Steamfitters Local 449 Pension Fund v. Sturm, Ruger & Co., Inc. et al

Filing 105

ORDER granting 96 Motion for Attorney Fees; granting 96 Motion for Settlement. See attached orders. The Court awards attorneys fees of 30% of the Settlement Fund plus expenses in the amount of $45,537.12 plus interest on both amounts. The Clerk is directed to close the case. Signed by Judge Vanessa L. Bryant on 8/20/2012. (Attachments: # 1 Supplement, # 2 Supplement, # 3 Supplement) (Fernandez, Melissa)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
In re STURM, RUGER, &
COMPANY, INC. SECURITIES
LITIGATION

:
:
: CIVIL ACTION NO. 3:09cv1293 (VLB)
:
: CLASS ACTION
:
: AUGUST 20, 2012

ORDER APPROVING CLASS ACTION SETTLEMENT, PLAN OF ALLOCATION,
ATTORNEYS’ FEES AND EXPENSES AND CERTIFICATION OF CLASS FOR
SETTLEMENT
Before the Court is Lead Plaintiff’s request for final approval of class action
settlement and plan of allocation of settlement proceeds, certification of the class
for settlement purposes and approval of attorneys’ fees and expenses. This
matter was initiated by the consolidation of two class action complaints filed on
August 13, 2009 and September 30, 2009 respectively on behalf of purchasers of
Defendant Sturm, Ruger & Company, Inc.’s (“Sturm”) securities alleging
violations of the federal securities laws. For the following reasons, the Court
approves the proposed settlement, plan of allocation of settlement proceeds,
attorneys’ fees and expenses, and certifies the class for settlement purposes.
I.

Background and Terms of Proposed Settlement
On August 13, 2009 and September 30, 2009 two putative securities class

action complaints were filed in the District of Connecticut. See Docket Numbers
3:09-cv-1293 and 3:09-cv-1556 on behalf of purchasers of Sturm securities during
the period from April 23, 2007 to October 29, 2007. On October 13, 2009, Lead

Plaintiff filed a motion for consolidation and appointment as Lead Plaintiff. On
January 11, 2010, the Court consolidated the two actions, appointed Steamfitters
Local 449 Pension Fund as Lead Plaintiff and approved its selection of Coughlin
Stoia Geller Rudman & Robbins LLP (“Robbins Geller”) as Lead Counsel and
Diserio, Martin, O’Connor & Castigliono, LLP as Liaison Counsel. See [Dkt. #33].
On March 11, 2010, Lead Plaintiff filed an amended complaint on behalf of
the Class alleging that Defendants made materially false and misleading
statements and omissions about Sturm’s transition to lean manufacturing,
product demand, backlog and inventory reductions in violation of the Securities
Exchange Act of 1934 including violations of Section 10(b), Rule 10b-5, and
Section 20(a) against the individual defendants. See [Dkt. #37]. Lead Plaintiff
alleged that Defendants made materially false and misleading statements about
implementation of a transformation plan based on lean manufacturing known as
the “Ruger Business System.” Lead Plaintiff alleged that the statements were
materially false or misleading because they misrepresented and/or failed to
disclose the following (i) that reductions in inventory balances by Sturm in the
first and second quarter of 2007 had reduced the Company’s pasts and
components inventories below efficient levers; (ii) that the alleged inventory cuts
resulted in Sturm being unable to meet customer orders and target production
volumes; (iii) that the Company’s “backlog” of unfilled purchase orders was
materially inflated because of the Company’s inability to meet current production
and shipping schedules due to inventory shortages and production problems; (iv)
that orders received from the Company’s independent distributors were

artificially boosted by the Company’s mandated change to firm and noncancellable purchase order submissions and were not reflective of actual demand
for the Company’s products; (v) that Sturm’s independent distributors were
carrying large quantities of the Company’s unsold products increasing the risk
that these distributors would reduce or curtail their future purchases; and (vi) that
based on the above, Defendants had no reasonable basis for their positive
statements concerning Sturm’s current financial performance and condition. Id.
On April 26, 2010, Defendants filed a motion to dismiss for failure to state a
claim arguing that the amended complaint failed to identify the statements
alleged to be false or misleading that that any such statements were inactionable
statements because they were either accurate statements of historical fact,
general expressions of optimism or statements protected by the safe harbor of
the Private Litigation Reform Act of 1995 (“PSLRA”). [Dkt. #40]. In addition,
Defendants argued that the amended complaint failed to plead loss causation and
did not allege facts giving rise to a strong inference of scienter. Id.
On February 7, 2010, the Court denied Defendants’ motion to dismiss. The
Court found that certain alleged misstatements were non-actionable puffery or
forward looking statements hedged by cautionary language, but held that the
alleged misstatements about increased demand, improved net income, increased
orders and order backlogs, decreased costs of products sold, and increased
shipments were actionable. [Dkt. #57]. The Court also concluded the amended
complaint plausibly alleged scienter and loss causation. Id.

On August 10, 2011, the parties participated in a full-day mediation. On
August 11, 2011, the parties accepted a mediator’s proposal of $3,000,000. The
parties executed a Memorandum of Understanding (“MOU”) as to the general
terms of their agreement on October 31, 2011. Pursuant to the MOU, Defendant
provided Lead Plaintiff with documents for review in order to confirm the fairness
of the proposed settlement. Lead Counsel reviewed and analyzed more than 400
documents related to their allegations regarding manufacturing and production
data.
On December 29, 2011, the parties executed a Stipulation of Settlement.
Pursuant to the Stipulation of Settlement, a settlement fund of $3,000,000 is being
provided. Lead Plaintiff estimates that the average recovery under the Settlement
is roughly $0.23 per damaged share before deduction of any taxes on the income,
notice and administration costs, and attorneys’ fee and expenses awarded. [Dkt.
## 88 and 89]. A class member’s actual recovery will be a proportion of the Net
Settlement Fund determined by that claimant’s Recognized Claim as compared to
the total Recognized Claims submitted. The plan of allocation is based on the
Price Decline of $6.45 and the PSLRA 90-day look-back amount of $8.55 and
provides that for shares of Sturm stocked purchased during the class period from
April 23, 2007 through October 24, 2007, the claim per share shall be as follows (i)
if sold prior to October 25, 2008, the claim per share is zero; (ii) if retained at the
end of October 25, 2007 and sold before January 22, 2008, the claim per share
shall be the lesser of (a) the Price Decline of $6.45 or (b) the difference between
the purchase price and the selling price; or (c) the difference between the

purchase price per share and the average closing price per share up to the date
of sale as set forth in a provided table of share prices; or (iii) if retained, or sold,
on or after January 22, 2008, the claim per share shall be the lesser of (a) ) the
Price Decline of $6.45 or (b) the difference between the purchase price per share
and $8.55 per share. Id.
On January 25, 2012, the Lead Plaintiff filed its motion for preliminary
approval of settlement. [Dkt. #87]. The Court preliminary approved the terms of
the settlement on May 31, 2012. [Dkt. #94]. The Claims administrator attested that
Notices have mailed to over 19,500 potential Class Members and that the
Summary Notice was published on June 15, 2012 as directed by the Court. See
[Dkt. #99]. Lead Counsel has requested an award of attorneys’ fees in the amount
of 30% of the Settlement Fund in addition to $45,537.12 in expenses. See [Dkt.
#98]. On August 20, 2012, the Court held a fairness hearing. As of that date, no
class member objected to the settlement. Defendants have taken no position as
to Lead Counsel’s request for attorneys’ fees and the plan of allocation.
II.

Approval of the Settlement Agreement
Standard
Federal Rule of Civil Procedure 23(e) provides that the “claims, issues, or

defenses of a certified class may be settled, voluntarily dismissed, or
compromised only with the court’s approval.” The Rule further provides that:
(1) The court must direct notice in a reasonable manner to all class members
who would be bound by the proposal.
(2) If the proposal would bind class members, the court may approve it only
after a hearing and on finding that it is fair, reasonable, and adequate.

Fed R. Civ. P. 23(e)(1)-(2). Thus, to be properly approved, the settlement must
provide reasonable notice to class members of the settlement proposal and the
settlement must be procedurally and substantively fair, reasonable, and
adequate.
“To determine procedural fairness, courts examine the negotiating process
leading to the settlement.” Matheson v. T-Bone Restaurant, LLC, No.09Civ.4214,
2011 WL 6268216, at *3 (S.D.N.Y. Dec. 13, 2011) (citing Wal-Mart Stores, Inc. v.
Visa U.S.A., Inc., 396 F.3d 96, 113 (2d. Cir. 2005)).
“To determine substantive fairness, courts determine whether the
settlement's terms are fair, adequate, and reasonable according to the factors set
forth in City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974).” Id. The
Ginnell factors are:
(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 judgment; (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 to a possible recovery in light of all the attendant risks of
litigation.
City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974) (internal citations
omitted), abrogated on other grounds by Goldberger v. Integrated Res., 209 F.3d
43 (2d Cir. 2000).
The Second Circuit has further instructed that:
A court may approve a class action settlement if it is fair, adequate,
and reasonable, and not a product of collusion. A court determines
a settlement's fairness by looking at both the settlement's terms and

the negotiating process leading to settlement. A presumption of
fairness, adequacy, and reasonableness may attach to a class
settlement reached in arm's-length negotiations between
experienced, capable counsel after meaningful discovery. We are
mindful of the strong judicial policy in favor of settlements,
particularly in the class action context. The compromise of complex
litigation is encouraged by the courts and favored by public policy.
Wal-Mart, 396 F.3d at 116-17 (internal citations and quotations omitted).

Analysis
i.

Adequacy of Notice
Federal Rule 23(c)(2)(B) defines notice requirements for Rule 23(b)(3)

classes, providing that:
the court must direct to class members the best notice that is
practicable under the circumstances, including individual notice to
all members who can be identified through reasonable effort. The
notice must clearly and concisely state in plain, easily understood
language:
(i)
the nature of the action;
(ii)
the definition of the class certified;
(iii)
the class claims, issues, or defenses;
(iv)
that a class member may enter an appearance through an attorney if
the member so
desires;
(v)
that the court will exclude from the class any member who requests
exclusion; and
(vi) the binding effect of a class judgment on members under Rule
23(c)(3)

The Second Circuit has further clarified that “[t]he standard for the
adequacy of a settlement notice in a class action under either the Due Process
Clause or the Federal Rules is measured by reasonableness.” Wal-Mart, 396 F.3d
at 113. Further, there are “no rigid rules to determine whether a settlement notice
to the class satisfies constitutional or Rule 23(e) requirements; the settlement

notice must fairly apprise the prospective members of the class of the terms of
the proposed settlement and of the options that are open to them in connection
with the proceedings. Notice is adequate if it may be understood by the average
class member.” (internal citations and quotation marks omitted). Id. at 114.
Here the Notice to the class was reasonable and sufficient to satisfy Rule
23’s requirements. Notices have mailed to over 19,500 potential Class Members
and that the Summary Notice was published on June 15, 2012 as directed by the
Court.
ii.

The Settlement was Fair, Reasonable, and Adequate
a. Procedural Fairness
Here, the settlement was reached by experienced, fully-informed counsel

after arm’s length negotiations with the assistance of a mediator and therefore
the parties are entitled to a presumption that the settlement was fair, reasonable
and adequate. See e.g., Wal–Mart Stores, 396 F.3d at 116 (citing Manual for
Complex Litigation, Third, § 30.42 (1995) (A “presumption of fairness, adequacy,
and reasonableness may attach to a class settlement reached in arm's-length
negotiations between experienced, capable counsel after meaningful discovery”);
In re Giant Interactive Grp., Inc. Sec. Litig., No. 07 Civ. 10588, 2011 WL 5244707, at
*4 (S.D.N.Y. Nov. 2, 2011) (parties were entitled to a presumption of fairness
where mediator facilitated arms length negotiations); In re AOL Time Warner, Inc.
Sec. Litig., No. 02 Civ. 5575, 2006 WL 903236, at *6 (S.D.N.Y. Apr. 6, 2006) (noting
that involvement of mediator in pre-certification settlement negotiations helped
“ensure that the proceedings were free of collusion and undue pressure”). In

addition, Lead Counsel conducted an investigation and evaluation of the claims
and reviewed 400 pages of documentation relevant to the allegations of the
amended complaint to confirm the fairness of the proposed settlement. These
facts demonstrate that the settlement achieved met the requirements of
procedural fairness.
b. Substantive Fairness
i. Complexity, expense and likely duration
Here, the alleged securities claims involve numerous complex legal and
factual issues pertaining to Sturm’s manufacturing processes and inventory
systems. To pursue these claims to trial would doubtless require extensive,
voluminous and costly fact discovery as well as extensive expert discovery and
testimony. “In evaluating the settlement of a securities class action, federal
courts … have long recognized that such litigation is notably difficult and
notoriously uncertain.” In re Sumitomo Copper Litig., 189 F.R.D. 274, 281
(S.D.N.Y. 1999). To prosecute this case through trial including post trial motion
practice and the appellate process would further delay recovery for the class.
“Delay, not just at the trial stage but through post-trial motions and the appellate
process would cause Class Members to wait years for any recovery, further
reducing its value.” In re EVCI Career Colleges Holding Corp. Sec. Litig.,
No.05CIV 10240(SM), 2007 WL 2230177, at *5 (S.D.N.Y. July 27, 2007); Slomovics
v. All for a Dollar, Inc., 906 F.Supp. 146, 149 (E.D.N.Y. 1996) (“The potential for this
litigation to result in great expense and to continue for a long time suggest that

settlement is in the best interests of the Class.”). The complexity, expense, and
duration of the litigation therefore support approval of the settlement.
ii. Reaction of the class
It is well settled that the reaction of the class to the settlement is perhaps
the most significant factor to be weighed in considering its adequacy. In re
American Bank Note Holographics, Inc., 127 F.Supp.2d 418, 425 (S.D.N.Y.2001).
The parties have indicated that the reaction of the class has been favorable.
Notice regarding the Settlement has been sent to over 19,500 potential class
members and not a single objection has been received. “[T]he absence of
objectants may itself be taken as evidencing the fairness of a settlement.” Ross
v. A.H. Robins, 700 F. Supp. 682, 684 (S.D.N.Y. 1988) (internal quotation marks
and citation omitted). Accordingly, this factor also weighs in favor of finding the
settlement reasonable and adequate.
iii. Stage of Proceedings and Amount of Discovery Completed
When weighing this factor, the Court “need not find that the parties have
engaged in extensive discovery … Instead, it is enough for the parties to have
engaged in sufficient investigation of the facts to enable the Court to intelligently
make an appraisal of the Settlement.” In re Austrian & German Bank Holocaust
Litig., 80 F. Supp. 2d 164, 176 (S.D.N.Y. 2000) (internal quotations and citations
omitted), aff'd sub nom. D'Amato v. Deutsche Bank, 236 F.3d 78 (2d Cir. 2001).
Here, Lead Counsel conducted an extensive factual investigation and analysis
despite the fact that the statutory stay on discovery as provided for by the PSLRA
was in place during large portions of the litigation. Lead Counsel reviewed

publicly available documents, interviewed former Sturm employees, consulted
with economic experts who provided advice and assistance on complicated
issues such as damages, causation and materiality. Lastly, Lead Counsel
reviewed 400 documents produced by Defendants following the execution of the
MOU but prior to the execution of the Stipulation of the Settlement. The
“possibility that more information may become available in the future is not
determinative – the Court’s inquiry is into whether the plaintiffs have sufficient
information to evaluate the adequacy of the proposed settlement, not whether
they have availed themselves of all possible information.” Taft v. Ackermans,
No.02Civ.7951(PKL), 2007 WL 414493, at *6 (S.D.N.Y. Jan. 31, 2007). The
discovery that Lead Counsel has conducted is sufficient to provide a “‘clear view
of the strengths and weaknesses of their cases’ and of the adequacy of the
settlement.” Id. (quoting In re Warner Communications Sec. Litig., 618 F.Supp.
735, 745 (S.D.N.Y. 1985)). This factor therefore also supports approval of the
settlement.
iv. Risks of establishing liability and damages
“In considering the risks of establishing liability and damages and of
maintaining the class action through the trial, it is important to keep in mind that
this Court's role is not to ‘decide the merits of the case or resolve unsettled legal
questions.’” Davis v. J.P. Morgan Chase & Co., 827 F.Supp.2d 172, 177 (W.D.N.Y.
2011) (quoting Carson v. American Brands, Inc., 450 U.S.79. 88 n.14 (1981)).
“Since the Court cannot foresee with absolute certainty the outcome of the case,
the Court need only assess the risks of litigation against the certainty of recovery

under the proposed settlement” Id. at 177-78 (internal quotation marks and
citations omitted). Here the risks of establishing liability and damages are
considerable. In order to prevail on its securities fraud claims, Plaintiffs “must
demonstrate that its injuries were caused by defendants’ omissions [or
misstatement] of material information,” Emergent Capital Investment
Management, LLC v. Stonepath Group, Inc., 343 F.3d 189, 196 (2d Cir. 2003), and
must also prove that the defendants acted with the required scienter. In re Gilat
Satellite Networds, Ltd., No.CV-02-1510(CPS), 2007 WL 2743675, at *11 (E.D.N.Y.
Sept. 18, 2007). Courts have long recognized that “[e]stablishing scienter is ‘a
difficult burden to meet.’” Id. (quoting Adair v. Bristol Tech. Sys., Inc.,
No.97Civ.5874(RWS), 1999 WL 1037878, at *2 (S.D.N.Y. Nov. 16, 1999)).
Here, Defendants have raised several defenses against liability. First,
Defendants argue that scienter could not be established as they were not aware
of the inventory and production problems until the end of the third quarter and
not earlier as Plaintiffs have alleged. Second, Defendants argue that it would
difficult to establish the requisite showing of loss causation and therefore
Plaintiffs would not be able to demonstrate that the price decline was caused by
the corrective disclosures regarding the production and inventory problems.
Lastly, Defendants argue that damages would be strongly contested and that a
“battle of the experts” would likely ensue. See Klein ex rel. Ira v. PDG
Remediation, Inc., No.96Civ.4954(DAB), 1999 WL 38179, at *3 (S.D.N.Y. Jan. 28,
1999) (noting that the uncertainty resulting from battle of the experts concerning
the extent of damages suffered by the class suggested that the risks were

significant and were outweighed by the benefit of awarding Plaintiffs a certain
recovery). It is clear that the risks of establishing liability and damages in
complex securities matter such as this one are outweighed by the benefits of a
certain recovery for Plaintiffs.
v. Risks of maintaining the class action through trial
Although Plaintiffs indicated that it is their belief that this action meets all
the requirements for class certification, Defendants have indicated they would
oppose class certification if this case proceeded. As one court in the Southern
District of New York concluded “a contested class certification motion would
likely require extensive discovery and briefing. If the Court were to grant class
certification, Defendants might seek to file an appeal under Federal Rule of Civil
Procedure 23(f) the resolution of which would require an additional round of
briefing. Settlement eliminates the risk, expense, and delay inherent in the
litigation process.” Matheson, 2011 WL 6268216, at *5. Accordingly, this factor
weighs in favor of final approval.
vi. Ability of Defendant to withstand a greater judgment
The parties have correctly pointed out that a defendant is “not required to
empty its coffers before a settlement can be found adequate.” In re Sony SXRD
Rear Projection Television Class Action Litig., No.06Civ.5173(RPP), 2008 WL
1956267, at *8 (S.D.N.Y. May 1, 2008) (internal quotation marks and citation
omitted). However the parties have not provided the Court with any specific
information as to Sturm’s assets or its ability to withstand a greater judgment.
Accordingly, this factor neither weighs in favor or against settlement.

vii. Range of reasonableness of the settlement in light of the best
possible recovery in light of all the attendant risks of litigation

The eighth and ninth factors call upon the Court to weigh the range of
reasonableness of the settlement fund in light of the best possible recovery and
attendant risks of litigation. In doing so, the Court is “called upon to consider
and weigh the nature of the claim, the possible defenses, the situation of the
parties, and the exercise of business judgment in determining whether the
proposed settlement is reasonable. Grinnell, 495 F.2d at 462. However, “[i]t is
not necessary in order to determine whether an agreement of settlement and
compromise shall be approved that the court try the case which is before it for
settlement. Such procedure would emasculate the very purpose for which
settlements are made.” Id. (ellipsis omitted). “The determination of whether a
settlement amount is reasonable does not involve the use of a ‘mathematical
equation yielding a particularized sum … Instead, there is a range of
reasonableness with respect to a settlement—a range which recognizes the
uncertainties of law and fact in any particular case and the concomitant risks and
costs necessarily inherent in taking any litigation to completion.” Matheson,
2011 WL 6268216, at *6 (internal quotation marks and citations omitted).
Here, the parties indicate that the settlement represents approximately
3.5% of Lead Plaintiff’s “most aggressive estimate of maximum provable
damages” which “exceeds the average recovery in shareholder litigation.” [Dkt.
#97, p. 25]. In light of the legal and factually complexity, the unpredictability of a
lengthy trial and the appellate process as discussed above, the settlement

amount is well within the range of reasonableness for similar securities cases.
See In re China Sunergy Sec. Litig., No. 07Civ.7895(DAB), 2011 WL 1899715, at *5
(S.D.N.Y. May 13, 2011) (noting that “average settlement amounts in securities
fraud class actions where investors sustained losses over the past decade
…have ranged from 3% to 7% of the class members’ estimated losses”) (internal
quotation marks omitted); In re Union Carbide, 718 F.Supp. 1099, 1103 (S.D.N.Y.
1989) (acknowledging that “a settlement can be approved even though the
benefits amount to a small percentage of the recovery sought” and that the
“essence of settlement is compromise.”) (internal quotation marks and citation
omitted). For the foregoing reasons, the Court’s overall analysis of the Grinnell
factors support a finding that the settlement is indeed fair, reasonable and
adequate.
III.

Approval of the Plan of Allocation
“To warrant approval, the plan of allocation must also meet the standards

by which the settlement was scrutinized—namely, it must be fair and adequate.”
Maley v. Del Global Technologies Corp., 186 F.Supp.2d 358, 367 (S.D.N.Y. 2002)
(internal citation and quotations omitted).

“An allocation formula need only

have a reasonable, rational basis, particularly if recommended by experienced
and competent class counsel.” Id. “In determining whether a plan of allocation is
fair, courts look primarily to the opinion of counsel. That is, as a general rule, the
adequacy of an allocation plan turns on whether counsel has properly apprised
itself of the merits of all claims, and whether the proposed apportionment is fair
and reasonable in light of that information.” Chavarria v. New York Airport Serv.,

LLC, No.10-cv-1930(MDG), 2012 WL 2394797, at *8 (E.D.N.Y. June 25, 2012)
(internal quotations marks and citations omitted). “Courts also consider the
reaction of the class to a plan of allocation.” Id.
The Court finds that the proposed Plan of Allocation is fair and supported
by a rational basis as devised by experienced counsel. The Plan provides that
each authorized claimant will receive a pro rata share of the Net Settlement Fund
and therefore complies with the Supreme Court’s decision in Dura
Pharmaceuticals and requires that “the claimant must have purchased the
security during the Class Period and held it on the day of corrective disclosure,
recognizing that Class Members suffered an economic loss only if they bought
shares during the Class Period and sold them after the Class Period ended.” In
re Veeco Instruments Inc. Sec. Litig., No.05MDL0165(CM), 2007 WL 4115809, at
*13 (S.D.N.Y. Nov. 7, 2007) (citing Dura Pharm., Inc. v. Broudo, 544 U.S. 336
(2005)).  The Plan of allocation takes into account when class members purchased
and sold their Sturm stock to determine an appropriate recovery for that class
member. Although some class members will benefit more from this allocation
formula that is ultimately appropriate as it recognizes the strengths and
weaknesses of each class members’ individual claims and the timing of the sale
of the securities at issue. “Allocation formulas, including certain discounts for
certain securities, are recognized as an appropriate means to reflect the
comparative strengths and values of different categories of the claim. There is no
rule that settlements benefit all class members equally.” Id. (internal quotation
marks and citations omitted); See also In re Oracle Sec. Litig., 1994 WL 502054,

*1, 1994 U.S. Dist. LEXIS 21593, *3 (N.D.Cal. Jun. 18, 1994) (“A plan of allocation
that reimburses class members based on the extent of their injuries is generally
reasonable.”). Finally, the favorable reaction of the Class supports approval of
the Plan as no member has objected to the Plan of Allocation although notices to
19,500 potential Class Members have been distributed. Accordingly, this Court
finds that the Plan of Allocation is a fair, reasonable and adequate method for
allocating the Net Settlement Fund.
IV.

Final Class Certification of the Settlement Class
“Certification of a settlement class has been recognized throughout the

country as the best, most practical way to effectuate settlements involving large
numbers of claims by relatively small claimants . . . Classes certified for
settlement purposes, like all other classes, must meet the requirements of Rule
23(a) and at least one of three requirements set forth in Rule 23(b).” In re IMAX
Sec. Litig., No.06Civ.6138(NRB), 2012 WL 2359653, at *6 (S.D.N.Y. June 20, 2012)
(internal quotation marks and citations omitted). Here the Court finds that the
settlement classes satisfies the requirements of Federal Rule Civil Procedure
23(a) and (b)(3) and accordingly certifies the class for the purpose of settlement.
A. Federal Rule of Civil Procedure 23(a) Requirements
i.

Numerosity

In order to meet Rule 23(a)(1)'s numerosity requirement, a plaintiff must
establish that the proposed “class is so numerous that joinder of all members is
impracticable.” Fed.R.Civ.P. 23(a)(1). “The numerosity requirement in Rule
23(a)(1) does not mandate that joinder of all parties be impossible—only that the

difficulty or inconvenience of joining all members of the class make use of the
class action appropriate. In securities fraud class actions relating to publicly
owned and nationally listed corporations, the numerosity requirement may be
satisfied by a showing that a large number of shares were outstanding and traded
during the relevant period. Numerosity is presumed when a class consists of
forty members or more.” In re Imax Sec. Litig., 272 F.R.D. 138, 146 (S.D.N.Y. 2010)
(internal quotation marks and citation omitted). Here the class exceeds forty
members as there were millions of Sturm shares outstanding during the Class
Period held by hundreds of shareholders and therefore it is clear that the
proposed class satisfied the numerosity requirement.
ii.

Commonality and Typicality

“‘The commonality requirement is met if plaintiffs' grievances share a
common question of law or of fact.’” Cent. States Se. & Sw. Areas Health &
Welfare Fund v. Merck–Medco Managed Care, LLC, 504 F.3d 229, 245 (2d Cir.2007)
(quoting Marisol A. v. Giuliani, 126 F.3d 372, 376 (2d Cir.1997) ( per curiam )).
“Typicality ‘requires that the claims of the class representatives be typical of
those of the class, and is satisfied when each class member's claim arises from
the same course of events, and each class member makes similar legal
arguments to prove the defendant's liability.’” Id. (quoting Robinson v. Metro–N.
Commuter R.R. Co., 267 F.3d 147, 155 (2d Cir.2001)). As the Supreme Court has
explained, the commonality requirement “tend[s] to merge” with the typicality
requirement because “[b]oth serve as guideposts for determining whether ... the
named plaintiff's claim and the class claims are so interrelated that the interests

of the class members will be fairly and adequately protected in their absence.”
Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 158 n. 13, 102 S.Ct. 2364, 72 L.Ed.2d
740 (1982).
The commonality requirement “has been applied permissively in securities
fraud litigation. In general, where putative class members have been injured by
similar material misrepresentations and omissions, the commonality requirement
is satisfied.” Fogarazzo v. Lehman Bros., 232 F.R.D. 176, 180 (S.D.N.Y.2005).
Allegations that “the same unlawful conduct was directed at or affected both the
named plaintiff and the class sought to be represented” usually satisfy the
typicality requirement “irrespective of minor variations in the fact patterns
underlying individual claims.” Robidoux v. Celani, 987 F.2d 931, 987 (23 Cir.
1993).
Here, the commonality and typicality requirements are satisfied as there
are manifest common questions of law and fact. The alleged fraud involved
material misrepresentation and omissions in written publications which were
disseminated to the public and investors. The claims of the Lead Plaintiff are
therefore identical to those of the class as all arise out of the same course of
events relating to the alleged material misrepresentations and omissions
regarding Sturm’s transition to lean manufacturing, product demand, backlog and
inventory reductions.   
iii.

Adequacy

“The adequacy requirement of Rule 23(a)(4) involves an inquiry as to
whether: (1) the plaintiff's interests are antagonistic to the interests of the other

members of the [c]lass; and (2) plaintiff's counsel are qualified, experienced, and
capable of conducting the litigation.” In re IMAX Sec. Litig., 2012 WL 2359653, at
*7 (internal quotation marks and citation omitted). There is no indication that the
Lead Plaintiff’s interests are in conflict with those of the other members of the
settlement class particularly where, as here, common questions of law and fact
predominate. In addition, the Court finds that Lead Counsel is qualified to
litigate as indicated by the lack of opposition to the settlement and that that Lead
Counsel, Robbins, Geller has extensive experience litigating securities class
actions. See e.g., Pompano Beach Police & Firefighters’ Retirement Sys. v.
Comtech, No.CV09-3007(SJF)(AKT), 2010 WL 3924862, at *6 (E.D.N.Y. Aug. 17,
2010) (finding adequacy requirement satisfied where Lead Plaintiff’s counsel,
Robbins Geller, has extensive experience in securities class actions); Lintz v.
Agria Group, 08Civ.3536, 2008 WL 5191087, at *2 (S.D.N.Y. Dec. 3, 2008)
(appointing Robbins Geller to serve as lead counsel and acknowledging that
plaintiff “has retained competent and experienced counsel”). Consequently, the
Court finds that the adequacy requirement has been satisfied.
B. Federal Rule of Civil Procedure 23(b)(3) Requirements
i.

Predominance of Common Questions

“‘Class-wide issues predominate if resolution of some of the legal or
factual questions that qualify each class member's case as a genuine controversy
can be achieved through generalized proof, and if these particular issues are
more substantial than the issues subject only to individualized proof.’” In re
Imax, 2012 WL 2359653, at *7 (quoting Moore v. PaineWebber, Inc. ., 306 F.3d

1247, 1252 (2d Cir.2002)). The predominance requirement “readily met in certain
cases alleging consumer or securities fraud or violations of the antitrust laws.”
Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 625, 689 (1997). Here, the Lead
Plaintiff has alleged that Sturm’s material misstatement or omissions caused the
class to suffer damages and therefore the predominance requirement has been
adequately satisfied.
ii.

Superiority to Other Methods of Adjudication

Here the class action is superior to other available methods for
adjudicating the controversy. This consideration focuses on “(A) the class
members' interests in individually controlling the prosecution or defense of
separate actions; (B) the extent and nature of any litigation concerning the
controversy already begun by or against class members; (C) the desirability or
undesirability of concentrating the litigation of the claims in the particular forum;
and (D) the likely difficulties in managing a class action.” Fed. R. Civ. P. 23(b)(3).
“The interest of the class as a whole in litigating the many common questions
substantially outweighs any interest by individual members in bringing and
prosecuting separate actions” as evidenced by the fact that no member has
objected to the settlement. In re Imax, 2012 WL 2359653, at *8 (internal quotation
marks and citation omitted). In addition, it would likely be cost prohibitive for
each class member to maintain an individual action in light of the minimal
recovery possible for most class members. See Tsereteli v. Residential Asset
Securitization Trust 2006-A8, No.08Civ.10627(LAK), 2012 WL 2532172, at *11
(S.D.N.Y. June 19, 2012) (“Most violations of the federal securities laws ... inflict

economic injury on large numbers of geographically dispersed persons such that
the cost of pursuing individual litigation to seek recovery is often not feasible....
Moreover, although a large number of individuals may have been injured, no one
person may have been damaged to a degree which would induce him to institute
litigation solely on his own behalf.”). Lastly, there is no indication that any
significant difficulties would be encountered in the management of the case as a
class action or the administration of the proposed Settlement. The Court
therefore concludes that superiority requirement has been satisfied. In sum, the
Court finds that the requirements of Rules 23(a) and (b) have been met and the
Court certifies the class for the purpose of settlement.
V.

Approval of Attorney Fees
The Second Circuit has traditionally recognized two distinct methods to

determine what is a reasonable fee. The first being the “presumptively
reasonable fee” approach otherwise known as the modified “lodestar” approach
and the second being a percentage-of-fund approach. Here Lead Counsel has
applied for an award of attorney’s fees in the amount of 30% of the Settlement
Fund and $45,537.12 in expenses. The Court recognizes that “a litigant or a
lawyer who recovers a common fund for the benefit of persons other than himself
or his client is entitled to a reasonable attorney's fee from the fund as a whole.”
Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980). Moreover, the “Second
Circuit has authorized district courts to employ a percentage-of-the-fund method
when awarding fees in common fund cases, although the circuit has encouraged
district courts to cross-check the percentage fee against counsels ‘lodestar’

amount of hourly rate multiplied by hours spent.” In re Giant Interactive Group,
Inc. Sec. Litig., 279 F.R.D. 151, 163 (S.D.N.Y. 2011) (citing Goldberger v. Integrated
Res. Inc., 209 F.3d 43, 47 (2d Cir. 2000)). “‘It bears emphasis that whether
calculated pursuant to the lodestar or the percentage method, the fees awarded
in common fund cases may not exceed what is ‘reasonable’ under the
circumstances.’” Id. (quoting Goldberger, 209 F.3d at 47). When considering the
reasonableness of such an award, the Court must consider the following factors:
1) the time and labor expended by counsel; (2) the magnitude and complexities of
the litigation; (3) the risk of the litigation; (4) the quality of representation; (5) the
requested fee in relation to the settlement; and (6) public policy considerations.
Goldberger, 209 F.3d at 50. These Goldberger factors ultimately determine the
reasonableness of a common fund fee. Wal-Mart Stores, 396 F.3d at 121.
i.

Time and Labor Expended by Counsel

Lead counsel expended considerable time and effort litigating this case.
Lead Counsel attests that in the aggregate 1,521.5 hours have been spent in the
prosecution of this case. Counsel has conducted an extensive investigation of
the issues involved in the case including utilizing investigators and consulting
with a damages expert. Counsel also prepared a detailed mediation statement
and performed significant confirmatory discovery. In light of these efforts, this
factor supports an award of a 30% fee.
ii.

Magnitude and Complexities of the Litigation

Courts have long recognized that a securities action “by its very nature, is
a complex animal.” Maley, 186 F.Supp. 2d at 372 (quotation admitted). Had this

case proceeded to trial, additional discovery and motion practice including
motion of summary judgment would have doubtless prolonged and delayed the
resolution of this case. As noted above, Plaintiffs face substantial factual and
legal hurdles to establish that Defendants made material misstatements and
omissions about Sturm’s transition to lean manufacturing, product demand,
backlog and inventory reductions.
iii.

The Risk of the Litigation

“In considering the risk of litigation as it pertains to fee awards,
Courts in this circuit may consider several types of risk. The most salient
is the attorneys' risk in accepting a case on a contingency fee for, as the
Second Circuit has noted ‘[n]o one expects a lawyer whose compensation
is contingent upon his success to charge, when successful, as little as he
would charge a client who in advance had agreed to pay for his services,
regardless of success.’” In re Giant, 279 F.R.D. at 164 (quoting Grinnel, 495
F.2d at 570).

Here Lead Counsel undertook this action on a wholly

contingent-fee basis, devoting substantial resources to the prosecution of
this action for nearly three years.

Maley, 186 F.Supp.2d at 372 (“Class

counsel undertook a substantial risk of absolute non-payment in
prosecuting

this

action,

for

which

they

should

be

adequately

compensated.”) (internal quotation marks and citation omitted).   Here the
contingency risk facing Lead Counsel supports the requested award.
In addition, the Court further notes that there are significant
additional risks of establishing liability and proving damages in this case

as discussed above that further support the requested award.

For

example, Defendants have maintained that Lead Plaintiff cannot establishe
scienter because the more plausible explanation for the corrective
disclosure at the end of the Class Period is that Defendants did not realize
until the third quarter of 2007 that Sturm was experiencing production and
inventory problems that would negatively affect its revenue. Defendants
also argue that the alleged misstatements and omissions would not be
actionable as accurate statement of historical fact, general expressions of
optimism or statements protected by the PSLRA safe harbor.
iv.

The Requested Fee in Relation to the Settlement and Quality of
Representation

The Court finds that the quality of representation was high in this
case.

As the Court noted above, Lead Counsel has considerable

experience and expertise in prosecuting security class actions.

Here the

settlement reached represented approximately 3.5% of Lead Plaintiff’s
“most aggressive estimate of maximum provable damages” which
“exceeds the average recovery in shareholder litigation.” [Dkt. #97, p. 25].
Consequently, this factor also supports the requested award.
v.

Public Policy Considerations

“In considering an award of attorney's fees, the public policy of
vigorously enforcing the federal securities laws must be considered.
Courts have recognized the importance that fair and reasonable fee awards
have in encouraging private attorneys to prosecute class actions on a
contingent basis pursuant to the federal securities laws on behalf of those

who otherwise could not afford to prosecute.” Maley, 186 F.Supp 2d at 373.
Often times in complex securities class action, competent counsel are only
retained on a contingent basis. Consequently, “[a] large segment of the
public might be denied a remedy for violations of the securities laws if
contingent fees awarded by the courts did not fairly compensate counsel
for the services provided and the risks undertaken.” In re Union Carbide
Corp. Consumer Products Business Sec. Litig., 724 F.Supp. 160, 169
(S.D.N.Y. 1989). Courts have therefore found it “imperative that the filing of
such contingent lawsuits not be chilled by the imposition of fee awards
which fail to adequately compensate counsel for the risks of pursuing such
litigation and the benefits which would not otherwise have been achieved
but for their persistent and diligent efforts.” Maley, 186 F.Supp. at 373.
Accordingly, important public policy considerations will be promoted by
the requested award. In sum, the application of the Goldberger factors
support the reasonableness of the requested award. The Court also notes
the reasonableness of the requested award is underscored by the favorable
reaction of the class.
vi.

Load Star Cross-Check

“[W]here [the lodestar method is] used as a mere cross-check, the
hours documented by counsel need not be exhaustively scrutinized by the
district court. Instead, the reasonableness of the claimed lodestar can be
tested by the court's familiarity with the case.” Goldberger, 209 F.3d at 50.
See also In re Rite Aid Corp. Sec. Litig., 396 F.3d 294, 306-07 (3d Cir. 2005)

(in performing lodestar cross-check calculation, “[t]he district courts may
rely on summaries submitted by the attorneys and need not review actual
billing records”).

Plaintiffs represent that the aggregate loadstar is

$712,737.50 for 1,531.50 hours worked whereas the requested fee is
$900,000. Thus the requested fee represents a multiplier of 1.26.
A multiplier of 1.26 is adequate in light of the Court’s analysis of the
Goldberger factors and well within the range of multipliers typically
approved by Courts. See e.g., Board of Trustees of AFTRA Retirement
Fund v. JP Morgan Chase Bank, N.A., No.09Civ.686(SAS), 2012 WL
2054907, at *1-2 (S.D.N.Y. June 7, 2012) (finding that attorney fees of 25% of
settlement fund with a multiplier of 2.86 to be reasonable); In re Sumitomo
Copper Litig., 74 F.Supp. 2d 292, 299 (S.D.N.Y. 1999) (awarding a 27.5% fee
and finding multipliers of 3 to 4.5 to be common); Anwar v. Fairfield
Greenwich Ltd., No.09-cv-118, 2012 WL 1981505, at *3 (S.D.N.Y. June 1,
2012) (awarding a 33% fee and finding that a “multiplier of 2.42 is well
within the range of lodestar multiplies approved by courts in the Second
Circuit and further demonstrates the reasonableness of the requested
fee.”).

Consequently, the requested free is also reasonable under the

lodestar cross-check.
VI.

Approval of Lead Counsel Expenses
Lead Counsel also requests an award of expenses for $45,537.12

plus interest. It is well established that “[r]eimbursement of expenses to
counsel to create a common fund is appropriate.” In re EVCI Career

Colleges Holding Corp. Sec. Litig., No.05Civ.10240(CM), 2007 WL 2230177,
at *18 (S.D.N.Y. July 27, 2007); In re Arakis Energy Corp., Sec. Litig.,
No.95CIV3421, 2001 WL 1590512, at *17 n. 12 (E.D.N.Y. Oct. 31, 2001)
(“Courts in the Second Circuit normally grant expense requests in common
fund cases as a matter of course.”); Miltland Raleigh-Durham v. Myers, 840
F.Supp. 235, 239 (S.D.N.Y.1993) (“Attorneys may be compensated for
reasonable out-of-pocket expenses incurred and customarily charged to
their clients, as long as they ‘were incidental and necessary to the
representation’ of those clients”) (citation omitted).

The Court has

reviewed the affidavits submitted by Lead and finds the expense request to
be reasonable.
VII.

Conclusion

For the aforementioned reasons, the parties’ motion for final
approval of settlement and motion for attorneys’ fees and expenses is
GRANTED. It is hereby ORDERED that the class is certified for settlement
purposes pursuant to Federal Rule of Civil Procedure 23. If is FURTHER
ORDERED that the settlement and plan of allocation is approved as fair,
reasonable and adequate. The Court also awards attorneys’ fees of 30% of
the Settlement Fund plus expenses in the amount of $45,537.12 plus
interest on both amounts. The Clerk is directed to close the case.

IT IS SO ORDERED.

_______/s/__________

Hon. Vanessa L. Bryant
United States District Judge

Dated at Hartford, Connecticut: August 20, 2012