Dartell v. Tibet Pharmaceuticals, Inc. et al
OPINION. Signed by Judge John Michael Vazquez on 6/29/17. (sr, )
Not for Publication
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
ROBIN JOACHIM DARTELL, et a!,
individually and on behalf all others
Civil Action No. 14-3 620
TIBET PHARMACEUTICALS, INC., et
John Michael Vazguez, U.S.D.J.
This matter comes before the Court by way of the motions for final approval of the
proposed settlement and for attorney fees filed by Lead Plaintiffs Obasi Investment Limited, Jude
Shao, Robin Dartell, Lixin Wu, Jason Helton, and Sean Carithers. D.E. 263, 265. The motions
are unopposed, however, two potential class members submitted letters regarding the proposed
settlement and award of attorneys’ fees. D.E. 258, 259, 270. The Court reviewed the submissions
in support of the motions and held a settlement hearing on June 6, 2017. For the reasons stated
below, both motions are GRANTED.
This class action involves alleged misrepresentations in Defendant Tibet Pharmaceuticals,
Inc.’s (“Tibet”) Initial Public Offering (“IPO”) registration documents.
Plaintiffs allege that Tibet’s IPO registration statement and prospectus “misrepresented Tibet as a
financially sound and profitable company.” See general/v First Amended Complaint (“FAC”),
D.E. 50. Plaintiffs brought suit under the Securities Act of 1933 against a number of individuals
and entities who were involved in the IPO, including Tibet;’ the Tibet Directors who signed the
IPO registration statement;2 the underwriter, Anderson & Strudwick (“A&S”);3 and the auditor for
the IPO, Acquavella, Chiarelli, Shuster, Berkower & Co., LLP (“ACSB”). See generally FAC
23-40. This proposed settlement only involves ACSB.4
Lead Plaintiffs allege that Tibet’s prospectus stated that Tibet was financially sound when
in reality the registration documents overstated Tibet’s assets and misrepresented the Company’s
¶J 48-51. Specifically, Lead Plaintiffs allege that the registration statement
failed to mention that on September 10, 2010, the People’s Intermediate Court in China’s Yunnan
Province entered default against Yunnan Shangri-La Tibetan Pharmaceutical Group (“YSTP”), an
entity that Tibet effectively controlled. YTSP failed to appear and did not contest a suit filed by
the Agricultural Bank of China alleging that YSTP defaulted on three loans totaling $4.54 million.
The judgment ordered YSTP to repay its debt to the Bank within sixty days. Id.
¶ 55. On January
On July 28, 2016, the Clerk of the Court entered default against Tibet for failure to plead or
otherwise defend pursuant to Federal Rule of Civil Procedure 55(a).
The Registration Statement was signed by Defendants Hong Yu, Taylor Z. Guo, Sabrina Ren,
Wenbo Chen, Youhang Peng, and Solomon Chen. On March 31, 2017, the Court granted Peng’s
motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(5) because Lead Plaintiffs
did not serve Peng until March 22, 2016, almost three years afier filing the FAC. D.E. 260, 261.
The Court is not aware of any information indicating that Lead Plaintiffs ever served the other
Defendant Steme Agee Group, Inc. (“Sterne Agee”) acquired A&S and assumed all of its assets
and liabilities in December 2011. FAC ¶ 33-34. Steme Agee was dismissed as a Defendant
through a court-approved settlement on July 13, 2016 (D.E. 217).
Lead Plaintiffs continue to litigate their claims against L. McCarthy Downs and Hayden Zou
who, among other things, were named as “Board Observers” in the prospectus. The Court denied
motions for summary judgment as to the Section 11 claims asserted against Downs and Zou and a
motion for reconsideration is pending. D.E. 269, 271.
10, 2011, about two weeks before the IPO became effective, the Chinese court froze all of YSTP’s
assets after it failed to make the ordered payments. Id.
In the registration statement, ACSB certified that it performed an audit and found that the
financial statements in the registration statement accurately represented Tibet’s financial position.
94. Lead Plaintiffs allege that had ACSB conducted its audit in conformance with audit
standards, it would have discovered the defaulted loans and Chinese lawsuit. Id.
Plaintiffs further allege that a proper audit would have prevented the losses suffered by class
Plaintiffs initially filed suit on August 31, 2012, in the United States District Court for the
District of the Virgin Islands, and on May 1, 2013, filed the Amended Complaint (the “F AC”).
D.E. 1, 50. After considering multiple motions to dismiss for improper venue, the case was
transferred to the District of New Jersey on May 1, 2014. D.E. 72. Zou, ACSB, Steme Agee, and
Downs then filed motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). D.E.
96, 101, 102, 104. Judge Hochberg denied the four motions on February 20, 2015. D.E. 132.
The parties then began discovery. As to discovery for ACSB, Lead Plaintiffs engaged two
accounting experts, reviewed documents produced by ACSB, and attempted to depose David
Svoboda, a partner at AC SB. Svoboda did not show up for the deposition. Declaration of Laurence
M. Rosen in Support of Plaintiffs’ Motion for Final Approval of the Class Action Settlement and
Motion for Attorneys’ Fees (“Rosen Decl.”)
In addition, Plaintiffs filed a motion for class
certification, which was opposed by ACSB, Downs, and Zou. On February 22, 2016, Judge Arleo
granted Lead Plaintiffs’ motion, certifying a class of persons who purchased Tibet stock pursuant
and/or traceable to Tibet’s registration statement and prospectus. D.E. 183, 184. Judge Arleo also
appointed the Rosen Firm as Lead Counsel and Lead Plaintiffs to serve as representatives of the
class. D.E. 184.
ACSB and Lead Plaintiffs engaged in arms’ length settlement negotiations, which resulted
in an agreement in principal to settle the claims against AC$B. Rosen DecI.
¶ 47. Lead Plaintiffs
filed their motion for preliminary approval of the settlement agreement on May 31, 2016. D.E.
206. The settlement states that in exchange for ACSB’s payment of $2.075 million, Lead Plaintiffs
and the settlement class will release their claims against ACSB. See Settlement Stipulation, D.E.
205. ACSB’s settlement payment utilizes almost half the funds remaining in its insurance policy.5
See Rosen Decl.6, $0.
After it preliminarily approved the settlement and class notice in December 2016, the Court
scheduled a settlement hearing for June 6, 2017. D.E. 253. Lead Plaintiffs filed the pending
motions in advance of the hearing. In their motion for final approval of the class action settlement,
Lead Plaintiffs ask the Court to find that notice was provided in accordance with the Court’s
preliminary approval Order, and approve the settlement and plan of allocation. See generally
Settlement Approval Br., D.E. 264. Concerning the motion for attorneys’ fees, Lead Counsel seeks
an award of attorneys’ fees of one-third of the settlement fund, or $691,667; reimbursement of
$62,140.25 in out-of-pocket expenses; and a $5,000 award for each Lead Plaintiff; all of which
would be paid from the settlement fund. See generally Attorneys’ Fees Br., D.E. 266.
The other half of ACSB’s policy is being used for settlement in F. Van Hove BVBA, et al e.
Universal Travel Group, Inc., et al, Civ. No. 11-2 164. The Court held a settlement hearing in
Universal Travel Group immediately before the hearing in this case. The Court required Lead
Counsel to adequately explain the reasons by which the parties determined the apportionment of
ACSB’s total amount between the two matters.
The Court and Lead Counsel received letters from two individuals regarding the proposed
settlement and award of attorneys’ fees. The Court does not construe either as an objection to the
settlement or a request to be excluded as a class member.
ADEQUACY OF NOTICE
Through the Order preliminarily approving the settlement, the Court ruled that the class
notice materials and the proposed method of dissemination satisfied Due Process requirements,
Rule 23, and the PSLRA. D.E. 252. The Court reaffirms its early conclusions concerning the
adequacy of notice.
Rule 23(e) provides that when a class action is settled, “[t]he court must direct notice in a
reasonable maimer to all class members who would be bound by the proposal.” Fed. R. Civ. P.
23(e). “The Rule 23(e) notice is designed to summarize the litigation and the settlement and ‘to
apprise class members of the right and opportunity to inspect the complete settlement documents,
papers, and pleadings filed in the litigation.” In re Prudential Ins. Co. Am. Sales Practices Litig.
AgentActions, 14$ F.3d 283, 327 (3d Cir. 1998) (quoting 2Newberg on ClassActions
§ 8.32 at 8-
109). In addition, the PSLRA imposes notice requirements upon the settlement of a securities
class action. See 15 U.S.C.
§ 77z-1. The PSLRA requires that class members receive notice
regarding a settlement that includes the following:
1) a statement of recovery in the aggregate and on an average per
2) a statement of the potential outcome of the case, which includes
an explanation on the average amount of damages per share;
3) a statement of attorneys’ fees or costs sought;
4) the name and contact information for at least one representative
of class counsel who can be available for questions; and
5) the reasons for settlement.
§ 77z-l(a)(7). The Court-approved class notice here informed class members of(a) the
nature, history and progress of the litigation; (b) the rights of class members, including how to
lodge objections and opt out of the class; (c) the proposed settlement; (d) how to file a proof of
claim; (e) the fees and expenses sought by Lead Counsel; and (f) where to find and review relevant
court documents for this matter. See Declaration of Josephine Bravata (“Bravata Decl.”) Ex. A.
As a result, the class notice here satisfies the requirements of Rule 23(e) and the PSLRA.
Moreover, the notice plan was implemented as set forth in the Preliminary Approval Order. See
¶J 4-7. Accordingly, the notice plan was sufficient and the Court approves the plan
of allocation as set forth in the class notice.
FINAL SETTLEMENT APPROVAL
A class action cannot be settled under Rule 23(e) without a determination that the proposed
settlement is “fair, reasonable and adequate.” In re War/arm Sodium Antitrust Litig,, 391 F.3d
516, 534 (3d Cir. 2004). In determining the reasonableness, fairness, and adequacy of a proposed
settlement for the purposes of Rule 23(e), courts consider the following factors, known as the
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
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 in light of all
the attendant risks of litigation.
In re Nat’l Football League Players Conctission Injury Litig., 821 f.3d 410, 437 (3d Cir. 2016)
(citing Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir. 1975)). The settling parties bear the burden of
establishing that the Girsh factors weigh in favor of approval. But the ultimate decision of whether
to approve a proposed settlement “is left to the sound discretion of the district court.” Girsh, 521
F.2d at 157.
The Third Circuit also requires courts to consider whether the settlement satisfies several
additional factors, as set forth in In re Prudential Insurance Company America Sales Practice
Litigation Agent Actions. See, e.g., Yedlowski v. Roka Bioscience, Inc., No. 14-8020, 2016 WL
6661336, at *12 (D.N.J. Nov. 10, 2016) (quotingln re Pet Food Prods. Liab. Litig., 629 f.3d 333,
350 (3d Cir. 2010)). The Prudential factors include:
 [T]he maturity of the underlying substantive issues.. .;  the
existence and probable outcome of claims by other classes and
subclasses;  the comparison between the results achieved by the
settlement for individual class or subclass members and the results
achieved or likely to be achieved —for other claimants;  whether
class or subclass members are accorded the right to opt out of the
settlement;  whether any provisions for attorneys’ fees are
reasonable; and  whether the procedure for processing individual
claims under the settlement is fair and reasonable.
Id. In this instance, the proposed settlement satisfies the Girsh factors, as well as the relevant
1. Complexity, Expense, and Likely Duration of Litigation
The first factor considers “the probable costs, in both time and money, of continued
litigation.” In re Gen. Motors Corp. Pick-Up Tritck Fitel Tank Prods. Liab. Litig., 55 F.3d 768,
812 (3d Cir. 1995) (quoting Bryan v. Pittsburgh Plate Glass Co., 494 F.2d 799, 801 (3d Cir.
1974)). “Settlement is favored under this factor if litigation is expected to be complex, expensive
and time consuming.” Yedlowski, 2016 WL 6661336, at *12 (quoting In re Royal Dutch/Shell
Transp. Sec. Litig., No. 04-374, 2008 WL 9447623, at *17 (D.N.J. Dec. 9, 2008)).
“Federal securities class actions by definition involve complicated issues of fact and law.”
In re Royal Dutch, 2008 WL 9447623, at *17. This observation applies here. Lead Plaintiffs face
significant burdens to survive motions for summary judgment, and ultimately, to succeed at trial.
To succeed, Lead Plaintiffs would need to retain experts to testify as to multiple issues including
auditing standards, class action damages, and loss causation. Settlement Approval Br. at 11. Such
experts are expensive and could quickly drive up the cost of continued litigation. Therefore, this
factor favors settlement.
2. Reaction to Settlement
The second Girsh factor “gauge[s] whether members of the class support the settlement.”
In re Prudential, 148 F.3d at 31$. As such, courts look at the “number and vociferousness of the
[and] generally assume that silence constitutes tacit consent to the agreement.” In
re Gen. Motors, 55 F.3d at $12 (quoting BellAlt. Coip., 2 F.3d at 1313 n.15).
Here, Strategic Claims Services (“SCS”), the claims administrator, sent notice and claim
forms to 4,941 potential class members or their nominees. Bravata Decl.
¶ 6. To date, not a single
class member objected to any portion of the settlement or opted out of the settlement. Two
potential class members did submit letters.
First, Mr. Louis Yelich sent one letter addressed to the Court and another letter addressed
to Lead Counsel, Lawrence Rosen of the Rosen Law Firm. D.E. 259, 270. In his letter to Mr.
Rosen, Mr. Yelich largely sought clarification regarding the number of outstanding shares of Tibet
stock and the inability of the Defendants to participate in the settlement. D.E. 259. The Rosen
Law Firm responded to Mr. Yelich’s questions. Rosen Decl., Ex. 3. In his letter to the Court, Mr.
Yelich asked several questions, including why he was not a Lead Plaintiff in this matter. D.E. 270.
Based on the information provided by Mr. Yelich, it appears that he purchased his shares (or at
least a large portion of his shares) outside of the class period. D.E. 270. Consequently, Mr. Yelich
does not appear to be a member of the class.
Second, Mr. Fred W. Riesen’s letter questions why Lead Counsel accepted such a small
settlement. Mr. Riesen, however, specifically states that he is not objecting to the settlement. D.E.
Accordingly, the lack of objectors weighs in favor of approving the settlement.6
3. Stage of Proceedings
The purpose of this factor is to determine “the degree of case development that class
counsel have accomplished prior to settlement.” In re Cendant Corp. Litig., 264 F.3d 201, 235
(3d Cir. 2001). “[C]ourts can determine whether counsel had an adequate appreciation of the
merits of the case before negotiating.” Id. (citing In re Gen. Motors, 55 F.3d at 813).
In this instance, ACSB and Lead Plaintiffs have litigated this case for nearly five years.
The parties have ftilly briefed motions to dismiss, a motion for class certification, and have
engaged in discovery. Moreover, Lead Plaintiffs engaged two experts regarding accounting and
auditing practices in China and regarding GAAP. Rosen Decl.
¶ 40. Accordingly, Lead Plaintiffs
are well aware of the relative strengths and weaknesses of their case as to ACSB. See, e.g., In re
Genta Sec. Litig., No. 04-2 123, 2008 WL 2229843, at *6 (D.N.J. May 28, 2008).
Importantly, the settlement proceeds here come from a wasting insurance policy. See
Settlement Br. at 19. This means that the policy limit was reduced by payment of defense costs
while the matter was being litigated. As litigation continues, less money is available to the class.
The Court notes that some courts have suggested that the lack of objectors essentially requires a
finding that the settlement is fair and reasonable. See, e.g., In re Linerboard Antitrust Litig, 296
F. Supp. 2d 568, 578 (E.D. Pa. 2003) (“[T]his unanimous approval of the proposed settlement
by the class members is entitled to nearly dispositive weight in this court’s evaluation of the
proposed settlement.” (quoting fisher Bros v. Phelps Dodge Indus., Inc., 604 F. Supp. 446, 451
(E.D. Pa. 1985))). The Court does not agree with this conclusion but recognizes that the lack of
objectors provides a strong indication that the settlement is fair and reasonable.
If the parties did not settle and instead continued with discovery and motions for summary
judgment, the insurance funds available for any potential settlement would be quickly diminished
and perhaps exhausted.
Accordingly, this factor weighs in favor of the fairness of the settlement.
4. The Risks of Establishing Liability and Damages
The purpose of these factors is to “balance the likelihood of success and the potential
damage award if the case were taken to trial against the benefits of an immediate settlement.” In
re Prttdential, 14$ F.3d at 319. “By evaluating the risks of establishing liability, the district court
can examine what the potential rewards (or downside) of litigation might have been had class
counsel elected to litigate the claims rather than settle them.” In re Gen. Motors, 55 f.3d at $14.
Where there is a prospect of long, contentious, and uncertain litigation along with a lack of
evidence required to support claims in such protracted litigation, these factors weigh in favor of
approval. See In re Cendant Corp. Litig., 264 F.3d at 23$.
Lead Plaintiffs face multiple obstacles in moving this case forward if it does not settle.
Further discovery will be difficult and time consuming because evidence is located in China.
Settlement Approval Br. at 16. Gathering evidence in China for litigation that is occurring in the
United States is a difficult and expensive process. See, e.g., Elizabeth Fahey & Zhirong Tao, The
Pretrial Discovery Process in Civil Cases: A Comparison of Evidence Discovery Between China
& the United States, 37 B.C. Int’l & Comp. L. Rev. 281, 283-86 (2014). And as discussed, this
case involves difficult and complicated issue of law and fact that may not be successful in a motion
for summary judgment or at trial. Settlement Br. at 15-16. The Court notes, however, that Lead
Plaintiffs asserted claims against ACSB under Section 11 of the Securities Act. Thus, Lead
Plaintiffs only need to establish that the registration statement contained material misstatements or
and that ACSB is within the class of individuals and entities that can be liable under
Section 11. In re Cendant Corp. Litig., 60 F. Supp. 2d 354, 364 (D.N.J. 1999). These requirements
are less onerous to prove than scienter-based securities claims, such as a 1 0b-57 claim, where a
plaintiffmust prove “knowledge by the defendant, an intent to defraud, misrepresentation or failure
to disclose, materiality of the information and, injurious reliance by the plaintiff.” Id. at 36$.
Assuming that Lead Plaintiffs could prove liability, proving damages is also difficult. Yet,
unlike 1 Oh-S claims, plaintiffs asserting a Section 11 claim do not have the burden to prove
causation. Defendants, however, may assert an affirmative defense “that a lower share value did
not result from any nondisclosure or false statement.” In re Adams Golf Inc. Sec. Litig., 3$1 F.3d
267, 277 (3d Cir. 2004).
As it did in its motion to dismiss, ACSB would likely assert this
affirmative defense. ACSB would likely argue that the class members’ losses are not attributable
to the alleged misrepresentations in Tibet’s registration statement and prospectus. This issue
typically requires expert testimony. “Thus in the end, loss causation would be reduced to a ‘battle
of experts.’ The reaction of a jury to such competing expert testimony is impossible to predict.”
Settlement Approval Br. at 17. Moreover, this expert testimony would likely be expensive and,
therefore, deplete the money available from the insurance policies for defense experts. As a result,
this factor also weighs in favor of concluding that the settlement is fair and reasonable.
5. Risk of Retaining Class Certification throughout Trial
The risk of obtaining and maintaining class certification through trial also supports
approval of the settlement. “There will always be a ‘risk’ or possibility of decertification, and
The SEC’s Rule lOb-S is found at 17 C.F.R. § 240.lOb-5, and was promulgated pursuant to
Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq.
consequently the court can always claim this factor weighs in favor of settlement.” In re
Prudential, 148 f.3d at 321. Here, in their motions for summary judgment Downs and Zou sought
to revisit the class certification decision, arguing that certain Lead Plaintiffs lacked standing to
maintain their claims. The Court granted their motions in part. Summary Judgment Opinion at
12. Although this does not impact the settlement here, it illustrates the fact that there is a risk of
retaining class certification. Consequently, this factor also weighs in favor of approving the
6. Defendant’s Ability to Withstand Greater Judgment
This factor “is concerned with whether defendants could withstand a judgment for an
amount significantly greater than the [s]ettlement.” In re Cendant Corp. Litig., 264 F.3d at 240
ACSB was dissolved during the pendency of this litigation and its sole
remaining asset is the insurance policy. Almost half of the remaining $4.4 million in the policy
will be contributed to the common fund here.8 Settlement Approval Br. at 19. Thus, this factor
weighs in favor of approving the settlement.
7. The Range of Reasonableness of the Settlement Fund in Light of the Best Possible
Recovery and the Attendant Risk of Litigation
These factors aim to “evaluate whether the settlement represents a good value for a weak
case or a poor value for a strong case.” In re Warfarin, 391 F.3d at 538. “In conducting this
evaluation, it is recognized that settlement represents a compromise in which the highest hopes for
recovery are yielded in exchange for certainty and resolution and [courts should] guard against
demanding to[o] large a settlement based on the court’s view of the merits of the litigation.” See
In re Johnson & Johnson Derivative Litig., 900 F. Supp. 2d 467, 484-85 (D.N.J. 2012) (internal
As discussed in note 5, sltpra, the other half ACSB’s policy is being used to settle another class
action, P. Van Hove BVBA, et al v. Universal Travel Grottp, Inc., et al, Civ. No. 11-2 164.
quotations omitted). These factors consider “whether the settlement is reasonable in light of the
best possible recovery and the risks the parties would face if the case went to trial.” Pro v. Hertz
Eqttip. Rental Corp., No. 06-3830, 2013 WL 3167736, at *5 (D.N.J. June 20, 2013) (quotingln re
Prudential. 14$ f.3d at 322). As discussed, this settlement provides a good recovery to the class
in light of the risks of litigation. Moreover, because the settlement fund consists of money from a
wasting insurance policy, any further litigation will decrease the amount of money available to the
class. Consequently, these factors also weigh in favor of settlement.
8. The Relevant Prudential factors
In this instance, the relevant Prudential factors are whether class members may opt out of
the settlement and whether the procedure for processing individual claims is fair and reasonable.9
In re Prudential, 148 F.3d at 323-24.
Class members may opt out of the class here and the claims procedure is fair and
reasonable. As was made clear in the class notice, class members may elect to opt out of the class
and were informed of the procedures to do so. See Bravata Decl. Ex. A, at 8. Potential class
members are required to submit claims to SCS, who assesses whether the potential member is a
valid member of the class. The claims process is standardized and Lead Counsel represented at
the Settlement Hearing that SCS provides claimants with the ability to resolve problems with their
claims if SCS determines that the initial submission is lacking. In addition, SCS will continue to
accept late claims if practicable, up until the time that the settlement funds are actually distributed.
Thus, the claims procedure appears to be fair and reasonable.
The reasonableness of plaintiffs’ request for attorneys’ fees is another Prudential factor. Because
Lead Plaintiffs here filed a motion for attorneys’ fees along with their motion for final settlement
approval this factor will be addressed at length below. As will be discussed, the Court finds that
the requested fees and costs are reasonable. Thus this factor weighs in favor of settlement.
Having considered each of the Girsch and Prudential factors, the Court approves the
settlement as fair and reasonable.
MOTION FOR ATTORNEYS’ FEES AND EXPENSES
Lead Plaintiffs also make a claim for attorneys’ fees of one-third of the settlement amount,
or $691,667; reimbursement of litigation expenses; and a nominal award for the six Lead Plaintiffs.
The fees and expenses would be paid from the settlement fund. See generally Attorneys’ Fees Br.
In common fund cases such as this one, attorneys’ fees are typically awarded through the
percentage-of-recovery method. See In re Rite Aid Corp. Sec. Litig., 396 F.3d 294, 300 (3d Cir.
2005). The percentage-of-recovery method provides for attorneys’ fees by awarding a reasonable
percentage of the common fund. Id. The percentage-of-recovery method is preferred in common
fund cases because it “rewards counsel for success and penalizes it for failure.” Id. (quoting In re
Prudential, 14$ F.3d at 333).
The Third Circuit suggests that when district courts use the percentage-of-recovery
method, they also employ the lodestar method to cross-check the fee and ensure that it is
reasonable. Id. at 305. “The lodestar award is calculated by multiplying the number of hours
reasonably worked on a client’s case by a reasonable hourly billing rate for such services based on
the given geographical area, the nature of the services provided, and the experience of the
The cross-check occurs by dividing the proposed fee award by the lodestar
calculation, resulting in a lodestar multiplier. If “the multiplier is too great, the court should
reconsider its calculation under the percentage-of-recovery method, with an eye toward reducing
the award.” Id. at 306.
A. The Percentage-of-Recovery Method
As discussed, Lead Counsel seeks a fee award of one-third of the settlement fund. When
analyzing a fee award under the percentage-of-recovery method, courts consider several factors,
1) the size of the fund created and the number of persons benefitted;
2) the presence or absence of substantial objections by members of
the class to the settlement terms and/or fees requested by counsel;
3) the skill and efficiency of the attorneys involved;
4) the complexity and duration of the litigation;
5) the risk of nonpayment;
6) the amount of time devoted to the case by plaintiffs’ counsel; and
7) the awards in similar cases.
Id. at 301 (citing Gunter v. Ridgewood Energy Corp., 223 F.3d 190, 195 n.1 (3d Cir. 2000)). The
list is not exhaustive. Yedlowski, 2016 WL 6661336, at *19. As such, in In re Prudential, the
Third Circuit enumerated three additional factors that may be relevant. Id. The additional factors
1) the value of benefits accruing to class members attributable to the
efforts of class counsel as opposed to the efforts of other groups,
such as government agencies conducting investigations;
2) the percentage fee that would have been negotiated had the case
been subject to a private contingent fee agreement at the time
counsel was retained; and
(3) any “innovative” terms of settlement.
Id. (quoting In re Prudential, 148 f.3d at 33 8-40). A court, however, need not apply these factors
“in a formulaic way because each case is different.” Id. (quoting In re Rite Aid, 396 F.3d at 301).
Here, because the Gunter factors substantially overlap with the Girsch factors, the Court
will refer to its earlier findings when reviewing the fee application. An analysis of these factors
supports the requested one-third fee award.
1. The Size of the Fund and the Benefit to Class Members
For this factor, courts “consider the fee request in comparison to the size of the fund created
and the number of class members to be benefitted.” Id. at *20 (quoting Rowe v. El. DuPont de
Nemours & Co., Nos. 06-1810, 06-3080, 2011 WL 3837106, at *18 (D.N.J. Aug. 26, 2011)). A
smaller fund does not necessarily equate to a smaller percentage award. In fact, “because of fixed
costs and economies of scale, attorneys’ fees and costs do not increase dollar-for-dollar with the
size of the case. Thus, it takes a greater percentage of the settlement to support litigation in a
smaller case.” Id.
This is a relatively small securities class action. In addition, the average percentage of
estimated damages that were recovered through securities class action settlements in 2016 was
See Securities Class Action Settlements 2016 Review & Analysis, at 1,
http ://securities. stanford.edu/research-reports/ 1996-201 6/Settlements-Through- 12-2016Review.pdf (last visited June 26, 2017); see also In re Far Fharm. Sec. Litig., No. 06-3226, 2013
WL 3930091, at *2 (D.N.J. July 29, 2013) (approving settlement with total sum of $8.1 million,
which amounted to approximately 7% of class-wide damages). Here, total maximum damages are
optimistically valued at approximately $16.5 million. The settlement fund is $2.075 million.
Attorneys’ fees Br. at 7. In addition, at the Settlement Hearing, Lead Counsel represented that
SCS has only received 847 valid claims. Consequently, the relatively low amount of actual claims
ensures that each class member will receive a proportionally larger payment.’° Thus, this factor
supports the fee request.
2. Objections to the Fee Request
In this instance, class notice informed potential class members that Lead Counsel was
seeking an award of up to one-third of the settlement fund. The notice also advised class members
that they could object to the settlement and explained the procedure to do so. Bravata Decl., Ex.
Lead Plaintiffs also recovered $1.45 million through the A&S settlement, which will also be
distributed to class members. Thus, class members may recover up to 37% of their recognized
losses. Attorneys’ Fees Br. at 7.
A. To date, no class member has objected to the requested fees. Id.
¶ 12. Accordingly, the reaction
from the class supports the fee request.
3. The skill and efficiency of the attorneys involved
“Lead Counsel’s skill and efficiency is ‘measured by the quality of the result achieved, the
difficulties faced, the speed and efficiency of the recovery, the standing, experience and expertise
of the counsel, the skill and professionalism with which counsel prosecuted the case and the
performance and quality of opposing counsel.” Yedlowski, 2016 WL 6661336, at *20 (quoting
Hall v. AT&Tliobility LLC, No. 07-5325, 2010 WL 4053547, at *19 (D.N.J. Oct. 13, 2010)). In
addition, “[t]he quality and vigor of opposing counsel” is relevant when evaluating the quality of
services rendered by Lead Counsel. Id. at *21.
Here, the Rosen Firm is experienced in the complex field of securities fraud class action
litigation. See Rosen fee Decl. Ex. 2-A. Courts have recognized that the Rosen Firm “has
extensive experience navigating the particular complexities of litigation with Chinese companies.”
Khuntv. Alibaba Grp. Holding Ltd., 102 F. Supp. 3d 523, 540 (S.D.N.Y. 2015). The performance
and quality of defense counsel is also high. Thus, the competence of opposing counsel favors a
finding that Lead Counsel prosecuted this case with skill and efficiency. Therefore, this factor
supports the fee request.
4. The complexity and duration of the litigation
The fourth factor captures “the probable costs, in both time and money of continued
litigation.” In re Gen. Motors, 55 F.3d at $12 (quoting Biyan, 494 F.2d at $01). As discussed, the
settlement fund is financed through a wasting insurance policy. Any continued litigation would
decrease the amount of money available for settlement and attorneys’ fees. Moreover, due to the
complexity and nature of securities litigation, any further litigation would likely be time
consuming as well as expensive due to the need for experts. In light of the potential length of
continued litigation, the likely additional costs of this securities class action, and the fact that
ACSB has a wasting insurance policies, a one-third fee is reasonable.
5. The risk of nonpayment
“Courts across the country have consistently recognized that the risk of receiving little or
no recovery is a major factor in considering an award of attorneys’ fees.” Yedtowski, 2016 WL
6661336, at *21. This risk of no recovery “is especially high in securities class actions, as they
are ‘notably difficult and notoriously uncertain.” Id. (quoting Trief v. Dim & Bradstreet Corp.,
840 F. $upp. 277, 281 (S.D.N.Y. 1993)). In this instance, Lead Counsel undertook this action on
a contingency basis with no guarantee that it would be compensated for its time or expenses.
Attorneys’ Fee Br. at 11. In light of the difficulty of its undertaking, Lead Counsel should be
reimbursed for its time and expenses.
6. The amount of time devoted to the case by plaintiffs’ counsel
The sixth factor considers the time that counsel devoted to this litigation. Gunter, 223 F.3d
at 199. While this factor will be addressed in the Court’s discussion of the lodestar cross-check,
the hours that Lead Counsel devoted to this case appear reasonable.
7. The awards in similar cases
The one-third fee is within the range of fees typically awarded within the Third Circuit
through the percentage-of-recovery method; the Circuit has observed that fee awards generally
range from 19% to 45% of the settlement fund. See In re Gen. Motors, 55 f.3d at $22. “For
smaller securities fraud class actions, ‘courts within this Circuit have typically awarded attorneys’
fees of 30% to 35% of the recovery, plus expenses.” Yedlov’ski, 2016 WL 6661336, at *22
(quoting In re Ravisent Techs., Inc. Sec. Litig., No. 00-1014, 2005 WL 906361, at *11 (E.D. Pa.
Apr. 1$, 2005)). Thus, the requested fee in this matter is within the normal range.
8. The Recovery is Solely Attributable to the Efforts of Class Counsel
When Lead Counsel initiated this action no government action against ACSB was
announced. Although, a Public Company Accounting Oversight Board (“PCAOB”) action against
ACSB and Svoboda was announced in November 2013, it failed to make any reference to Tibet.11
Therefore, the PCAOB action cannot be attributed to Lead Counsel’s success here. “The fact that
Lead Counsel received no help from any government investigation is a ‘significant factor’
supporting the fee award.” Yedlowski, 2016 WL 6661336, at *22.
9. The Percentage Fee is Consistent with Contingent Fee Arrangements in Privately
Negotiated Non-Class Litigation
A one-third fee is consistent with fee awards in non-class cases. See id. at *23.
individual cases, “the customary contingent fee would likely range between 30 and 40 percent of
the recovery.” Id. Consequently, this factor also supports Lead Counsel’s fee request.
B. LODESTAR CROSS-CHECK
The lodestar cross-check “ensures that the proposed fee award does not result in counsel
being paid a rate vastly in excess of what any lawyer could reasonably charge per hour, thus
avoiding a ‘windfall’ to lead counsel.” In re Cendant Corp. Litig., 264 F.3d at 285. Again, to
perform the cross-check, a court divides the proposed fee award by the lodestar calculation,
resulting in a lodestar multiplier. In reAT&T, 455 F.3d at 164.
“While ACSB and Svoboda did not admit liability, the PCAOB imposed a $10,000 civil penalty
on ACSB and barred Svoboda from associating with a registered firm for at least three years. See
PCOAB Press Release, https ://pcaobus.org/News/Releases/Pages/ 1121201 3 Enforcement. aspx
(Nov. 22, 2013).
Excluding the work it performed exclusively for the A&S bankruptcy proceeding, had the
Rosen Firm been paid an hourly rate, it would hypothetically receive $1,313,540 for 2,028.7 hours,
with a blended hourly rate of $670.12 See Rosen Fee Decl.
While the blended hourly rate here
is on the higher end of the spectrum, the Court recognizes that it is based upon a reasonable hourly
rate for such services given the geographical area, the nature of the services provided, and the
experience of each attorney. Among other things, the Rosen Firm researched and investigated the
facts and claims in this case, prepared the Complaint and the F AC, drafted opposition briefs for
multiple motions, reviewed documents produced during discovery, and took and defended multiple
5. In this instance, the lodestar cross-check results in a multiplier of .53.
Attorneys’ Fees Br. at 20. “[M]ultiples ranging from one to four are frequently awarded in
common fund cases when the lodestar method is applied.” Yedlowski, 2016 WL 6661336, at *y9
A negative multiplier, as is the case here, means that Lead Counsel will only be compensated for
approximately 50% of its work. However, the multiplier does not appear to be quite as low as
indicated because Lead Counsel included hours it spent on matters that do not pertain to AC$B,
such as opposing Peng’s motion to dismiss for lack of service, and Downs and Zou’s motions for
summary judgment. However, even excluding these hours, the cross-check still results in a low
multiplier. As a result, the Court finds that the lodestar cross-check demonstrates that the requested
fee award here is reasonable.
C. LEAD COUNSEL’S REQUEST FOR REIMBURSEMENT OF FEES
“Counsel in common fund cases is entitled to reimbursement of expenses that were
adequately documented and reasonably and appropriately incurred in the prosecution of the case.”
Lead Counsel anticipates receiving an award of attorneys’ fees for the A&S bankruptcy
proceeding so the Court will not include these hours in its lodestar cross-check. Attorneys’ Fees
Br. at 19.
In re Cendant Corp., 232 F. Supp. 2d 327, 343 (D.N.J. 2002). Class notice here stated that Lead
Counsel may seek reimbursement for expenses not to exceed $150,000. Bravata Deci. Ex. A at 2.
Nobody opposed the proposed request for expenses. Id.
Through their motion, Lead Counsel now seeks to be reimbursed for $62,140.25 of
litigation expenses that it incurred.
Lead Counsel’s request is supported with adequate
documentation; approximately $52,000 of the expenses are associated with expert fees; $3,373 is
associated with service of process fees, much of which is in connection to Lead Plaintiffs’ letters
rogatory to determine the whereabouts of the IPO proceeds, and the remaining expenses were
incurred for online legal research and other miscellaneous fees. Rosen Fee Deci. ¶ 13. These fees
are all properly charged to the class. Yedlowski, 2016 WL 6661336, at *23. The Court finds that
these expenses are reasonable and will award the requested amount of $62,140.25 to Lead Counsel.
U. LEAD PLAINTIFF AWARD
Finally, Lead Counsel requests an award of $5,000 for each Lead Plaintiff, or a total of
$30,000, to compensate them for the time devoted to this case over the last six years. Attorneys’
Fees Br. at 19. The PSLRA does not specifically provide for incentive awards to lead plaintiffs
but does acknowledge that “[n]othing in this paragraph shall be construed to limit the award of
reasonable costs and expenses (including lost wages) directly relating to the representation of the
class to any representative party serving on behalf of a class.” 15 U.S.C.
§ 78u-4(a)(4). In addition,
“the Third Circuit favors encouraging class representatives, by appropriate means, to create
common funds and to enforce laws—even approving ‘incentive awards’ to class representatives.”
In re Schering-Ftough Corp., 2013 WL 5505744, at *56.
Lead Counsel argues that the Lead Plaintiffs should each receive a $5,000 award because
collectively, they spent more than 6,000 hours reviewing pleadings, discussing the case with Lead
Counsel, independently following developments regarding Tibet, and preparing for and traveling
to their depositions. Rosen Deci. Exs. 4-9. In addition, Class Notice informed potential class
members that Lead Plaintiffs were seeking this award and, to date, no objections have been
received. Bravata Decl.
12, Ex. A. Lead Counsel contends that this request is reasonable and
that others courts have approved similar awards for Lead Plaintiffs’ efforts. See, e.g., Yedlowski,
2016 WL 6661336, at *24.
Although Lead Plaintiffs engaged in the type of activities that warrant reimbursement, the
Court is concerned by the disparity between the hours spent on this case amongst the individual
Lead Plaintiffs. Specifically, Lead Plaintiffs’ efforts range from approximately 27 to 3000 hours.
Rosen Deci. Ex. 4-9. The Court takes this disparity into account in calculating the awards. As a
result, Edmund Obasi is awarded $6,500, Jude Shao is awarded $4,500, Robin Dartell is awarded
$4,500, Lixin Wu is awarded $3,000, Jason Helton is awarded $3,000, and Sean Carithers is
In sum, Lead Plaintiffs’ motion for final approval of the settlement [D.E. 263] is
GRANTED. Subject to modifications to the Lead Plaintiffs’ award, the motion for attorneys’ fees
[D.E. 265] is also GRANTED. An appropriate form of Order accompanies this Opinion.
Dated: June 29, 2017
John Michael VazquelfS).J.
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