Tracy et al v. Telemetrix et al

Filing 380

FINDINGS AND RECOMMENDATION to approve settlement. Ordered by Magistrate Judge Cheryl R. Zwart. (Zwart, Cheryl)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
MICHAEL J. TRACY, an individual and
Derivatively as a shareholder of
Telemetrix and Convey;

8:12CV359

Plaintiff,
FINDINGS AND
RECOMMENDATION

vs.
TELEMETRIX, Inc.; WILLIAM W.
BECKER, LARRY BECKER, GAYLE
BECKER, GARY BROWN, BECKER
CAPITAL MANAGEMENT, LLC,
GREEN EAGLE COMMUNICATIONS,
INC., GREEN EAGLE NETWORKS,
INC., DIANE LARKOWSKI, and
MITCHELL BENNETT,
Defendants.

This matter is before the court on parties stipulated motion to approve
settlement. (Filing No. 372). After conducting a hearing today, (Filing No. 359),
the undersigned magistrate judge recommends that the terms of the parties’
proposed settlement (Filing No. 373-1) be approved.

BACKGROUND

The parties have been litigating for years. In 2004, a Telemetrix
Shareholder’s Agreement was executed – the result of litigation with creditors of
Telemetrix. Pursuant to the Shareholder’s Agreement, Plaintiff Michael J. Tracy
lost control of Telemetrix and became a minority shareholder. Since assuming
this status, Tracy has alleged various acts of malfeasance on the part of the
controlling shareholders.

The above-captioned case was removed to this court on October 8, 2012.
(Filing No. 1). The suit involves various loans and the transfer of Telemetrix
assets, including its FCC broadcasting license. Plaintiff Tracy brought his claims
against all Defendants, both individually and derivatively on behalf of Telemetrix.
The crux of the case is based on allegations that Defendants mismanaged and
defrauded Telemetrix for the benefit of the individual defendants and the
defendant companies. Plaintiff’s operative complaint seeks recovery under the
Racketeer Influenced and Corrupt Organizations (“RICO”) Act and on common
law theories of conversion, civil conspiracy, breach of fiduciary duty, unjust
enrichment, an accounting, and constructive trust against Telemetrix and
numerous officers, directors, and managers of Telemetrix. (See Filing No. 290).

After engaging in extensive motion practice and discovery, the parties
participated in mediation at least twice with the assistance of a highly
experienced mediator. These attempts at settlement were unsuccessful, but the
parties continued to negotiate.

On or about December 9, 2016, the parties reached a settlement of all
claims. (Filing No. 373-1). Among other things, the parties agreed as follows:
1.

Pending this Court's approval, and in exchange for Green Eagle's
agreement to pay Plaintiff the principal sum of $800,000, Plaintiff will
(a) assign all Telemetrix stock owned by Plaintiff to a holding
company and (b) will dismiss, with prejudice, his direct claims
asserted in this action; and

2.

Pending this Court's approval, Plaintiff will voluntarily dismiss, with
prejudice, his derivative claims.

(Filing No. 373 at CM/ECF p. 6).

2

With the court’s approval, notice of the foregoing settlement was published
in the Omaha World-Herald and the Daily Record once a week for three
consecutive weeks (on September 25, 2017, October 2, 2017, and October 9,
2017). (Filing No. 376). The notice stated the material terms of the settlement,
advised that any objections must be made on or before November 13, 2017, and
stated that the hearing for court approval of the settlement was scheduled for
November 16, 2017 at 12:00 p.m. in Courtroom 2 at the United States District
Courthouse in Lincoln, Nebraska. (Filing No. 376, at CM/ECF p. 3).

No objections to the settlement were timely received prior to the hearing.
The hearing was held today as scheduled. Counsel for the parties appeared
telephonically. No one else attended the hearing or raised any objection to the
settlement.
ANALYSIS
Courts will approve derivative settlements only if they are fair, reasonable,
and adequate. Weiner v. Roth, 791 F.2d 661, 662 (8th Cir. 1986). The court’s
role is to “determine whether the proponents of the settlement have shown that it
fairly and adequately serves the interests of the corporation on whose behalf the
derivative action was instituted.” Republic National Life Insurance Company v.
Beasley, 73 F.R.D. 658, 667 (S.D.N.Y. 1977) (citations omitted).
A district court is required to consider four factors in determining
whether a settlement is fair, reasonable, and adequate: (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 Telephone Federal Cost Recovery Fees Litigation, 396 F.3d 922,
932-33 (8th Cir. 2005).
3

This lawsuit is highly complicated, requiring significant time and expense
for all parties. To present this case at trial, the parties will need to marshal and
present facts buried within volumes of corporate records, financial documents,
and SEC filings, with complex liability and damage issues explained through both
lay and expert testimony. All parties face the risk of loss at trial. If the case is
tried and Plaintiff prevails, his actual success will depend on his ability to collect
the judgment. But that step may be difficult: Defendants’ assets may be located
in foreign or international jurisdictions. So a settlement agreement that requires
the Defendants, or at least some of them, to make voluntary payments is a
realistic means--and perhaps the only means--for Plaintiff to recover any actual
funds. The parties have already incurred hundreds of thousands of dollars of
attorneys' fees and costs in connection with this lawsuit. By settling now, the
parties will avoid additional and substantial legal fees and costs while affording
Plaintiff a partial recovery of alleged damages through timed, structured
payments. Finally, the terms of the parties’ settlement are unopposed: 84.18% of
Telemetrix’s

outstanding

shares

have

approved

the

settlement.

No

unrepresented shareholders have posed an objection and no one attended
today’s hearing to object.
The parties’ proposed settlement comes at an advanced stage of the
lawsuit, after both sides explored the facts and the potential benefits and risks of
proceeding to trial. The duration of the litigation, extent of discovery, and
continuous zealous advocacy on both sides evidence a settlement arising from
the parties’ arms-length negotiations. City Partnership Co. v. Atlantic Acquisition
Ltd. Part., 100 F.3d 1041, 1043 (8th Cir. 1996) (holding the court considers
whether the parties conducted discovery, engaged in arms-length bargaining,
and used an experienced mediator before reaching a settlement).

4

For the foregoing reasons, the court finds the parties’ proposed settlement
is fair, reasonable, and adequate, serves the interests of the corporation by fully
and completely resolving all claims asserted, and is not the product of fraud or
collusion..

Accordingly,

IT IS RECOMMENDED to the Honorable Richard G. Kopf, United States
District Judge, pursuant to 28 U.S.C. § 636(b), that the parties’ motion to approve
settlement (Filing No. 372), be granted.

All parties have waived the right to object to the above recommendation to
approve the parties’ settlement.

Dated this 16th day of November, 2017.
BY THE COURT:
s/ Cheryl R. Zwart
United States Magistrate Judge

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