United States District Court, E.D. Pennsylvania
WEST PALM BEACH POLICE PENSION FUND, on behalf of itself and all others similarly situated, Plaintiffs,
DFC GLOBAL CORP., et al., Defendants.
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.
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.
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.)
History of the Litigation
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.
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.)
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.)
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.
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.)
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.
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.)
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).
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).
Presumption of fairness
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]
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.)
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.
Complexity, expense, and likely duration ...