Puerta v. Tile Shop Holdings, Inc. et al
ORDER granting 386 Motion for Approval of Settlement (Written Opinion). Signed by Judge Ann D. Montgomery on 06/14/2017. (TLU)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
TILE SHOP HOLDINGS, INC.; ROBERT A. )
RUCKER; THE TILE SHOP, INC.; TIMOTHY)
C. CLAYTON; PETER J. JACULLO III;
JWTS, INC.; PETER H. KAMIN; TODD
KRASNOW; ADAM L. SUTTIN; WILLIAM )
E. WATTS; ROBERT W. BAIRD & CO.
INCORPORATED; CITIGROUP GLOBAL
MARKETS INC.; CJS SECURITIES, INC.;
HOULIHAN LOKEY CAPITAL, INC.;
PIPER JAFFRAY & CO.; SIDOTI &
COMPANY, LLC; TELSEY ADVISORY
GROUP LLC; and WEDBUSH
BEAVER COUNTY EMPLOYEES’
RETIREMENT FUND; ERIE COUNTY
EMPLOYEES’ RETIREMENT SYSTEM;
and LUC DE WULF, Individually and on
Behalf of All Others Similarly Situated,
Case No. 0:14-cv-00786-ADM-TNL
ORDER FOR FINAL JUDGMENT
WHEREAS, the Parties to the above-described class action (the “Action”) entered
into the Stipulation of Settlement dated as of January 13, 2017 (the “Stipulation” or
WHEREAS, the Court previously, pursuant to a Memorandum and Order [Docket
No. 275] dated July 28, 2016, certified the Action to proceed as a class action pursuant to
Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure on behalf of a class
consisting of all Persons who purchased or otherwise acquired Tile Shop Holdings, Inc.
(“Tile Shop”) common stock between August 22, 2012 and January 28, 2014, inclusive
(the “Class”). For purposes of the Settlement, the Parties have agreed to exclude from the
Class: (a) Defendants, their spouses, and anyone (other than a tenant or employee)
sharing the household of any Defendant, (b) Fumitake Nishi, and (c) any Persons who
submit valid and timely requests for exclusion pursuant to the Notice ordered by the
WHEREAS, the Court appointed Beaver County Employees’ Retirement Fund,
Erie County Employees’ Retirement System, and Luc DeWulf (“Lead Plaintiffs”) as class
representatives, and Kessler Topaz Meltzer & Check, LLP and Robbins Geller Rudman &
Dowd LLP as Class Counsel; and
WHEREAS, on January 19, 2017, the Court entered the Order Preliminarily
Approving Settlement and Providing for Notice and Settlement Hearing [Docket No. 384]
(“Preliminary Approval Order”), which, inter alia: (i) preliminarily approved the
Settlement; (ii) approved the forms and manner of notice of the Action and Settlement to
members of the Class (“Class Members”); (iii) directed that appropriate notice of the
Action and Settlement be given to the Class; and (iv) set a hearing date to consider final
approval of the Settlement; and
WHEREAS, notice of the Settlement was provided to Class Members in
accordance with the Court’s Preliminary Approval Order, including by individual mailed
notice to all Class Members who could be reasonably identified and by publication of a
summary notice in The Wall Street Journal and over a national newswire service; and
WHEREAS, notice of the Settlement was mailed to federal officials and state
officials as described in 28 U.S.C. §1715; and
WHEREAS, on May 3, 2017, at 10:00 a.m., at the United States District Court for
the District of Minnesota, 300 South Fourth Street, Minneapolis, Minnesota 55415, The
Honorable Ann D. Montgomery held a hearing to determine whether the Settlement was
fair, reasonable, and adequate to the Class (“Settlement Hearing”); and
WHEREAS, based on the foregoing, having considered the papers filed and
proceedings held in connection with the Settlement, having considered all of the other
files, records, and proceedings in the Action, and being otherwise fully advised,
THE COURT HEREBY FINDS AND CONCLUDES that:
This Court has jurisdiction over the subject matter of the Action and over
all Parties to the Action, including all Class Members.
This Order incorporates the definitions in the Stipulation of Settlement
[Docket No. 381] (the “Stipulation”), and all terms used in this Order have the same
meanings as set forth in the Stipulation, unless otherwise defined herein.
The Notice and Summary Notice given to the Class in accordance with the
Preliminary Approval Order was the best notice practicable under the circumstances of
this Action, and constituted due and sufficient notice of the proceedings and matters set
forth therein, including of the Settlement, to all Persons entitled to notice. The notices
fully satisfied the requirements of due process, 15 U.S.C. §78u-4(a)(7), Rule 23 of the
Federal Rules of Civil Procedure, and all other applicable law and rules.
The notice to federal officials and state officials, as given, complied with 28
“The policy in federal court of favoring the voluntary resolution of
litigation through settlement is particularly strong in the class action context.” White v.
Nat’l Football League, 822 F. Supp. 1389, 1416 (D. Minn. 1993). Pursuant to Rule 23 of
the Federal Rules of Civil Procedure, a class action settlement agreement must be “fair,
reasonable, and adequate” in order to be approved. Fed. R. Civ. P. 23(e)(2). To
determine whether a class action settlement satisfies these standards, the court must
consider: “(1) the merits of the plaintiff’s case, weighed against the terms of the
settlement; (2) the defendant’s financial condition; (3) the complexity and expense of
further litigation; and (4) the amount of opposition to the settlement.” In re Wireless Tel.
Fed. Cost Recovery Fees Litig., 396 F.3d 922, 932 (8th Cir. 2005). Additionally, the
Eighth Circuit recognizes that “‘strong public policy favors [settlement] agreements, and
courts should approach them with a presumption in their favor.’” Petrovic v. Amoco Oil
Co., 200 F.3d 1140, 1148 (8th Cir. 1999) (quoting Little Rock Sch. Dist. v. Pulaski Cty.
Special Sch. Dist. No. 1, 921 F.2d 1371, 1388 (8th Cir. 1990)). Moreover, courts in the
Eighth Circuit have held that “there is a presumption of fairness when a settlement is
negotiated at arm’s length by well informed counsel.” In re Charter Commc’ns, Inc. Sec.
Litig., No. 02-1186, 2005 WL 4045741, at *5 (E.D. Mo. June 30, 2005); see also In re
Zurn Pex Plumbing Prods. Liab. Litig., No. 08-1958, 2012 WL 5055810, at *6 (D. Minn.
Oct. 18, 2012) (“There is usually a presumption of fairness when a proposed class
settlement, which was negotiated at arm’s length by counsel for the class, is presented for
The Settlement is presumptively valid. It is the product of substantial expertise
and diligence of both plaintiff and defense attorneys aided by several third-party
mediators with specialized experience in settling securities class action cases. Prior to
reaching Settlement, the parties litigated this case for more than two years. The parties
engaged in extensive motion practice, summary judgment motions were fully briefed, and
a trial date had been set. The assistance of a neutral, well-respected mediator to close out
the settlement negotiations further demonstrates that the Settlement was fairly and
a. Merits of Case vs. Settlement Terms
Even if the Settlement was not presumptively valid, this Settlement satisfies the
fairness criteria established by the Eighth Circuit. The critical consideration is the
strength of Plaintiffs’ case on the merits versus the amount offered in the Settlement. See
Petrovic, 200 F.3d at 1150. In deciding on the merits, the Court need not “go beyond an
amalgam of delicate balancing, gross approximation, and rough justice.” White, 822 F.
Supp. at 1417 (internal quotations and citation omitted).
The merits of Plaintiffs’ case were strong but were not without considerable
challenges. This case involves allegations that Defendants either intentionally or
recklessly made false and misleading statements to, and concealed material from, the
investors of Tile Shop, which caused the Company’s common stock to trade at artificially
inflated prices during the Class Period. To succeed on their claims, Plaintiffs first needed
to establish liability, which required proving that Defendants acted with scienter and that
the omissions were material. If Plaintiffs were successful in establishing liability, they
faced significant risks establishing causation and damages. The parties had retained
highly qualified experts whose damages assessments were at considerable variance.
Faced with the uncertainty of a jury trial, there existed the real possibility that the amount
of damages the Class would actually recover would be zero or only a fraction of the
damages Class Representatives contended. See, e.g., In re Warner Commc’ns Sec. Litig.,
618 F. Supp. 735, 744–45 (S.D.N.Y. 1985) (approving settlement where “it is virtually
impossible to predict with any certainty which testimony would be credited, and
ultimately, which damages would be found to have been caused by actionable, rather than
the myriad nonactionable factors such as general market conditions”), aff’d, 798 F.2d 35
(2d Cir. 1986).
The Settlement Amount is within the range of reasonableness. The $9.5 million
obtained for the benefit of the Class represents a recovery of approximately 6.8% to 9.5%
of Class Representatives’ damages expert’s estimate of the Class’ maximum provable
damages. This range both exceeds the median recovery of estimated damages in similar
securities class actions settled in 2016, as well as the median settlement as a percentage of
estimated damages in the Eighth Circuit from 2007 through 2016. See Laarni T. Bulan,
Ellen M. Ryan & Laura E. Simmons, Securities Class Action Settlements: 2016 Review
and Analysis at 7, 23, Fig. 6, Appx. 3 (Cornerstone Research 2017). Therefore, this
factor strongly supports the Settlement’s approval.
b. Defendants’ Financial Condition
Defendants have the financial ability to comply with the terms of the Settlement
Agreement. And, even if Defendants could pay a sum larger than the Settlement Amount,
this does not fatally impair the reasonableness of the Settlement. See Petrovic, 200 F.3d
at 1152 (noting, while defendant “could pay more than it is paying in this settlement, this
fact, standing alone, does not render the settlement inadequate.”). This factor weights in
favor of approval.
c. Complexity and Expense of Further Litigation
Generally, class actions “place an enormous burden of costs and expense upon [ ]
parties.” Marshall v. Nat’l Football League, 787 F.3d 502, 512 (8th Cir. 2015) (quoting
Schmidt v. Fuller Brush Co., 527 F.2d 532, 535 (8th Cir. 1975)). This case is no
exception. “While all cases carry the potential for uncertain verdicts, securities cases in
particular are complex and difficult to prove.” In re The Mills Corp. Sec. Litig., 265
F.R.D. 246, 257 (E.D. Va. 2009).
The claims being pursued by Class Representatives involved complex legal and
factual issues, including those related to due diligence in securities offerings, the
materiality of related-party transaction violations, loss causation, and damages, each of
which required expert reports and testimony. The parties’ summary judgment and
Daubert briefing was extensive and required a substantial investment of the parties’
resources and time.
Assuming Class Representatives successfully opposed Defendants’ motion for
summary judgment, a trial in this case would likely have taken weeks, and would have
been complicated. See In re AOL Time Warner, Inc., No. 02-5575, 2006 WL 903236, at
*8 (S.D.N.Y. April 6, 2006) (due to their “notorious complexity,” securities class actions
often settle to “circumvent[ ] the difficulty and uncertainty inherent in long, costly
trials”). Even if Class Representatives were successful at trial, the likely post-trial
motions and appeals would have taken years to resolve, during which time the Class
would have received no distribution of any damages award. Accordingly, this factor also
supports final approval of the Settlement.
d. Opposition to the Settlement
Of the over 41,000 Notices that the Court-approved claims administrator, Gilardi
& Co. LLC, sent to potential Class Members or their nominees, no objections were
received and only three individuals requested exclusion from the Class. See Supp.
Sylvester Decl. [Docket No. 403]. This strongly weighs in favor of approving the
The four factors for determining whether a class action settlement is fair,
reasonable, and adequate each support final approval. Accordingly, the Settlement is
approved and the parties are directed to implement the Settlement Agreement according
to its terms and provisions.
Lead Plaintiffs have fairly and adequately represented the interests of the
Class Members in connection with the Settlement.
The Persons who have timely and validly requested exclusion from the
Class are identified in Exhibit 1 attached hereto (“Excluded Persons”).
Lead Plaintiffs and the Class Members, and all and each of them, are hereby
bound by the terms of the Settlement set forth in the Stipulation.
During the course of the Action, all Parties and their respective counsel
appearing herein have complied with their obligations under Rule 11(b) of the Federal
Rules of Civil Procedure.
NOW, THEREFORE, IT IS HEREBY ORDERED AND ADJUDGED that:
Pursuant to Federal Rule of Civil Procedure 23, the Court hereby approves
the Settlement set forth in the Stipulation as fair, reasonable and adequate to the Class.
Accordingly, the Court authorizes and directs implementation of all terms and provisions
of the Stipulation.
All Parties to this Action, and all Class Members, are bound by the
Settlement as set forth in the Stipulation and this Order. Excluded Persons identified in
Exhibit 1 are no longer parties to this Action, and are not bound by the Stipulation or the
Judgment shall be, and hereby is, entered dismissing the Action with
prejudice, on the merits, and without taxation of costs in favor of or against any Party.
Lead Plaintiffs and all Class Members are hereby conclusively deemed to
have fully, finally, and forever compromised, settled, released, resolved, relinquished,
waived, and discharged Tile Shop Holdings, Inc., Robert A. Rucker, The Tile Shop, Inc.,
Timothy C. Clayton, Peter J. Jacullo, III, JWTS, Inc., Peter H. Kamin, Todd Krasnow,
Adam L. Suttin, William E. Watts, Robert W. Baird & Co. Incorporated, Citigroup
Global Markets, Inc., CJS Securities, Inc., Houlihan Lokey Capital, Inc., Piper Jaffray &
Co., Sidoti & Company, LLC, Telsey Advisory Group LLC, and Wedbush Securities,
Inc., all and each of them, and all and each of their respective past and present parent,
subsidiary, and affiliated corporations and entities, the predecessors and successors in
interest of any of them, and all of their respective past and present officers, directors,
employees, members, agents, partners, representatives, spouses, heirs, executors,
administrators, and insurers (including the Insurers) (all of them are the “Defendants’
Released Parties”), with respect to any and all claims, actions, causes of action, rights or
liabilities, whether arising out of state, federal, foreign, or common law, including
Unknown Claims, of any Lead Plaintiff or Class Member, which exist or may exist
against any of the Defendants’ Released Parties by reason of any matter, event, cause or
thing whatsoever arising out of, relating to, or in any way connected with: (a) the
purchase, acquisition, sale, or disposition of Tile Shop common stock during the Class
Period; and (b) any facts, circumstances, transactions, events, occurrences, acts,
omissions or failures to act that were or could have been alleged in the Action (all of the
foregoing are “Released Plaintiffs’ Claims”).
Lead Plaintiffs and all Class Members are hereby barred and permanently
enjoined from commencing, instituting, asserting, prosecuting, or continuing to prosecute
any action or proceeding in any court of law or equity, arbitration tribunal, administrative
forum, or other forum of any kind, asserting any of the Released Plaintiffs’ Claims
against any or all of the Defendants’ Released Parties.
Defendants are hereby conclusively deemed to have fully, finally, and
forever compromised, settled, released, resolved, relinquished, waived, and discharged
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Lead Plaintiffs and Plaintiffs’ Counsel, of and from any and all claims, actions, causes of
action, rights or liabilities, whether arising out of state, federal, foreign, or common law,
including Unknown Claims, of any Defendant against Lead Plaintiffs or Plaintiffs’
Counsel that solely arise out of or relate in any way to the institution, prosecution, or
settlement of the claims asserted in the Action, except for proceedings to enforce the
Settlement (all of the foregoing are “Released Defendants’ Claims”).
Defendants are hereby barred and permanently enjoined from commencing,
instituting, asserting, prosecuting, or continuing to prosecute any action or proceeding in
any court of law or equity, arbitration tribunal, administrative forum, or other forum of
any kind, asserting any of the Defendants’ Released Claims against Lead Plaintiffs or
The Court will enter separate orders ruling on the Plan of Distribution and
the Fee and Expense Petition. Such rulings shall not disturb or affect this Order.
Except as otherwise expressly provided herein, this Stipulation, whether or
not consummated, and any proceedings taken pursuant to it:
a. shall not be offered or received against Defendants for
any purpose, including without limitation as evidence of, or construed as or deemed to
be evidence of, any presumption, concession or admission by any of Defendants with
respect to the truth of any fact alleged by Lead Plaintiffs or the validity of any claim
that had been or could have been asserted against Defendants in the Action or in any
proceeding, or of any liability, negligence, fault or wrongdoing of Defendants;
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b. shall not be offered or received against Defendants for
any purpose, including without limitation as evidence of a presumption, concession or
admission of any fault, misrepresentation or omission with respect to any statement or
written document approved or made by any Defendant;
c. shall not be offered or received against Defendants or
against Lead Plaintiffs or any other Class Members for any purpose, including without
limitation as evidence of a presumption, concession or admission with respect to any
liability, negligence, fault or wrongdoing, or in any way referred to for any other
reason as against any of the Parties to this Stipulation, in any other civil, criminal or
administrative action or proceeding, other than such proceedings as may be necessary
to effectuate the provisions of this Stipulation; provided, however, that if this
Stipulation is approved by the Court, Defendants may refer to them to effectuate the
liability protection granted them hereunder;
d. shall not be construed against Defendants, Lead
Plaintiffs or any other Class Members for any purpose, including without limitation as
an admission or concession that the consideration to be given hereunder represents the
amount that could be or would have been recovered after trial; and/or
e. shall not be construed as or received in evidence as an
admission, concession or presumption against Lead Plaintiffs or other Class Members
or any of them as evidence of any infirmity in their claims or that any of their claims
are without merit or that damages recoverable under the Consolidated Complaint
would not have exceeded the Settlement Amount.
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The Court hereby retains and reserves jurisdiction over: (a) implementation
of this Settlement and any distributions from the Settlement Fund; (b) hearing and
determining applications for attorneys’ fees, interest, and expenses in the Action; (c) the
Action, until the Effective Date, and until each and every act agreed to be performed by
the Parties has been performed pursuant to the Stipulation; and (d) all Parties, for the
purpose of enforcing and administering the Stipulation and the Settlement.
In the event that this judgment does not become Final in accordance with ¶
IV(A)(18) of the Stipulation, and the Effective Date in accordance with ¶ IV(H)(1) of the
Stipulation does not occur, then the judgment shall be rendered null and void to the extent
provided by and in accordance with the Stipulation, and this Order shall be vacated. In
such event, all orders entered and releases delivered in connection with the Settlement
shall be null and void, except to the extent provided by and in accordance with the
Stipulation. In such event, the Action shall return to its status as of the date and time
immediately prior to execution of the Stipulation.
There being no just reason for delay, the Clerk of Court is hereby directed
to enter final judgment forthwith pursuant to Rule 54(b) of the Federal Rules of Civil
BY THE COURT:
s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: June 14, 2017.
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Persons Excluded from the Class Pursuant to Request
Brian J. Cecil
Merle L. Bourn
Robert V. Robinson
Betty S. Robinson
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