The district court certified a class and approved a class-action settlement. Two groups of objectors to the settlement now appeal, claiming numerous deficiencies in the proceedings below. Reviewing for abuse of discretion, we find appellants' claims lack merit. We affirm.
Plaintiffs, Union Management Holding A.G. ("Union") and other owners of Dell Inc. common stock, alleged that defendants, Dell and its officers ("Dell"), violated the Securities Exchange Act between May 2002 and September 2006 by fraudulently inflating reported revenues, engaging in erroneous accounting, and disseminating false information to the public. On October 7, 2008, the district court granted Dell's motion to dismiss, with prejudice,
While the appeal was pending, plaintiffs moved in the district court for class certification and approval of a proposed settlement agreement. The agreement proposed a $40 million settlement fund to be allocated among the class members and their attorneys. In December 2009, the district court preliminarily certified the settlement class, defined as "all persons who purchased or otherwise acquired the common stock of Dell Inc., directly or beneficially, between May 16, 2002 and September 8, 2006, inclusive, and who were damaged thereby." The court also preliminarily approved the proposed settlement, approved the proposed notice of the settlement to potential class members, and set a date for the fairness hearing. The class notice explained that the proposed plan of allocation was still subject to court review and warned that the district court could approve the plan with modifications and "without further notice to Settlement Class Members." It also stated that "[a]ny Settlement Class Member who does not timely submit a Proof of Claim and Release within the time provided for shall be barred from sharing in the distribution of the proceeds of the Net Settlement Fund." The court directed a claims administrator to mail 1.7 million notices to potential class members and publish a summary notice in the New York Times and Investor's Business Daily. Appellants, Stephen G. Schuleman and others ("the Schuleman objectors") and Brian F. Murphy Rev Trust and others ("the Murphy objectors"), timely objected to the class certification and settlement agreement on numerous grounds.
On June 10, 2010, the district court certified the class and approved the settlement agreement over the appellants' objections. The court found that the proposed class, its representative (Union), its counsel, and the notice of settlement complied with Rule 23's requirements. The court also held that the settlement was fair, adequate, and reasonable to the class.
The court approved one modification to the plan of allocation in response to the objectors' most common complaint. It removed the "de minimis provision," which had required a potential recovery of at least ten dollars in order to receive a payout, and replaced it with a provision limiting each claimant to one check, negotiable within 60 days. The deadline for
In the same order, the court awarded class counsel attorneys' fees with interest, using the percentage method to award fees of $7.2 million, or 18% of the settlement fund.
In the wake of the district court's order, the Schuleman and Murphy objectors filed motions asking the district court to reconvene the fairness hearing, issue additional notice to the class, and extend the time for filing claims. The district court denied those motions.
The Schuleman and Murphy objectors appeal separately. The Schuleman objectors assert (1) that the court should not have approved the class certification and settlement agreement because the parties presented insufficient evidence, (2) that the settlement imposed undue burdens on small investors, (3) that the court should not have modified the plan of allocation, (4) that the court should have required that the class receive notice of the modified plan of allocation, (5) that the court should have moved the deadline for submitting claims after the modification, (6) that the court failed to provide the objectors with an opportunity to address evidence submitted after the fairness hearing, and (7) that the court erred in awarding attorneys' fees based on a percentage of the recovered fund as well as interest on those fees. The Murphy objectors contend (8) that the class is improperly defined, (9) that the court should have reopened the claims period after it modified the plan of allocation, and (10) that the court erred in using the percentage method to calculate class counsel's fees.
This Court reviews class certification for abuse of discretion.
Union alleges that some of the appellants did not file a proof of claim, thereby depriving them of standing to bring their objections. Any class member has standing to object to a class settlement.
B. The Settlement's Adequacy, Fairness, and Reasonableness
To safeguard the interests of absent class members, district courts must determine whether proposed class-action settlements are fair, adequate, and reasonable.
C. The Class Definition
"[I]n order to maintain a class action, the class sought to be represented must be adequately defined and clearly ascertainable."
In fact, the "damaged thereby" language is routine in class definitions,
D. Whether Small Investors Are Unduly Burdened
The Schuleman objectors argue that the claims-making process was biased toward large investors. All investors were required to submit documentation verifying their claims, but the Schuleman objectors complain that "the larger investors are relieved of the burden imposed on the smaller investors to produce supporting documentation that they must first obtain from a third party," most likely a broker. As the claims administrator explains, there is a good reason for this: "Because institutional investors often execute their own trades and do not necessarily use a brokerage house to do so, a signed letter or affidavit from an institution is often the equivalent of an individual submitting a letter from a broker. In both cases, the underlying point is to obtain documentation from a person who has professional knowledge that claimed trades were, in fact, executed." There is no difference in standard for large versus small investors, and the alleged burden of "obtain[ing] records from a third party" is not undue. The district court did not abuse its discretion in approving the settlement's claims-making process.
E. The De Minimis Provision
Some objectors complained about the de minimis provision in the original plan of allocation, which established a minimum ten-dollar payout from the settlement fund. Answering the objections, the plaintiffs and defendants agreed to replace the de minimis provision with an alternate one that would allow every class member to receive his or her pro rata share of the settlement fund, even if less than ten dollars, while preserving some of the cost-saving that the de minimis provision had afforded. The district court approved that modification.
F. Whether Additional Notice or Time To File Was Necessary
The district court eliminated the de minimis provision on June 10, 2010, one month after the deadline for filing claims had passed. Under the new plan of allocation, class members who stood to receive less than ten dollars from the settlement were now eligible to recover. The court nevertheless refused to reissue notice to the class and did not reopen the claims-filing period, concluding that "[t]here is no justiciable basis to incur the additional expense and time to re-notice the class and re-open the time for claims to be filed." Both groups of objectors contend that this amounted to a violation of Rule 23 and due process.
There is persuasive support for the district court's judgment. First, during the filing period, class members did not know with certainty whether the de minimis provision would apply to them. The amount to be paid out per share depended on the total number of claims filed, something no class member could know during the filing period. Second, the notice explicitly informed the class members that (1) the plan of allocation was still subject to court approval, (2) the plan could be modified in a way that would affect their personal recovery, and (3) they would not necessarily receive notice of any such changes. The notice was sent to all potential class members, regardless of how much stock they owned, and warned that by doing nothing, they would give up their rights and get no payment. Finally, the objectors point to no cases requiring a second round of notice to class members, nor an extended filing deadline, when a plan of allocation is amended. For these reasons, the district court's decision not to reissue notice or reopen the filing period was not an abuse of discretion.
G. Whether a Second Fairness Hearing Was Necessary
The Schuleman objectors contend that the fairness hearing was insufficient because they did not get to challenge documents filed after the hearing. Objectors have a right to be heard,
In this case, the fairness hearing lasted over three hours, and the objectors presented argument and conducted cross-examination. Their request to "continue" the fairness hearing is based on two documents submitted after the fairness hearing: (1) class counsel's receipts for expenses and (2) a declaration of the claims administrator's vice president of operations. But "[a] district court is not required to hold a hearing on a motion for attorneys' fees in a class action,"
H. The Fee Award
The objectors allege three problems with class counsel's $7.2 million fee award: (1) that the district court used the percentage method rather than the lodestar method in its calculation, (2) that the award was excessive, and (3) that the award included interest.
Fifth Circuit law requires that when reviewing an attorneys' fee award for abuse of discretion, this Court must determine whether "`the record clearly indicates that the district court has utilized the Johnson framework as the basis of its analysis, has not proceeded in a summary fashion, and has arrived at an amount that can be said to be just compensation.'"
1. The Percentage Method Versus the Lodestar Method
In common fund cases, courts typically use one of two methods for calculating attorneys' fees: (1) the percentage method, in which the court awards fees as a reasonable percentage of the common fund; or (2) the lodestar method, in which the court computes fees by multiplying the number of hours reasonably expended on
Part of the reason behind the near-universal adoption of the percentage method in securities cases is that the PSLRA contemplates such a calculation.
The objectors argue that the lodestar method is the only way to calculate attorneys' fees in this Circuit. They understandably point to the following sentence from a 2008 case: "This circuit requires district courts to use the `lodestar method' to `assess attorneys' fees in class action suits.'"
Given the Fifth Circuit's stance on choice of method, the district court did not abuse its discretion by using the percentage method with a meticulous Johnson analysis. To be clear, we endorse the district courts' continued use of the percentage method cross-checked with the Johnson factors.
2. Whether the award is excessive.
Without citing law, the Schuleman objectors contend that the fee award of 18% is "excessive" because the case was dismissed prior to discovery. The district court arrived at 18% by looking to class counsel's retainer agreement, which provided for a fee of 18% to 25% of any common fund. Noting the lead plaintiff's sophistication, the district court held that the class counsel's requested 25% fee was "entitled to a presumption of reasonableness." The court still opted to adjust the requested award downward to 18%, the lower end of the range in the retainer, reasoning that 18% compensated counsel while protecting the class's interests and accounting for the Johnson factors. The court explicitly considered the amount and sources of discovery in reaching its decision, and the objectors concede that the district court "correctly used the Johnson factors to help determine a reasonable
3. Whether the district court erred in including interest in the fee award.
The district court awarded class counsel interest "from the date such Settlement Fund was funded to the date of payment, at the same net rate the Settlement Fund earns." The Schuleman objectors contend that awarding interest on class counsel's fee had no "basis in law or fact." They cite no authorities to support that argument, and, contrary to it, district courts routinely award interest on attorneys' fees.
In short, none of the objectors' complaints about the attorneys' fee award constitutes an abuse of discretion.
The district court's judgment is AFFIRMED, and the original merits appeal is DISMISSED with prejudice.