Bryant Holdings LLC v. YRC Worldwide Inc. et al

Filing 93

MEMORANDUM AND ORDER and ORDER TO SHOW CAUSE. Plaintiffs' 85 Second Amended Unopposed Motion For Preliminary Approval Of Class Action Settlement is overruled. Plaintiffs' Show Cause Response due by 2/20/2015. Signed by District Judge Kathryn H. Vratil on 2/11/2015. (mg)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
STAN BETTER, et al.,

)
)
Plaintiffs,
)
)
v.
)
)
YRC WORLDWIDE INC., et al.,
)
)
Defendants.
)
__________________________________________)

CIVIL ACTION
No. 11-2072-KHV

MEMORANDUM AND ORDER AND ORDER TO SHOW CAUSE

Stan Better and YRC Investors Group bring this securities class action on behalf of all who
purchased common stock of YRC Worldwide Inc. (“YRC”) between April 24, 2008 and
November 2, 2009. They bring suit against YRC and former YRC executives William D. Zollars,
Michael Smid, Timothy A. Wicks and Stephen L. Bruffet. Plaintiffs allege that all defendants
violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5,
17 C.F.R. § 240.10b-5 (Count I). Amended Class Action Complaint For Violations Of Federal
Securities Laws (Doc. #38) filed October 21, 2011 at 83-86. They also allege that individual
defendants violated Section 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78t(a)
(Count II). Id. at 86-87. Plaintiffs assert that by disseminating materially false and misleading
statements and/or concealing materially adverse facts, defendants participated in a fraudulent
scheme and course of business that operated as a fraud or deceit on purchasers of YRC common
stock. This matter comes before the Court on plaintiffs’ Second Amended Unopposed Motion For
Preliminary Approval Of Class Action Settlement (“Third Motion For Preliminary Approval”) (Doc.
#85) filed February 18, 2014. For reasons stated below, the Court overrules the motion and orders
plaintiffs to show cause in writing, on or before February 20, 2015, why plaintiffs’ individual claims

should not be set for trial beginning July 13, 2015.
Background
On May 31, 2013, plaintiffs filed their first motion for preliminary approval of a proposed
class settlement. See Unopposed Motion For Preliminary Approval Of Class Action Settlement
(“First Motion For Preliminary Approval”) (Doc. #76). The Court overruled the motion, finding that
plaintiffs did not show that the proposed class satisfied Rule 23, Fed. R. Civ. P., or that the proposed
settlement was fair and reasonable. See Memorandum And Order (Doc. #79) filed August 19, 2013.
Specifically, the Court found that plaintiffs did not show that they could satisfy the typicality and
adequacy of representation requirements of Rule 23(a)(3) and (4). See id. at 11-12. In particular,
the Court found that plaintiffs did not show that the interests of named plaintiffs and absent class
members were aligned or that the proposed settlement provided sufficient value or benefit to class.
Id. at 11-17. The Court noted that the proposed plan of allocation provided no recovery for two sets
of class members, and that plaintiffs did not explain why it was appropriate to release the claims of
some class members in exchange for nothing in return.1 Id. at 11. Also, in evaluating whether
common questions of law or fact predominated under Rule 23(b)(3), the Court found that plaintiffs
did not meet their burden to invoke the rebuttable presumption under the fraud-on-the-market
theory. See id. at 12-13. Finally, the Court found that the so-called cy pres provision – which
proposed to give undistributed settlement funds to an unnamed non-profit organization – was
inadequate. Id. at 17-18. Specifically, the Court found that because the parties did not identify the

1

Specifically, the proposed plan of allocation provided nothing for the following two
sets of class members: (1) those who purchased shares between April 24, 2008 and April 22, 2009
and sold the shares before April 23, 2009; and (2) those whose amount of distribution (after taxes,
costs and attorney fees) would be less than ten dollars. See Memorandum And Order (Doc. #79)
at 11.
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proposed cy pres recipient, they restricted the Court’s ability to conduct the searching inquiry
required to approve such a distribution and deprived class members of notice and the ability to
object. Id. at 18.
Nine days later, on August 28, 2013, plaintiffs filed a second motion for preliminary
approval of a corrected stipulation of settlement. See Amended Unopposed Motion For Preliminary
Approval Of Class Action Settlement (“Second Motion For Preliminary Approval”) (Doc. #81);
Corrected Stipulation Of Settlement (Doc. #80). In the motion, plaintiffs asserted that they had
amended the settlement to provide payment to more class members and to identify a proposed
cy pres recipient. See id. at 7, 11.
The Court declined to approve the corrected stipulation of settlement because plaintiffs did
not show that (1) the named representatives could adequately represent the interests of all class
members; (2) the proposed settlement provided sufficient benefit or value to class members to justify
releasing their class action claims against defendants; and (3) the proposed cy pres distribution was
necessary and designated at arms-length.

See Memorandum And Order (Doc. #82) filed

November 18, 2013 at 3-12. The Court noted that the named representatives purported to serve
generally as representatives for the entire settlement class, even though the settlement proposed to
pay differing amounts to different groups of class members depending when they purchased and sold
stock. Id. at 5-6. The named representatives did not hold claims in all groups, and the settlement
proposed no relief to one such group and lower payments to another. Id. at 5. The Court found that
plaintiffs did not show that the proposed settlement provided sufficient benefit or value to certain
class members, i.e. those who would receive nothing or lower payments in return for releasing their
claims. Id. at 9-10. Finally, with regard to the proposed cy pres recipient, the Court found that

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plaintiffs did not show that further distributions to individual class members were not viable or
whether the parties or counsel had any pre-existing relationship or connection with the proposed cy
pres beneficiary. Id. at 12.
Analysis
Before the Court is plaintiffs’ third motion for preliminary approval of class action
settlement. See Second Amended Unopposed Motion For Preliminary Approval Of Class Action
Settlement (“Third Motion For Preliminary Approval”) (Doc. #85) filed February 18, 2014.
Plaintiffs state that they “have amended their Motion and accompanying revised Plan of Allocation”
in the following ways: (1) added two class representatives, John Henard and David Smolinski, who
have claims which fall in previously unrepresented distribution groups; (2) revised the plan of
allocation to provide a recognized loss for all transactions during the class period; and (3) revised
the plan of allocation to provide redistribution of settlement proceeds to avoid the need for a cy pres
beneficiary. Id. at 1-3. The bulk of the motion explains the rationale behind proposed distributions
to different groups of class members based on when they purchased and sold stock.2 See id. at 5-18.
Plaintiffs do not provide an amended agreement which adopts the changes or adds new class
representatives as parties to the settlement.
To the extent that plaintiffs may be attempting to amend the plan of allocation under the
Corrected Stipulation of Settlement (Doc. #80), it appears that they cannot do so without a signed
agreement between the parties. The corrected settlement states that it “may be amended or modified

2

Plaintiffs submit declarations by an economist, mediator, lead plaintiffs and newly
proposed class representatives to show that the proposed distributions provide a fair value or benefit
to class members. See Doc. #86 filed February 18, 2014 (including declarations of Kim E. Miller,
Chad Coffman, Edward A. Infante, Stan Better, Frank Yonan, William Bryant, Robert Dodd, George
Alexiou, John Henard and David Smolinsky).
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only by a written instrument signed by or on behalf of all Settling Parties or their respective
successors-in-interest.” Id. at 38, ¶ 8.6. Further, it defines “Plan of Allocation” as the formula of
allocation set forth in detail in the Amended Notice of Pendency, attached as Exhibit A-1 to the
Corrected Stipulation of Settlement (Doc. #80). See id. at 5, ¶ 1.31. As noted, plaintiffs are asking
the Court to approve the Second Amended Notice Of Pendency, attached as Exhibit A-1 to the Third
Motion For Preliminary Approval (Doc. #85). On this record, plaintiffs have not shown that the
parties have even executed a second amended settlement agreement – let alone one which the Court
should approve.
Moreover, even if the parties have executed a new or amended agreement, plaintiffs have
not provided sufficient details of a proposed notice plan. Rule 23(c)(2)(B) requires plaintiffs to
provide the best notice that is practicable under the circumstances, including individual notice to all
members who can be identified through reasonable effort.3 See Fed. R. Civ. P. 23(c)(2)(B); DeJulius

3

Rule 23(c)(2)(B) requires the following notice:

For any class certified under Rule 23(b)(3), 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;
(vi) the time and manner for requesting exclusion; and
(vii) the binding effect of a class judgment on members under Rule 23(c)(3).
Fed. R. Civ. P. 23(c)(2)(B).
(continued...)
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v. New Eng. Healthcare Emps. Pension Fund, 429 F.3d 935, 944 (10th Cir. 2005); In re Motor Fuel
Temp. Sales Pract. Litg., No. 07-1840-KHV, 2013 WL 2368290, at *2 (D. Kan. May 29, 2013).
Individual notice to identifiable class members is not a discretionary consideration that can be
waived in a particular case; rather, it is “an unambiguous requirement of Rule 23.”4 Eisen v. Carlisle

3

(...continued)
With respect to class settlements, Rule 23(e) requires the Court to direct notice “in a
reasonable manner to all class members who would be bound by the proposal.”
Fed. R. Civ. P. 23(e). The content and form of notice are left to the Court’s discretion. See Gottlieb
v. Wiles, 11 F.3d 1004, 1013 (10th Cir. 1993), overruled in part on other grounds by Devlin v.
Scardelletti, 536 U.S. 1 (2002). Under Rule 23(e), notice of a settlement must “fairly apprise” class
members of the terms of the proposed settlement and their options with respect thereto. Id. (quoting
3B Moore’s Federal Practice ¶ 23.80[3], at 23-484).
In addition to the requirements of Rule 23, the Due Process Clause of the Fifth Amendment
of the United States Constitution guarantees unnamed class members the right to notice of class
certification or settlement. See U.S. Const., amend. V; DeJulius v. New Eng. Healthcare Emps.
Pension Fund, 429 F.3d 935, 943-44 (10th Cir. 2005). This due process right does not require actual
notice to each party intended to be bound by adjudication of a class action. See DeJulius, 429 F.3d
at 944. The Court must give “the best notice practicable under the circumstances, including
individual notice to all members who can be identified through reasonable effort.” Id. (quoting In re
Integra Realty Res., Inc., 262 F.3d 1089, 1110-11 (10th Cir. 2001)). The legal standards for
satisfying Rule 23(c)(2)(B) and due process are coextensive and substantially similar. See id.,
429 F.3d at 944; Fed. R. Civ. P. 23(c) advisory committee’s note (Rule 23(c)(2) notice designed to
fulfill due process requirements).
4

Plaintiffs’ pocketbooks are not a factor – the mandatory notice requirement may not
be relaxed based on the high cost of providing notice. Amchem Prods., Inc. v. Windsor, 521 U.S.
591, 617 (1997); Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 176 (1974); Burns v. Copley Pharm.,
Inc., 132 F.3d 42 (Table), 1997 WL 767763, at *2 (10th Cir. Dec. 11, 1997). Thus, “[t]he means
employed must be such as one desirous of actually informing the absentee might reasonably adopt
to accomplish it.” Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 315 (1950). The
“constitutional validity of any chosen method may be defended on the ground that it is in itself
reasonably certain to inform those affected.” Id. For example, publication notice does not satisfy
due process where the names and addresses of the putative class members are known or very easily
ascertainable. Eisen, 417 U.S. at 174-75 (citing Mullane, 339 U.S. at 318). Rule 23(c)(2) prefers
individual notice because “notice by publication ha[s] long been recognized as a poor substitute for
actual notice.” Id. at 175 (quoting Schroeder v. City of New York, 371 U.S. 208, 213 (1962)). Its
plain language leaves no doubt that individual notice must be provided to class members who are
(continued...)
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& Jacquelin, 417 U.S. 156, 176 (1974).
Plaintiffs’ motion devotes less than two pages to proposed notice.5 See Third Motion For
Preliminary Approval (Doc. #85) at 20-22. In that space, plaintiffs set forth legal standards
regarding notice and assert that the content of the Second Amended Notice Of Pendency will fairly
apprise class members of the terms of settlement. See Third Motion For Preliminary Approval (Doc.
#85) at 20-22. Plaintiffs state that the notice will be mailed to each class member. Id. at 22.
Plaintiffs provide no information regarding the total number of class members or how they will
determine the name and mailing address for each class member.6 Attached to the motion is a
proposed order which states that class counsel will mail the notice to all class members “who can
be identified with reasonable effort.” Third Amended [Proposed] Order Preliminarily Approving
Settlement And Providing For Notice Of Pendency Of Class Action, attached to Third Motion For
Preliminary Approval (Doc. #85) at 3-4, ¶¶ 8(a). Plaintiffs provide no information regarding what
efforts counsel will employ to identify individual class members.
Although the third motion does not discuss it, the proposed order states that “nominees” who
purchased or otherwise acquired stock for or on behalf of class members shall send the notice and
claim form to said class members, or send a list of the names and addresses of said class members
4

(...continued)
identifiable through reasonable effort. Id.
5

Plaintiffs’ first and second motions similarly provided very little analysis regarding
proposed notice. See First Motion For Preliminary Approval (Doc. #76) at 20-21; Second Motion
For Preliminary Approval (Doc. #81) at 23-25. In overruling those motions, because of overriding
deficiencies in the settlements themselves, the Court declined to address notice. See Memorandum
And Order (Doc. #79) at 19; Memorandum And Order (Doc. #82) at 12-13.
6

In their first motion, plaintiffs estimated that “there are thousands of potential class
members holding upwards of 65,000,000 affected shares.” First Motion For Preliminary Approval
(Doc. #76) at 15.
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to the claims administrator, who will mail the notice and claim form to said class members.7 Id. at
4, ¶ 9. Plaintiffs provide no information regarding how they will identify so-called “nominees,” the
approximate number of class members who purchased or acquired stock through said nominees, or
on what basis the Court has authority to order said nominees to comply with the proposed notice
procedure.
Also, although the third motion does not mention it, the proposed order states that counsel
shall provide notice by publication.8 Specifically, the proposed order states, in part, as follows:

7

Specifically, the proposed order states as follows:

Nominees who purchased or otherwise acquired YRCW common stock for the
benefit of any Class Member(s) between April 24, 2008 and November 2, 2009,
inclusive, shall send the Notice and the Claim Form to all such Class Members
within ten (10) days after receipt thereof, or send a list of the names and addresses
of such beneficiaries to the Claims Administrator within ten (10) days of receipt
thereof, in which event the Claims Administrator shall promptly mail the Notice and
the Claim Form to such beneficiaries.
Third Amended [Proposed] Order Preliminarily Approving Settlement And Providing For Notice
Of Pendency Of Class Action, attached to Third Motion For Preliminary Approval (Doc. #85) at 4,
¶ 9.
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The first and second motions mentioned giving notice by publication but did not set
forth details regarding a publication plan. In the introduction section of the first motion, plaintiffs
asked the Court to enter an order “authorizing publication of the Summary Notice (attached as
Exhibit A-3 to the Stipulation).” First Motion For Preliminary Approval (Doc. #76) at 1. The
remainder of the motion was silent as to any specifics regarding a publication plan. The last page
of the motion contained a proposed time line of events which included a deadline for counsel to file
an “affidavit of notice mailing and publication.” Id. at 21.
In the second motion, plaintiffs stated only that they would mail notice to each class member.
See Second Motion For Preliminary Approval (Doc. #76) at 20-21. The end of the motion contained
a proposed time line of events which included a proposed deadline for counsel to file an “affidavit
of notice mailing and publication.” Id. at 21.
The third motion does not mention giving notice by publication and does not include a
(continued...)
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Not later than twenty-one (21) days after the Notice Date, Co-Lead Counsel shall
cause the Second Amended Summary Notice to be published in the Investor’s
Business Daily and once online over the PR Newswire, and not later than twenty-one
(21) days after the Notice Date, Co-Lead Counsel shall place a copy of the Amended
Complaint and the Corrected Stipulation (including Exhibits) on the website of
Co-Lead Counsel or a website maintained by Co-Lead Counsel.
Id. at 8, ¶ 8(b).9 Plaintiffs provide no information regarding the proposed publications or their
estimated reach.
On this record, plaintiffs have not shown that the proposed notice plan satisfies the
requirements of Rule 23. Specifically, plaintiffs have not shown that the proposed plan will provide
individual notice to those class members who can be identified through reasonable effort. See, e.g.,
In re Motor Fuel Temp. Sales Pract. Litig., No. 07-1840-KHV, 2013 WL 2368290, at *3 (D. Kan.
May 29, 2013) (plaintiffs must provide best notice practicable under circumstances). Also, to the
extent that individual notice may not be feasible, plaintiffs have not shown that the proposed

8

(...continued)
proposed time line of events. See Third Motion For Preliminary Approval (Doc. #85) at 1-22.
9

Although it is not mentioned in plaintiffs’ motion, the second amended summary
notice is attached as an exhibit to the motion. It states, in part, as follows:
TO:

ALL PERSONS AND ENTITIES WHO PURCHASED OR OTHERWISE
ACQUIRED THE PUBLICALLY-TRADED COMMON STOCK OF YRC
WORLDWIDE INC. (“YRCW”) (TRADING SYMBOL NASDAQ: YRCW)
BETWEEN APRIL 24, 2008, AND NOVEMBER 2, 2009, INCLUSIVE:

YOU ARE HEREBY NOTIFIED . . . that a hearing will be held . . . for the purpose
of determining [whether to certify a class and approve the proposed settlement]. . . .
If you purchased or otherwise acquired the publicly-traded common stock of YRCW
. . . your rights may be affected by the Settlement of this Action. If you have not
received a detailed [Notice and Claim Form], you should obtain copies by [writing
or visiting the claims administrator website]. * * *
Second Amended Summary Notice, Exhibit A-3 to Third Motion For Preliminary Approval
(Doc. #85).
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publication plan would likely inform class members of the settlement. See id. at *5 (declining to
approve publication notice where plaintiffs provided no specific information regarding expected
reach). Accordingly, the Court overrules plaintiffs’ third motion for preliminary approval of the
proposed class action settlement.
This case has been pending for more than four years, and the parties have conducted little
to no discovery.10 Since December of 2012, progress in the case has been delayed pending the
parties’ amateurish efforts to settle class action claims.11 During this time, plaintiffs have wasted
precious judicial resources in filing three unsuccessful motions to obtain preliminary approval of

10

Plaintiffs filed suit in February of 2011. See Class Action Complaint For Violations
Of Federal Securities Laws (Doc. #1) filed February 7, 2011. Pursuant to the parties’ agreement in
their preliminary statement, the magistrate judge stayed discovery and other proceedings until after
the parties briefed and received rulings on motions to dismiss. See Order (Doc. #34) filed June 20,
2011. Over a year later, on September 25, 2012, the Court overruled defendants’ motion to dismiss.
See Memorandum And Order (Doc. #51).
On October 26, 2012, the Court entered a scheduling order which, inter alia, set the following
deadlines: fact discovery completed by October 10, 2013; expert discovery completed by
February 27, 2014; motion for class certification filed by August 9, 2013; and trial on December 9,
2014. See Scheduling Order (Doc. #56).
On December 19, 2012, plaintiffs filed certificates which indicate that they served
interrogatories and requests for production of documents on defendants. See Docs. #67, #68, #69,
#70, #71, #72. Based on lack of docket entries, it appears that defendants have not responded to the
discovery requests.
11

On December 21, 2012, the parties filed a joint motion asking for an extension of
scheduling order deadlines to facilitate mediation and settlement negotiations. See Joint Motion
Requesting Modification Of Scheduling Order (Doc. #73). On January 2, 2013, the Court entered
an amended scheduling order which, inter alia, set the following deadlines: fact discovery completed
by April 10, 2014; expert discovery completed by August 27, 2014; motion for class certification
filed by February 10, 2014; and trial on June 8, 2015. See Amended Scheduling Order (Doc. #75).
On February 21, 2014, after plaintiffs filed their third motion for preliminary approval of
class action settlement, the Court vacated the scheduling order deadlines. See Order (Doc. #90).
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different class action settlements. Plaintiffs appear to be represented by counsel who are otherwise
generally competent. For unexplained reasons, however – perhaps laziness or lack of experience
in class action practice – they have been unable to meet the requirements of Rule 23 to obtain
conditional certification and preliminary approval of their proposed class settlements. Under these
circumstances, the Court is forced to question whether counsel are adequately and capably
representing the proposed class at this time, and are willing and able to do so in the future.
IT IS THEREFORE ORDERED that plaintiffs’ Second Amended Unopposed Motion For
Preliminary Approval Of Class Action Settlement (Doc. #85) filed February 18, 2014 be and hereby
is OVERRULED.
IT IS FURTHER ORDERED that on or before February 20, 2015 plaintiffs shall show
cause in writing why plaintiffs’ individual claims should not be set for trial beginning July 13, 2015.
Dated this 11th day of February, 2015 at Kansas City, Kansas.
s/ Kathryn H. Vratil
Kathryn H. Vratil
United States District Judge

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