable; and (6) whether the procedure for processing individual claims under the settlement is fair and reasonable. In re Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions, 148 F.3d 283, 323 (3d Cir. 1998).

         1. Presumption of fairness

         The Court concludes that a presumption of fairness is warranted here. The use of an independent mediator, which the parties employed here, is strong evidence of arm's length negotiations. See Gates v. Rohm and Hass Co., 248 F.R.D. 434, 444 (E.D. Pa. 2008) (noting that the settlement was produced after “two full days of mediation before an experienced mediator”); see also In re Flag Telecom Holdings, Ltd. Secs. Litig., Civ. A. No. 02-3400, 2010 WL 4537550, at *14 (S.D.N.Y. Nov. 8, 2010) (“The presumption in favor of the negotiated settlement in this case is strengthened by the fact that settlement was reached in an extended mediation supervised by Judge [Daniel] Weinstein.”).

         The parties engaged in arm's length negotiations. Counsel for the parties participated in two in-person mediation sessions with Daniel Weinstein, a former California superior court judge who has experience in mediating securities class actions. (Jt. Decl ¶ 48.) Prior to both of these sessions, the parties exchanged detailed mediation statements with numerous exhibits. (Id. ¶¶ 49, 52.) Although these in-person sessions did not bear fruit, the mediator continued to hold substantial discussions with the parties, including a conference call during which the parties' respective damages experts participated. (Id. ¶ 53.) Following these meetings and calls, the mediator issued a proposal that the litigation be settled for $30 million. (Id. ¶ 54.) The parties accepted the mediator's number and prepared the settlement agreement. (Id. ¶ 55.)

         Moreover, this is far from the first rodeo for those advocating settlement. The lawyers involved here possess extensive litigation experience, which tilts the scales in favor of approving the settlement.

         2. Complexity, expense, and likely duration ...

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