Ryskamp v. Looney et al
Filing
284
ORDER Issuing Final Approval of Derivative Litigation Settlement and Granting Application for Award of Attorney's Fees and Expenses and Plaintiff's Award. Plaintiff's Unopposed Motion for Final Approval of Derivative Litigation Settlem ent 267 is GRANTED. Plaintiff's Application for Award of Attorneys' Fees and Expenses and Plaintiff's Award 261 is GRANTED. The Court ISSUES final approval of the Stipulation and Agreement of Settlement entered into between the parties to this action ( 253 -1). This action is DISMISSED WITH PREJUDICE, subject only to the Court's continuing jurisdiction to enforce the terms of the parties settlement, by Judge William J. Martinez on 8/14/12.(sgrim)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 10-cv-00842-WJM-KLM
DENIS RYSKAMP, derivatively on behalf of BOULDER GROWTH & INCOME FUND,
INC.,
Plaintiff,
v.
JOEL W. LOONEY,
DEAN L. JACOBSON,
RICHARD I. BARR,
SUSAN L. CICIORA,
JOHN S. HOREJSI,
STEPHEN C. MILLER,
JOEL L. TERWILLIGER,
CARL D. JOHNS,
THE ERNEST HOREJSI TRUST NO. 1B,
BOULDER INVESTMENT ADVISERS, LLC,
STEWART INVESTMENT ADVISERS, and
FUND ADMINISTRATIVE SERVICES, LLC,
Defendants,
and
BOULDER GROWTH & INCOME FUND, INC.,
Nominal Defendant.
_____________________________________________________________________
ORDER ISSUING FINAL APPROVAL OF DERIVATIVE LITIGATION SETTLEMENT
AND GRANTING APPLICATION FOR AWARD OF ATTORNEYS’ FEES
AND EXPENSES AND PLAINTIFF’S AWARD
_____________________________________________________________________
This matter is before the Court on Plaintiff’s Unopposed Motion for Final Approval
of Derivative Litigation Settlement (ECF No. 267), and Plaintiff’s Application for Award of
Attorneys’ Fees and Expenses and Plaintiff’s Award (ECF No. 261). For the following
reasons, the Court GRANTS the two Motions, issues final approval of the Stipulation
and Agreement of Settlement entered into between the parties to this action (ECF No.
253-1), awards Plaintiff’s counsel $1,500,000.00 in attorneys’ fees and expenses, and
awards Plaintiff a $50,000.00 incentive award.
I. BACKGROUND
Plaintiff Denis Ryskamp originally filed this derivative action on April 14, 2010.
(ECF No. 1.) After filing two more iterations of the Complaint (ECF No. 11, 150) and
being granted leave to conduct limited discovery (ECF No. 85), Plaintiff filed the
operative Third Amended Complaint (the “Operative Complaint”) on November 30, 2011
(ECF No. 174).
In the Operative Complaint, Plaintiff, suing derivatively on behalf of Boulder
Growth & Income Fund, Inc. (“Boulder”), brings suit against current and former
members of Boulder’s Board of Directors and other Boulder executives, along with
entities affiliated with certain individual Defendants. (ECF No. 174, ¶¶ 30-50.) In short,
Plaintiff alleges that Defendant “Stewart Horejsi, through his handpicked Boulder Board
of family members and friends and the Boulder advisory entities and their employees
which he controlled, manipulated Boulder and its rights offerings, investments and share
price for his and his family’s personal gain to the great harm of Boulder.” (Id. ¶ 2.)1
1
The Court provided a more detailed summary of Plaintiff’s allegations in its Order
denying without prejudice Defendants’ previously filed Motions to Dismiss. (See ECF No. 85, at
2-4.)
2
Plaintiff brings claims for breach of fiduciary duty, breach of duty of loyalty, aiding and
abetting breach of fiduciary duty, corporate waste, gross mismanagement, abuse of
control, and unjust enrichment. (Id. ¶¶ 256-308.)
On December 16, 2011, several Defendants moved to dismiss the Operative
Complaint. (ECF No. 196-205.) Those Motions remained pending at the time the
parties’ reached the settlement discussed herein.
On March 26, 2012, Plaintiff filed an Unopposed Motion for Preliminary Approval
of Derivative Litigation Settlement (ECF No. 252), along with a Memorandum of Law in
Support of the Motion (ECF No. 253). Attached to the Memorandum was a Stipulation
and Agreement of Settlement between the parties. (ECF No. 253-1.) The proposed
settlement includes the following provisions:
1.
Boulder will receive $4,000,000 in cash, $3,000,000 of which will be paid by ICI
Mutual Insurance Co. (an insurer of certain Defendants), and $1,000,000 of
which will be paid by Defendant Boulder Investment Advisors, LLC (“BIA”);
2.
Boulder will receive a one-year waiver of advisory fees from BIA;
3.
Defendant Susan L. Ciciora will be replaced on the Boulder board by Steven K.
Nogaard;
4.
Boulder’s insider trading policy will be amended;
5.
Boulder’s code of ethics will be published on its website;
6.
Boulder’s annual reports will contain certain disclosures regarding their advisers;
and
7.
Boulder’s board members will attend director education programs.
3
(Id. at 10-12; see also id. at 4 n.1.) The settlement also included a proposed program of
notice to shareholders regarding the settlement. (Id. at 15-16.) Further, the settlement
proposes that Plaintiff’s counsel be paid $1,500,000 in attorneys’ fees and expenses, to
be taken out of the $4,000,000 award to Boulder. (Id. at 16-17.) The settlement also
proposes that Plaintiff himself be paid $50,000 as an incentive award, to be taken out of
the $4,000,000 award to Boulder. (Id.)
On April 20, 2012, the Court issued its Order Preliminarily Approving Derivative
Litigation Settlement and Providing for Notice of Settlement in which, among other
things, the Court approved the parties’ proposed program of notice of the settlement to
Boulder shareholders and to the public. The notice included information regarding the
settlement fairness hearing that the Court would hold on July 31, 2012. (ECF No. 256.)
On June 20, 2012, Plaintiff filed his currently pending Application for Award of
Attorneys’ Fees and Expenses and Plaintiff’s Award. (ECF No. 261.)2 On July 10,
2012, Plaintiff filed his currently pending Unopposed Motion for Final Approval of
Derivative Litigation Settlement. (ECF No. 267.)
On July 16, 2012, counsel for Boulder filed declarations under penalty of perjury
indicating that notice of the settlement had been provided to shareholders and the
public in accordance with the Court’s Order Preliminarily Approving Derivative Litigation
Settlement and Providing for Notice of Settlement. (ECF No. 275.) Among other forms
2
At the July 31, 2012 settlement fairness hearing, Defendants represented that they did
not oppose Plaintiff’s Application for Award of Attorneys’ Fees and Expenses and Plaintiff’s
Award.
4
of notice, 7,040 notices were mailed to potential current Boulder shareholders. (ECF
No. 275-1, ¶ 9.)
During the time period for objection to the proposed settlement, the Court
received a total of two written objections. (ECF No. 266, 271.)3 The first objection was
filed by Eric Boughton, on behalf of Matisse Long/Short Income Focus Fund LLC
(“Matisse Long”). In the written objection, Boughton represents that Matisse Long holds
140,000 shares of Boulder, which it purchased at various points between July 27, 2011
and February 14, 2012. (ECF No. 266, at 1.) Boughton objects to the proposed
settlement on the following grounds: (1) the proposed settlement provides no recovery
for non-insider shareholders; (2) the proposed settlement provides no recovery for
previous shareholders; (3) the proposed settlement does not sufficiently punish the
individual Defendants; and (4) the proposed settlement does not sufficiently change
Boulder’s structure and governance. (Id. at 1-3.) Boughton requests that the settlement
be rejected and that the litigation continue in the hopes of a more meaningful recovery.
(Id. at 3.)
The second objection was filed by Dan and Eileen Plettner. The Plettners make
many of the same or similar objections to those that Boughton advanced. (ECF No.
271, at 19-28.) The primary additional objection the Plettners advance is that Dan
3
The Court also received a third filing, a letter from purported shareholder Fay Stein.
(ECF No. 276.) However, the letter from Ms. Stein for the most part simply requested more
information regarding the settlement. (Id.)
5
Plettner should have been selected by Plaintiff’s counsel as the named Plaintiff in this
action rather than Denis Ryskamp. (Id. at 16-19.)
The parties filed responses to the objections (ECF No. 277-281), and the
Plettners filed a Reply (ECF No. 283).
On July 31, 2012, the Court held a settlement fairness hearing. (ECF No. 282.)
At that hearing, the parties presented argument in favor of the settlement. No objectors
appeared at the settlement hearing.
II. ANALYSIS
A.
Motion for Final Approval of Settlement
In considering the arguments raised in Plaintiff’s Unopposed Motion for Final
Approval of Derivative Litigation Settlement, the arguments made by the parties at the
settlement hearing, and the arguments presented in the two objections, the Court finds
good cause to order final approval of the settlement in this action.
“Before approving the settlement of a shareholders’ derivative action . . ., the
district court must determine that there has been no fraud or collusion in arriving at the
settlement agreement, and that it is fair, reasonable, and adequate.” Maher v. Zapata
Corp., 714 F.2d 436, 455 (5th Cir. 1983); see also 10 Federal Procedure, Lawyers
Edition § 25:175 (“The general standard used to evaluate a settlement [in a derivative
shareholder action] is that it must be fair, adequate, and reasonable, and not the result
of fraud or collusion, and that it must be in the best interests of the parties.”).
6
The Court has found no evidence or indication of fraud or collusion between the
parties in arriving at this settlement, suggesting that it has been negotiated at arm’s
length and arrived at in good faith. See Maher, 714 F.2d at 456-57 (stating that a factor
favoring approval of a derivative litigation settlement is that it “was the result of
arm’s-length negotiation, after extensive discovery and intelligent evaluation of the
lawsuit by the parties and their capable counsel”). Indeed, with various Motions to
Dismiss still pending at the time of the settlement, the Plaintiff’s prospects for success in
this action were certainly in question. See id. at 455 (“Settlements of shareholder
derivative actions are particularly favored because such litigation is notoriously difficult
and unpredictable. The courts, therefore, do not lightly reject such settlements.”).
The Court also finds that the terms of the settlement are fair, adequate, and
reasonable. The settlement provides for the payment of a total of $4,000,000 from one
Defendant and certain Defendants’ insurer to Boulder. These payments are notable for
several reasons. First, $4,000,000 is a significant amount of money, and Boulder’s
shareholders own shares in the company acquiring that money. The objectors’
complaint that the settlement does not benefit the shareholders directly, although true,
lacks merit because this is a derivative action. See Bangor Punta Operations, Inc. v.
Bangor & A. R. Co., 417 U.S. 703, 721-22 (1974) (“[A]ny recovery obtained in [a
derivative] action would belong to the corporation, not to the . . . shareholders as
individuals, for the shareholder in a derivative action enforces not his own individual
rights, but rights which the corporation has.”). Nothing that the Court is aware of would
7
preclude the objectors from filing their own direct action against Defendants. The
$4,000,000 in payments is also notable because it is being made by one Defendant and
other Defendants’ insurer, which, contrary to the objectors’ complaints, does cause a
detriment to those Defendants. Further, BIA’s waiver of advisory fees also causes a
financial detriment to it.
The fact that the settlement involves some corporate governance reforms also
weighs in favor of approval of the settlement. Indeed, some derivative action
settlements only involve corporate governance reforms, and not any monetary payment.
See Maher, 714 F.2d at 466 (“[A] settlement may fairly, reasonably, and adequately
serve the best interest of a corporation, on whose behalf the derivative action is
brought, even though no direct monetary benefits are paid by the defendants to the
corporation.”); Zimmerman v. Bell, 800 F.2d 386, 391 (4th Cir. 1986) (“Influencing the
future conduct of management may serve the interests of the corporation as fully as a
recovery for past misconduct, and a settlement may be accepted ‘even though no direct
monetary benefits are paid by the defendants to the corporation.’”) (quoting Maher, 714
F.2d at 466).
Finally, only two objections to the settlement were received and no objectors
appeared at the settlement hearing, despite the fact that notice of the settlement was
sent to the at least 805 shareholders of Boulder stock.4 This fact weighs heavily in favor
4
The Declaration of Jennifer M. Keough (ECF No. 275-1) describes the process by
which shareholders were identified for purposes of mailing the notice of the settlement. First,
805 unique shareholders were identified, and notices were mailed to them. Also, an additional
2,124 notices were mailed to “nominees” who purchased shares on behalf of beneficial
purchasers of Boulder shares. Further, an additional 3,911 notices were sent to shareholders
identified by the nominees. While this filing does not make clear the exact number of actual
8
of approval of the derivative litigation settlement. See Wal-Mart Stores, Inc. v. Visa
U.S.A., Inc., 396 F.3d 96, 118 (2d Cir. 2005) (“If only a small number of objections are
received, that fact can be viewed as indicative of the adequacy of the settlement.”);
D’Amato v. Deutsche Bank, 236 F.3d 78, 86-87 (2d Cir. 2001) (where 27,883 notices
were sent to class members, but only 72 class members requested exclusion from the
settlement and only 18 class members objected, court stated that “this small number of
objections weigh[s] in favor of the settlement”); In re Rambus Inc. Derivative Litig., No.
C 06-3513, 2009 WL 166689, at *3 (N.D. Cal. Jan. 20, 2009) (“The reaction of the class
to the proffered settlement . . . is perhaps the most significant factor to be weighed in
considering its adequacy . . . .”) (quotation marks and brackets omitted); In re Dun &
Bradstreet Credit Servs. Customer Litig., 130 F.R.D. 366, 372 (S.D. Ohio 1990) (giving
the lack of meaningful objection “substantial weight in approving the proposed
settlement”).
The arguments advanced by Boughton and the Plettners in their objections do
not sufficiently counter the reasons explained above why approval of the settlement is
warranted. The objectors’ primary argument that the settlement does not provide for a
direct financial benefit to the shareholders lacks merit because this is a derivative action
brought on behalf of Boulder, and because the financial payments to Boulder will at
least indirectly benefit the shareholders. Also, the objectors’ argument that the
settlement does not sufficiently punish Defendants overlooks the $4,000,000 in
Boulder shareholders, the Court errs on the conservative side and finds the number of
shareholders to be at least 805. At the settlement hearing, counsel were only able to make
representations about the number of notices sent, which does not necessarily reflect the
number of shareholders.
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payments and BIA’s waiver of advisory fees. In addition, the objectors’ argument that
this action should be pursued further towards a more favorable settlement to Boulder
overlooks the significant risk that this action could be dismissed based on the grant of
Defendants’ dispositive motions, leaving Boulder with absolutely no recovery. Finally,
Dan Plettner’s complaint regarding the fact that he was not chosen as the named
Plaintiff by Plaintiff’s counsel is a dispute between Mr. Plettner and Plaintiff’s counsel,
not implicating the resolution of this action.5
For the foregoing reasons, the Court finds good cause to order final approval of
the settlement entered into between the parties to this action.
B.
Application for Award of Attorneys’ Fees and Expenses
The Court also finds good cause to award Plaintiff’s counsel their requested
attorneys’ fees and expenses in the amount of $1,500,000, which will be taken from the
$4,000,000 payment to Boulder as part of the settlement.
Attorneys’ fees are properly calculated by determining the “lodestar” – the
number of hours reasonably expended multiplied by reasonably hourly rates – and then
adjusting the lodestar figure, if appropriate, by considering one or more of the factors in
Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974) (“the Johnson
factors”).6 See, e.g., Anchondo v. Anderson, Crenshaw & Assocs., L.L.C., 616 F.3d
5
If Mr. Plettner believes Plaintiff’s counsel breached some contractual duty by choosing
Plaintiff as the named Plaintiff rather than Mr. Plettner, or by improperly failing to reimburse Mr.
Plettner for the time he spent on this action, Mr. Plettner can file his own breach-of-contract
action or the like against Plaintiff’s counsel.
6
The Johnson factors are: (1) the time and labor required; (2) the novelty and difficulty
of the questions; (3) the skill required to perform the service properly; (4) the preclusion of other
employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether
the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8)
10
1098, 1102-04 (10th Cir. 2010); Homeward Bound, Inc. v. Hissom Mem’l Ctr., 963 F.2d
1352, 1355-56 (10th Cir. 1992).
Plaintiff’s counsel represents that the appropriate lodestar figure in this action is
$1,838,519.70, based on 4,123.41 hours of time spent on the action, multiplied by
hourly billing rates ranging from $155 per hour to $595 per hour. (ECF No. 263, 263-1,
263-2, 264.) Plaintiff’s counsel also represents that they have incurred $73,164.60 in
expenses in prosecuting this action. (Id.) Subtracting that $73,164.60 in expenses from
the entire requested amount of $1,500,000 leaves a total request for attorneys’ fees in
the amount of $1,426,835.40. Thus, Plaintiff’s counsel is requesting that the Court
apply a multiplier of approximately 0.77 (somewhat more precisely, 0.7761) to the
lodestar figure of $1,838,519.70, resulting in an attorneys’ fees award of $1,426,835.40,
and a total award of attorneys’ fees and expenses in the amount of $1,500,000.
The Court finds that the amount of expenses sought and the hourly billing rates
of Plaintiff’s counsel are reasonable. While the Court is less convinced regarding the
reasonableness of the 4,123.41 hours of time allegedly spent prosecuting this action,
the Court’s mild concerns in this regard are overcome by the very low 0.77 multiplier
being sought. Cf. In re UnitedHealth Group Inc. S’holder Derivative Litig., 631 F. Supp.
2d 1151, 1160 (D. Minn. 2009) (applying 2.75 multiplier to lodestar figure in shareholder
derivative suit in which plaintiffs’ counsel worked on contingency in the face of
considerable risk and uncertainty); see also Miniscribe Corp. v. Harris Trust Co. of Cal.,
the amount involved and the results obtained; (9) the experience, reputation, and ability of the
attorney; (10) the undesirability of the case; (11) the nature and length of the professional
relationship with the client; and (12) awards in similar cases. See id. at 717-19.
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309 F.3d 1234, 1245 (10th Cir. 2002) (affirming fee award based on a lodestar multiplier
of 2.57 in class action); Lucken Family Ltd. Partnership, LLLP v. Ultra Resources, Inc.,
No. 09-cv-01543, 2010 WL 5387559, at *3-*4 (D. Colo. Dec. 22, 2010) (applying 1.82
lodestar multiplier in class action); Lucas v. Kmart Corp., No. 99-cv-01923, 2006 WL
2729260, at *9 (D. Colo. July 27, 2006) (applying 1.87 lodestar multiplier in class
action). As a hypothetical, even if Plaintiff’s counsel had advanced a lower figure of
approximately 3,200 hours spent prosecuting this action, that would only require the
Court to apply a similarly modest multiplier of 1.0 (i.e., not applying a multiplier) to result
in the same attorneys’ fees award. The fact that a very low multiplier of 0.77 is being
applied here resolves any mild concerns the Court has regarding the number of hours
allegedly spent by Plaintiff’s counsel in prosecuting this action.
The scope and nature of the work required by Plaintiff’s counsel during the more
than two years this action has been pending, the complexity of the case, and the fact
that Plaintiff’s counsel was working on contingency basis all weigh in favor of a
significant attorneys’ fees award in this action. See Johnson, 488 F.2d at 717-19.
The Court therefore concludes that $1,500,000 constitutes fair compensation to
Plaintiff’s counsel for their work on this case.
C.
Plaintiff’s Award
The Court also approves Plaintiff’s request for an incentive award of $50,000,
which will also be taken from the $4,000,000 payment to Boulder as part of the
settlement.
12
The Court recognizes that there is some dispute in the law regarding the
propriety of incentive awards for plaintiffs in derivative actions and for representative
plaintiffs in class actions, although the weight of authority appears to favor such awards.
“The factors to consider in determining an incentive award include: (1) the actions that
the class representative took to protect the interests of the class; (2) the degree to
which the class has benefited from those actions; and (3) the amount of time and effort
the class representative expended in pursuing the litigation.” Lucken Family Ltd. P’ship,
LLLP v. Ultra Res., Inc., No. 09-cv-01543, 2010 WL 5387559, at *6 (D. Colo. Dec. 22,
2010) (citing Cook v. Niedert, 142 F.3d 1004, 1016 (7th Cir. 1998)).
In this case, Plaintiff has established the significant amount of time he expended
over the more than two years of prosecuting this action (a total of approximately 260
hours as of the date of the settlement hearing), and the integral role he played in
assisting his counsel in the prosecution of the action. Further, that prosecution led to
the favorable settlement Plaintiff achieved for the nominal Defendant and its
shareholders. Under the circumstances present here, the Court finds it appropriate to
approve an incentive award for Plaintiff, and finds Plaintiff’s requested award of $50,000
to be appropriate. See, e.g., In re Dun & Bradstreet Credit Servs. Customer Litig., 130
F.R.D. 366, 373-74 (S.D. Ohio 1990) (approving incentive awards of either $55,000 or
$35,000 to each of five representative plaintiffs).
III. CONCLUSION
In accordance with the foregoing, the Court hereby ORDERS as follows:
13
(1)
Plaintiff’s Unopposed Motion for Final Approval of Derivative Litigation Settlement
(ECF No. 267) is GRANTED;
(2)
The Court ISSUES final approval of the Stipulation and Agreement of Settlement
entered into between the parties to this action (ECF No. 253-1);
(3)
Plaintiff’s Application for Award of Attorneys’ Fees and Expenses and Plaintiff’s
Award (ECF No. 261) is GRANTED;
(4)
The Court AWARDS the total sum of $1,500,000.00 in attorneys’ fees and
expenses to Plaintiff;
(5)
The Court AWARDS the total sum of $50,000.00 to Plaintiff as an incentive
award; and
(6)
This action is DISMISSED WITH PREJUDICE, subject only to the Court’s
continuing jurisdiction to enforce the terms of the parties’ settlement.
Dated this 14th day of August, 2012.
BY THE COURT:
_________________________
William J. Martínez
United States District Judge
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