Anwar et al v. Fairfield Greenwich Limited et al
Filing
1033
MEMORANDUM OF LAW in Support re: #1032 MOTION for Settlement Notice of Motion for Final Approval of the Proposed Partial Settlement and Plan of Allocation.. Document filed by Pasha S. Anwar. (Barrett, David)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
PASHA ANWAR, et al.,
Plaintiffs,
v.
FAIRFIELD GREENWICH LIMITED, et al.,
Master File No. 09-cv-118 (VM) (FM)
Defendants.
This Document Relates To: 09-cv-118 (VM)
PLAINTIFFS’ MEMORANDUM IN SUPPORT
OF FINAL APPROVAL OF THE PROPOSED
SETTLEMENT AND PLAN OF ALLOCATION
BOIES, SCHILLER & FLEXNER LLP
David A. Barrett
Howard L. Vickery, II
575 Lexington Avenue
New York, NY 10022
Telephone: (212) 446-2300
Facsimile: (212) 446-2350
WOLF POPPER LLP
Robert C. Finkel
James A. Harrod
Natalie M. Mackiel
845 Third Avenue
New York, NY 10022
Telephone: (212) 759-4600
Facsimile: (212) 486-2093
BOIES, SCHILLER & FLEXNER LLP
Stuart H. Singer
Carlos Sires
Sashi Bach Boruchow
401 East Las Olas Boulevard, #1200
Ft. Lauderdale, Florida 33301
Telephone: (954) 356-0011
Facsimile: (954) 356-0022
LOVELL STEWART HALEBIAN JACOBSON LLP
Christopher Lovell
Victor E. Stewart
61 Broadway, Suite 501
New York, NY 10006
Telephone: (212) 608-1900
Co-Lead Counsel for Plaintiffs and Lead Counsel for PSLRA Plaintiffs
TABLE OF CONTENTS
INTRODUCTION .......................................................................................................................... 1
II.
STATEMENT OF FACTS ..................................................................................... 3
III.
ARGUMENT.......................................................................................................... 6
A.
The Proposed Partial Settlement Is Fair, Reasonable, and Adequate and Should
be Approved............................................................................................................ 6
B.
The Grinnell Factors Support Approval of the Settlement..................................... 8
1.
The Complexity, Expense, and Likely Duration of the Action .................. 8
2.
The Settlement Class’s Reaction to the Settlement Favors
Final Approval .......................................................................................... 12
3.
The Stage of the Proceedings and the Amount of Information Reviewed
and Analyzed ............................................................................................ 12
4.
The Risks of Establishing Liability and Damages.................................... 13
5.
The Risk of Maintaining the Action as a Class Action Through Trial ..... 15
6.
The Amount of the Settlement.................................................................. 16
C.
THE PLAN OF ALLOCATION IS FAIR, REASONABLE AND ADEQUATE
AND WARRANTS APPROVAL ........................................................................ 19
D.
THE COURT SHOULD FINALLY CERTIFY THE SETTLEMENT CLASS .. 19
1.
Settling Class Members Are Too Numerous To Be Joined...................... 20
2.
There Are Common Questions of Law or Fact......................................... 20
3.
Plaintiffs’ Claims Are Typical of Those of The Settling Class ................ 21
4.
Plaintiffs Will Fairly and Adequately Protect the Interests of Settlement
Class Members.......................................................................................... 22
5.
Plaintiffs’ Claims Satisfy Rule 23(b)(3) ................................................... 23
a.
Common Questions Predominate ................................................. 23
b.
A Class Action is the Superior Method of Adjudication .............. 24
6.
IV.
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Plaintiffs' Counsel Satisfy the Rule 23(g) standards................................. 25
CONCLUSION..................................................................................................... 25
ii
TABLE OF AUTHORITIES
CASES
Amchem Products, Inc. v. Windsor,
521 U.S. 591 (1997)...........................................................................................................23
In re Am. Bank Note Holographics,
127 F. Supp. 2d 418 (S.D.N.Y. 2001)................................................................................16
In re Am. Int’l Group Inc.,
689 F.3d 229 (2d Cir. 2012)...............................................................................................25
Anwar v. Fairfield Greenwich Ltd.,
728 F. Supp. 2d 354 (S.D.N.Y. 2010)..................................................................................4
Anwar v. Fairfield Greenwich Ltd.,
728 F. Supp. 2d 372 (S.D.N.Y. 2010)..................................................................................4
In re AOL Time Warner, Inc. Sec. & ERISA Litig.,
MDL Docket No. 1500, 02 cv. 5575 (SWK),
2006 WL 903236 (S.D.N.Y. Apr. 6, 2006)........................................................................15
In re Beacon Assocs. Litig.,
282 F.R.D. 315 (S.D.N.Y. 2012) .......................................................................................24
In re Blech Sec. Litig.,
187 F.R.D. 97 (S.D.N.Y. 1999) .........................................................................................22
Blessing v. Sirius XM Radio Inc.,
11-3696-cv, 2012 WL 6684572 (2d Cir. Dec. 12, 2012).....................................................7
Bresson v. Thomson McKinnon Secs., Inc.,
118 F.R.D. 339 (S.D.N.Y. 1988) .......................................................................................24
Consol. Rail Corp. v. Town of Hyde Park,
47 F.3d 473 (2d Cir. 1995).................................................................................................20
Cent. States Se. & Sw. Areas Health & Welfare Fund v. Merck-Medco Managed Care, L.L.C.,
504 F.3d 229 (2d Cir. 2007)...............................................................................................20
Cotton v. Hinton,
559 F.2d 1326 (5th Cir. 1977) .............................................................................................8
Credit Alliance Corp. v. Arthur Andersen & Co.,
65 N.Y.2d 536, 493 N.Y.S.2d 435 (1985) .........................................................................11
D'Amato v. Deutsche Bank,
236 F.3d 78 (2d Cir. 2001)...................................................................................................7
Detroit v. Grinnell Corp.
495 F.2d 448 (2d Cir. 1974).................................................................................................7
In re Drexel Burnham Lambert Group, Inc.,
960 F.2d 285 (2d Cir. 1992)...............................................................................................22
In re EVCI Career Colls. Holding Corp. Sec. Litig.,
Master File No. 05 CV 10240 (CM), 2007 WL 2230177 (S.D.N.Y. July 27, 2007) ........16
In re Global Crossing Sec. & ERISA Litig.,
225 F.R.D. 436 (S.D.N.Y. 2004) .......................................................................................15
In re IMAX Sec. Litig.,
283 F.R.D. 178 (S.D.N.Y. 2012) .................................................................................12, 19
Kingate Management Limited Litig.,
09 Civ. 5386 (DAB), 2011 U.S. Dist. LEXIS 41598 (S.D.N.Y. Mar. 30, 2011) ................9
In re Luxottica Grp. S.p.A. Sec. Litig.,
233 F.R.D. 306 (E.D.N.Y. 2006) .........................................................................................8
Maley v. Del Global Techs. Corp.,
186 F. Supp. 2d 358 (S.D.N.Y. 2002)................................................................................12
In re Marsh & McLennan Cos., Inc. Sec.,
No. 04 Civ. 8144, 2009 WL 5178546 (S.D.N.Y. Dec. 23, 2009) .....................................15
McReynolds v. Richards-Cantave,
588 F.3d 790 (2d Cir. 2009).................................................................................................7
In re Michael Milken & Assocs. Sec. Litig.,
150 F.R.D. 46 (S.D.N.Y. 1993) ...........................................................................................8
Morrison v. National Australia Bank,
130 S. Ct. 1869 (2010).........................................................................................................9
In re NASDAQ Market-Makers Antitrust Litig.,
169 F.R.D. 493 (S.D.N.Y. 1996) .......................................................................................22
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iv
Newman v. Stein,
464 F.2d 689 (2d Cir. 1972)...............................................................................................18
In re PaineWebber Ltd. P’ships Litig.,
171 F.R.D. 104 (S.D.N.Y. 1997) .......................................................................................18
In re Polaroid ERISA Litig.,
240 F.R.D. 65 (S.D.N.Y. 2006) .........................................................................................22
Proskauer Rose LLP v. Troice,
No. 12-88, 2013 U.S. LEXIS 912 (Jan. 18, 2013)...............................................................9
Rubin v. MF Global, Ltd.,
No. 08 Civ. 2233 (VM) (Nov. 18, 2011) .............................................................................7
Teachers’ Ret. Sys. of La. v. ACL N. Ltd.,
No. 01-CV-11814 (LAP), 2004 WL 2997957 (S.D.N.Y. Dec. 27, 2004) ........................22
In re Telik Inc. Sec. Litig.,
576 F. Supp. 2d 570 (S.D.N.Y. 2008)................................................................................19
In re Vivendi Universal, S.A. Sec. Litig.,
242 F.R.D. 76 (S.D.N.Y. 2007) .........................................................................................21
Wal-Mart Stores, Inc. v. Visa U.S.A. Inc.,
396 F.3d 96 (2d Cir. 2005)...................................................................................................6
Weiss v. La Suisse, Societe D' Assurances Sur La Vie,
226 F.R.D. 446 (S.D.N.Y. 2005) ......................................................................................21
In re WorldCom, Inc. Sec. Litig.,
219 F.R.D. 287 (S.D.N.Y. 2003) .......................................................................................22
Zupnick v. Thompson Parking Partners,
No. 89 Civ. 6607 (JSM), 1990 WL 113197 (S.D.N.Y. Aug. 1, 1990) ..............................20
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STATUTES AND RULES
Fed. R. Civ. P. 23(a) ................................................................................................................19, 23
Fed. R. Civ. P. 23(a)(1)..................................................................................................................20
Fed. R. Civ. P. 23(a)(3)..................................................................................................................21
Fed. R. Civ. P. 23(a)(4)............................................................................................................22, 23
Fed. R. Civ. P. 23(b) ......................................................................................................................23
Fed. R. Civ. P. 23(b)(3)......................................................................................................19, 23, 24
Fed. R. Civ. P. 23(b)(3)(D) ............................................................................................................25
Fed. R. Civ. P. 23(e)(2)....................................................................................................................6
Fed. R. Civ. P. 23(g) ......................................................................................................................25
Securities Litigation Uniform Standards Act of 1995 .....................................................................8
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The Representative Plaintiffs,1 on behalf of themselves and the Settlement Class,
respectfully move for final approval of the proposed Settlement and Plan of Allocation.
Plaintiffs also seek final certification of the Settlement Class.
I.
INTRODUCTION
The proposed Settlement provides for the Settling Defendants, funded by the FG
Individual Defendants,2 to pay a total of $80,250,000, as well as other consideration, in exchange
for a release of all claims asserted in this Action against the FG Defendants. The Settlement
provides a substantial, immediate monetary benefit to the Settlement Class of $50,250,000 in
cash (the “Settlement Fund”), and an additional $30,000,000 (the “Escrow Fund”) that will be
distributed in cash if not used to resolve other claims. The Settlement resolves claims with one
set of Defendants, while simplifying and focusing the case that remains against several other
defendants with greater ability to pay. The Settlement was reached after three and one-half years
of hard-fought litigation, including comprehensive legal briefing which defeated in large part
motions to dismiss as well as extensive investigation and discovery efforts by the Representative
Plaintiffs. The Representative Plaintiffs’ factual investigation involved the review of
approximately nine million pages of documents, and depositions and interviews of dozens of
witnesses.
1
The “Representative Plaintiffs” are Pacific West Health Medical Center Employees Retirement Trust,
Harel Insurance Company Ltd., Martin and Shirley Bach Family Trust, Natalia Hatgis, Securities &
Investment Company Bahrain, Dawson Bypass Trust, and St. Stephen’s School. Unless otherwise
indicated, capitalized terms are defined in the Stipulation of Settlement dated as of November 6, 2012 (as
amended).
2
The “Settling Defendants” are Fairfield Greenwich Limited (“FGL”) and Fairfield Greenwich
(Bermuda) Ltd. (“FGBL”). The “FG Defendants” are the Settling Defendants as well as Fairfield
Greenwich Group, Fairfield Greenwich Advisors LLC, Fairfield Risk Services Ltd., Fairfield Heathcliff
Capital LLC, and Fairfield Greenwich (UK) Limited (collectively, the “FG Entity Defendants”); and
Walter M. Noel, Jr., Jeffrey H. Tucker, Andrés Piedrahita, Lourdes Barreneche, Robert Blum, Cornelis
Boele, Gregory Bowes, Vianney d’Hendecourt, Yanko Della Schiava, Harold Greisman, Jacqueline
Harary, David Horn, Richard Landsberger, Daniel E. Lipton, Julia Luongo, Mark McKeefry, Charles
Murphy, Corina Noel Piedrahita, Maria Teresa Pulido Mendoza, Santiago Reyes, Andrew Smith, Philip
Toub, and Amit Vijayvergiya (collectively, the “FG Individual Defendants”). Defendants Noel, Tucker,
and Piedrahita are referred herein collectively as the “Founders.”
The Settlement resulted from intense, arm’s-length negotiations. As discussed in detail
herein and in the accompanying Joint Declaration of Lead Counsel (“Jt. Decl.”), the proposed
Settlement is fair, reasonable and adequate to the Settlement Class.3 Plaintiffs and class
members faced significant hurdles to recovering more than the Settlement amount, including the
ability to collect a full judgment from the FG Defendants’ remaining and attachable assets.
It cannot be gainsaid that from the inception of FGG through Bernard Madoff’s arrest in
December 2008, the twenty-three Individual FG Defendants received total gross, pre-tax
compensation of approximately $500 million attributable to the Funds, and that investors in the
Funds incurred net losses estimated at over $1 billion. However, the Individual FG Defendants
paid taxes on their compensation, and much of that money was spent both prior to Madoff’s
arrest and during the past four years, and that such spending – and large legal fees – would
continue, absent a settlement.
Moreover, FG’s Founders used tens of millions of dollars to fund trusts (purportedly for
legitimate estate planning reasons) years prior to Madoff’s arrest. A major portion of the
Settlement is being funded from one of those trusts. The trustees have agreed to do for the
benefit of one of the Founders, but would not be willing use funds from the trusts to pay any
judgment.
3
The proposed Settlement Class consists of:
All Beneficial Owners of shares or limited partnership interests in the Funds as of December 10,
2008 (whether as holders of record or traceable to a shareholder or limited partner account of
record), who suffered a Net Loss of principal invested in Fairfield Sentry Limited, Fairfield
Sigma Limited, Fairfield Lambda Limited, Greenwich Sentry L.P. or Greenwich Sentry Partners,
L.P.
Stipulation, ¶ 1(ss). Excluded from the Settlement Class are (i) those individuals who timely and validly
opt out of the Settlement; (ii) Fairfield Sigma Limited, (iii) Fairfield Lambda Limited, (iv) any Settlement
Class Member who has been dismissed from this Action with prejudice; and (v) the FG Defendants and
any entity in which the FG Defendants have a controlling interest, and the officers, directors, affiliates,
legal representatives, immediate family members, heirs, successors, subsidiaries and/or assigns of any
such individual or entity in their capacity as such. Id. Fairfield Sigma Limited and Fairfield Lambda
Limited are excluded to avoid potential double recovery because their shareholders are included as
members of the Settlement Class.
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2
Lead Counsel, based on their review of the FG Individual Defendants’ certified financial
information, determined that the Founders contributed a substantial portion of their assets that
would be subject to execution if Plaintiffs obtained a judgment today and, even more so, in the
future at a time when a judgment could be enforced. In addition, by focusing the case on the
Defendants whose businesses are still operating – the PwC defendants, the Citco defendants and
GlobeOp – Lead Counsel believe the Class will maximize its overall recovery on its substantial
losses.
The FG Individual Defendants are also faced with other claims, primarily by Irving
Picard (the “Trustee”), Trustee of the bankruptcy estate of Bernard L. Madoff Investment
Securities (“BLMIS”), and could not be expected to contribute 100% of their available assets to
settlement of this action alone.
Lead Counsel strongly believe that under these circumstances, the proposed Settlement is
fair, reasonable, and adequate, and warrants approval by the Court.
II.
STATEMENT OF FACTS
The Joint Declaration of Lead Counsel in Support of Final Approval of the Proposed
Partial Settlement and Fee and Expense Requests, which accompanies this Memorandum, details
the factual and procedural background of this case and the events that led to the Settlement.
These facts are summarized here.
This Action arises from the largest Ponzi scheme in history, operated by Bernard Madoff.
The FG Defendants comprised the sponsors, managers, and advisors to several feeder funds to
BLMIS. Plaintiffs’ Second Consolidated Amended Complaint (“SCAC”), filed September 29,
2009 (ECF No. 273), asserts claims against the FG Defendants for common law fraud (Counts 1
and 2), federal securities fraud and control person liability (Counts 3 and 4), negligent
misrepresentation (Counts 5 and 6), gross negligence (Count 7), breach of fiduciary duty (Count
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8), third-party beneficiary breach of contract (Count 9), constructive trust (Count 10), mutual
mistake (Count 11), and unjust enrichment (Count 33). Those claims against the FG Defendants
were sustained in significant part by this Court in decisions of July 29, 2010, Anwar v. Fairfield
Greenwich Ltd. (“Anwar I”), 728 F. Supp. 2d 354; and August 18, 2010, Anwar v. Fairfield
Greenwich Ltd. (“Anwar II”), 728 F. Supp. 2d 372. Representative Plaintiffs entered into the
Settlement after extensive factual investigation and discovery. Plaintiffs’ investigative efforts
are detailed in the Joint Declaration and include, inter alia, reviewing and analyzing the many
complex legal issues related to the merits, class certification and procedural issues in the case.
Those legal issues were raised and addressed by the motions to dismiss, motion for class
certification and numerous settlement, discovery and procedural disputes that have arisen
between the parties. E.g., Jt. Decl. ¶¶ 11, 53, 59, and 69.
The Settlement is the result of arm’s-length negotiations, which were lengthy and
laborious. Those negotiations began in 2009, and continued more intensively from May 21,
2012 through August 3, 2012. The 2012 negotiations occurred contemporaneously with the
parties’ ongoing participation in merits discovery in the Action. Jt. Decl. ¶¶ 89-92.
Representative Plaintiffs and the Settling Defendants entered into a Memorandum of
Understanding on August 3, 2012 (the “MOU”) memorializing their agreement in principle to
resolve the Action. Jt. Decl. ¶¶ 93-94. That Settlement was formalized in the Stipulation of
Settlement dated November 6, 2012.
The Settlement provides a substantial, up-front monetary benefit to the Settlement Class
of $50,250,000 in cash (the “Settlement Fund”). These funds, less administration expenses,
attorneys’ fees and expenses as may be awarded by the Court, will be distributed to Settlement
Class Members after the claims process is concluded. In addition to this guaranteed recovery of
$50,250,000, the Settling Defendants, as funded by the FG Defendants, also will transfer
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$30,000,000, in cash or pledges of collateral into a separate account (the “Escrow Fund”), which
will be distributed to the Settlement Class in cash to the extent the Escrow Fund is not used to
pay certain other claims or judgments against the FG Defendants. See Stipulation ¶¶ 5, 18 and
30. In the event that the Escrow Fund is used to settle claims against the Settling Defendants that
have been brought by the BLMIS Trustee, the Settling Defendants will be required to make an
additional payment to the Settlement Fund of up to $5,000,000, measured by 50% of the amount,
if any, by which such a settlement exceeds $50,125,000. See Stipulation ¶ 7.4
As additional consideration, the Settling Defendants have agreed to waive (i)
indemnification claims they hold against the Funds for the amounts paid under this Settlement;
and (ii) $20,000,000 of indemnification claims they hold against the Funds for legal fees and
expenses incurred in defending the Action. See Stipulation, ¶ 6.
As part of the settlement process, Plaintiffs’ Lead Counsel obtained certified written
disclosures of the FG Individual Defendants’ assets and liabilities.5 See Jt. Decl., ¶¶ 95-97 .
The Stipulation provides for the order approving the settlement to contain typical
provisions barring the remaining defendants in the Action, including without limitation various
PricewaterhouseCoopers, Citco and GlobeOp entities (the “Non-Dismissed Defendants”)6 from
asserting claims against the FG Defendants for contribution and indemnification and providing
for reduction of any judgment that may be entered against the Non-Dismissed Defendants to
account for Plaintiffs’ recovery under the instant Settlement. See Stipulation, ¶¶ 26-27.
4
Because a settlement of $50,125,000 with the Trustee would exhaust the Escrow Fund, the Settlement
Fund ultimately may be enhanced either by the net amount of the Escrow Fund or the supplemental
payment up to $5 million (or neither), but not both.
5
The Stipulation provides that if, at any time up to the earlier of the Effective Date or July 1, 2013 ,
Plaintiffs determine that any FG Individual Defendant’s “net worth was materially greater than disclosed
to Plaintiffs’ Lead Counsel” then the Representative Plaintiffs “may, at their sole and absolute discretion,
revoke the releases provided” to such defendant. Stipulation, ¶ 12.
6
The PwC Defendants were auditors of the Funds. The Citco Defendants were the administrator and
custodian of the Funds and Funds’ assets at various times. GlobeOp was the administrator of the
domestic funds (Greenwich Sentry, L.P. and Greenwich Sentry Partners, L.P.). Jt. Decl. ¶ 34, fn. 8.
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5
The Stipulation is subject to additional terms, including terms contained in a
Supplemental Agreement dated as of November 6, 2012, which provides that the Settling
Defendants may terminate the Settlement if class members representing a Net Loss of principal
in excess of a certain amount seek exclusion from the Settlement Class. See Stipulation, ¶ 47. In
the event the Settling Defendants elect to terminate the Settlement, but the Net Loss of opt-outs
does not exceed a separate threshold specified in the Supplemental Agreement, the Settling
Defendants shall incur a break-up fee in the amount of $1,000,000 which shall remain in the
Settlement Fund. Id.
Given the legal, factual and collection uncertainties, and the time required to fully litigate
the issues through appeal, the Representative Plaintiffs determined that the substantial and
certain benefit of the Settlement Consideration, including the $50.25 million Settlement Fund
and the $30 million Escrow Fund, significantly outweighed the risks and uncertain rewards of
continuing to litigate the Action. Jt. Decl. ¶¶ 7-18 and 127-31.
The Settlement was preliminarily approved by this Court and notice was disseminated to
Settlement Class Members pursuant to an Order dated November 30, 2012. ECF Nos. 1008, and
1012.
III.
ARGUMENT
A.
The Proposed Partial Settlement Is Fair, Reasonable, and Adequate and
Should be Approved
Under Rule 23(e) of the Federal Rules of Civil Procedure, a class action settlement must
be approved by a court. Courts in the Second Circuit realize the “strong judicial policy in favor
of settlements, particularly in the class action context.” Wal-Mart Stores, Inc. v. Visa U.S.A.
Inc., 396 F.3d 96, 116 (2d Cir. 2005) (internal quotation marks and citation omitted).
A district court’s approval of a settlement is contingent on a finding that the settlement is
“fair, reasonable, and adequate.” Fed. R. Civ. P. 23(e)(2). This entails a review of both
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procedural and substantive fairness. See, e.g., D'Amato v. Deutsche Bank, 236 F.3d 78, 85-86
(2d Cir. 2001). With respect to procedural fairness, a proposed settlement is presumed fair,
reasonable, and adequate if it culminates from “arm’s-length negotiations between experienced,
capable counsel after meaningful discovery.” McReynolds v. Richards-Cantave, 588 F.3d 790,
803 (2d Cir. 2009) (internal quotation marks omitted). The claims here were settled after over
three and one-half years of litigation, including extensive fact discovery. Competent,
experienced counsel appeared on both sides, and settlement was reached only after contentious
negotiations.
In Detroit v. Grinnell Corp. 495 F.2d 448 (2d Cir. 1974), the Court of Appeals held that
the following factors should be considered in evaluating a class action settlement:
(1) the complexity, expense and likely duration of the litigation, (2) the reaction
of the class to the settlement, (3) the stage of the proceedings and the amount of
discovery completed, (4) the risks of establishing liability, (5) the risks of
establishing damages, (6) the risks of maintaining the class action through the
trial, (7) the ability of the defendants to withstand a greater judgment, (8) the
range of reasonableness of the settlement fund in light of the best possible
recovery, [and] (9) the range of reasonableness of the settlement fund to a
possible recovery in light of all the attendant risks of litigation.
Id. at 463 (citations omitted). See also Blessing v. Sirius XM Radio Inc., 11-3696-cv, 2012 WL
6684572, at *1 (2d Cir. Dec. 12, 2012) (citations omitted) (affirming the district court’s finding
of substantive fairness where the settlement stated that defendants would not raise its prices for
five months, but that class members would receive no cash remedy).
This Court recently approved a proposed settlement after finding that settlement terms
were fair, reasonable and adequate, and in the best interest of class members pursuant to the
Grinnell factors. See, e.g., Rubin v. MF Global, Ltd., No. 08 Civ. 2233 (VM) (Nov. 18, 2011).
Here, the Settlement clearly satisfies the Grinnell criteria for approval.
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B.
The Grinnell Factors Support Approval of the Settlement
1.
The Complexity, Expense, and Likely Duration of the Action
This class action is extraordinarily complex. Litigating the claims against the FG
Defendants through completion of merits and expert discovery, summary judgment, trial, posttrial appeals and judgment enforcement proceedings would be protracted and expensive.
First, by its very nature, a class action such as this one involving securities claims, is
complicated. Indeed, courts have acknowledged the ‘“overriding public interest in favor of
settlement’” of class actions because it is ‘“common knowledge that class action suits have a
well deserved reputation as being most complex.’” In re Michael Milken & Assocs. Sec. Litig.,
150 F.R.D. 46, 53 n.6 (S.D.N.Y. 1993) (Pollack, J.) (citing Cotton v. Hinton, 559 F.2d 1326,
1331 (5th Cir. 1977)); For this reason, “[c]lass action suits readily lend themselves to
compromise because of the difficulties of proof, the uncertainties of the outcome, and the typical
length of the litigation.” In re Luxottica Grp. S.p.A. Sec. Litig., 233 F.R.D. 306, 310 (E.D.N.Y.
2006) (Weinstein, J.).
Second, beyond its inherent complexities, this Action posed many challenges particular
to the class’s claims. Lead Counsel are confident in the strength of their case even though this
action presents a number of novel and complex issues, including:
Whether Plaintiffs’ state law claims are barred by the Securities Litigation
Uniform Standards Act of 1995 (“SLUSA”). SLUSA, 15 U.S.C. § 78bb(f)(1)(A), states: “No
covered class action based upon the statutory or common law of any State or subdivision thereof
may be maintained in any State or Federal court by any private party alleging a
misrepresentation or omission of a material fact in connection with the purchase or sale of a
covered security.” 15 U.S.C. § 78bb(f)(5)(E) incorporates the definition of “covered security”
contained in Section 18(b) of the Securities Act, essentially being a security that trades on a
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national U.S. exchange. Many of Plaintiffs’ claims against the FG Defendants are based on state
law, including the fee claims and the surviving claims asserted against defendant Piedrahita.
This Court, in its August 18, 2010 Opinion, held that Plaintiffs’ misrepresentation and
omission claims were not barred by SLUSA: “[t]he allegations in this case present multiple
layers of separation between whatever phantom securities Madoff purported to be purchasing
and the financial interests Plaintiffs actually purchased.” Anwar I, 728 F. Supp. 2d at 398. This
Court added that even if SLUSA applied, it would not bar Plaintiffs’ claims other than common
law fraud and negligent misrepresentation. Id. at 399 n. 7.
While Lead Counsel believe this decision is correct, other courts in this District have
reached contrary conclusions, including in Kingate Management Limited Litigation, 09 Civ.
5386 (DAB), 2011 U.S. Dist. LEXIS 41598 (S.D.N.Y. Mar. 30, 2011), and neither the Second
Circuit, nor the Supreme Court, have definitively ruled on the issue. Indeed, the effect of
SLUSA in a case involving a Ponzi scheme is presently before the Supreme Court. See
Proskauer Rose LLP v. Troice, No. 12-88, 2013 U.S. LEXIS 912, cert. granted, (Jan. 18, 2013).
An adverse decision could limit Plaintiffs’ state law claims against the FG Defendants.
Whether Plaintiffs’ federal securities claims are barred by Morrison v.
National Australia Bank, 130 S. Ct. 1869 (2010). Morrison, held that § 10(b) of the Exchange
Act applies to “only … [1] the purchase or sale of a security listed on an American stock
exchange, and [2] the purchase or sale of any other security in the United States.” This Court, on
the motion to dismiss, found that “a more developed factual record [was] necessary to inform a
proper determination as to whether Plaintiffs’ purchases of the Offshore Funds’ shares occurred
in the United States.” 728 F. Supp. 2d at 405. While Lead Counsel believe that recent discovery
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has confirmed that Morrison does not bar the federal securities claims presented here, the issue
has not yet been decided.7
Whether Plaintiffs’ claims to recover fees paid to the FG Defendants are
direct claims or are derivative claims that belong to the Funds. Plaintiffs asserted two claims
to recover the hundreds of millions of dollars of fees paid to the FG Defendants from the
inception of the Funds – mutual mistake (Count 11) and unjust enrichment (Count 33). This
Court sustained Plaintiffs’ claims as direct rather than derivative (Anwar II, 728 F. Supp. 2d at
400-02), but limited the mutual mistake claims to the domestic funds and dismissed those claims
against all the fee only and certain other defendants. Id. at 420-21. The Court also sustained the
unjust enrichment claim but cautioned that “a claim of unjust enrichment … will be warranted
only if … the evidence reveals that no valid contract governed the relationship between Plaintiffs
and each of these defendants.” Id. at 421. The FG Defendants, in opposing Plaintiffs’ motion
for class certification, reargued that Plaintiffs’ fee claims were derivative rather than direct. See
Class Cert. Opp. at 39-40. This issue has not yet been resolved.
Whether Plaintiffs can sustain holder claims. This Court, in sustaining
Plaintiffs’ fraud, negligent misrepresentation and breach of fiduciary duty claims found that the
Representative Plaintiffs had adequately pleaded that the the FG Defendants’ alleged casued
investors to retain their Fund holdings when they otherwise would have sold if the truth about
Madoff had been disclosed. The Court sustained those holder claims on the motion to dismiss
(Anwar II, 728 F. Supp. 2d at 444), but Plaintiffs recognized the risk of sustaining those claims
through summary judgment and proving those claims at trial.
7
Defendants revived their Morrison argument in opposing Plaintiffs’ motion for class certification,
arguing that Morrison presented individual issues of fact that precluded class certification. That motion is
under submission.
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Issues particular to class certification. Plaintiffs faced complex issues
concerning class certification, which have yet to be decided by the Court. Defendants,
including the FG Defendants, strenuously argued that reliance and many of the substantive
issues (such as Morrison and Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536,
493 N.Y.S.2d 435 (1985)) were individual to each class member and precluded class
certification. Defendants also argued that a large percentage of putative class members resided
in foreign jurisdictions that would not bind absent class members to a class certification
judgment, and that those class members were required to be excluded from the class. The
motion for class certification is sub judice.
Sophistication of the Defendants and their counsel. The FG Defendants are
represented by experienced and capable defense counsel who are expert in defending complex
securities class actions. These firms and the individual attorneys representing the FG Defendants
are among the most respected and accomplished lawyers in the defense bar and were sure to
continue their vigorous and comprehensive defense through the remainder of the case, which
would have added to the complexity and risks of continuing to prosecute Plaintiffs’ claims.
Moreover, defendants Citco and PwC recently requested that Magistrate Judge Maas
extend the merits discovery cut-off to June 30, 2013 to (among other things) accommodate
coordinated depositions of the FG Individual Defendants and other witnesses in a New York
State Supreme Court action prosecuted by a Trustee appointed in the liquidation of Greenwich
Sentry L.P. and Greenwich Sentry Partners, L.P. (the “Domestic Funds”). That request was
granted by Order dated January 30, 2013. ECF No. 1025. Pursuant to the Court’s scheduling
order, subsequent to the completion of merits discovery, Plaintiffs and the Non-Dismissed
Defendants are scheduled to engage in at least four months of expert discovery and thereafter to
brief motions for summary judgment.
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Although the proposed Settlement will greatly simplify prosecution of the Action, even
with the proposed Settlement, this case is not likely to be tried until mid-2014, and Plaintiffs win
a judgment a lengthy appeals process is likely. The Settlement at this juncture avoids
substantial, continued, and uncertain litigation while providing a substantial pecuniary recovery
for the Settlement Class.
2.
The Settlement Class’s Reaction to the Settlement Favors Final
Approval
The reaction of the Settlement Class to the Settlement is a significant factor in considering its
adequacy. See Maley v. Del Global Techs. Corp., 186 F. Supp. 2d 358, 362 (S.D.N.Y. 2002)
(McMahon, J.). Settlement Class Members have until February 15, 2013 to file objections to the
Settlement. All seven Representative Plaintiffs have submitted Declarations attesting to their
belief that the Settlement provides the Settlement Class with a fair, reasonable, and adequate
recovery on the claims against FG Defendants. See Jt. Decl., Exhibits F-L.8
3.
The Stage of the Proceedings and the Amount of Information
Reviewed and Analyzed
In considering this factor, “‘the question is whether the parties had adequate information
about their claims,’ such that their counsel can intelligently evaluate the ‘merits of [p]laintiff’s
claims, the strengths of the defenses asserted by [d]efendants, and the value of [p]laintiffs’
causes of action for purposes of settlement.’” In re IMAX Sec. Litig., 283 F.R.D. 178, 190
(S.D.N.Y. 2012) (alteration in original) (citation omitted).
In the present Action, this standard is overwhelmingly satisfied by the amount of formal
discovery and investigation conducted. The investigation included, among other things, a prediscovery factual investigation in connection with the Consolidated Amended Class Action
8
To date, only one objection has been received. Rather than respond to objections piecemeal, all
objections will be addressed by Lead Counsel after the February 15, 2013 deadline. Lead Counsel
respectfully submit that the concerns raised in that one objection are sufficiently addressed in this
Memorandum.
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Complaint, based on information in the public record and from confidential witnesses as well as
the factual record in the action brought by the Securities Division of the Office of the Secretary
of the Commonwealth of Massachusetts (Jt. Decl., ¶¶ 36-37); a review of the SEC’s Office of
Investigation report entitled “Investigation of Failure of the SEC to Uncover Bernard Madoff’s
Ponzi Scheme” and the exhibits thereto (Jt. Decl., ¶¶ 46 and 50); interviews with the purportedly
independent directors of Fairfield Sentry (Naess and Schmid) (Jt. Decl., ¶¶ 50-51); and an
interview of Gil Berman, who provided analyses to FGG in connection with the BLMIS
implementation of Madoff’s split-strike strategy (Jt. Decl., ¶ 52). Lead Counsel then conducted
exhaustive merits discovery, including a review of over nine million pages of documents and
depositions or interviews of over forty witnesses to date (see Jt. Decl., ¶¶ 75-80).
4.
The Risks of Establishing Liability and Damages
Grinnell holds that, in assessing the fairness, reasonableness, and adequacy of a
Settlement, courts should consider such factors as the “risks of establishing liability” and “the
risks of establishing damages.” 495 F.2d at 463. While Representative Plaintiffs and Lead
Counsel believe that the claims asserted against the FG Defendants have great merit, they also
recognize that there were considerable risks in pursuing the claims that could have led to a
substantially smaller recovery or no recovery at all for the Settlement Class.
Among other things, Andrés Piedrahita, the most highly paid Founder, was dismissed
from the SCAC as a fraud and control-person defendant. See Anwar II, 728 F. Supp. 2d at 409
(Piedrahita’s “passive role is not enough to cross over the threshold into scienter”). Moreover,
Mr. Piedrahita is a Spanish resident who years prior to Madoff’s arrest arranged for funding of
an off-shore trust with a substantial percentage of his net worth and income. It is unrealistic for
Plaintiffs or absent class members to believe that Piedrahita’s ultimate liability is assured or that
the same moneys contributed to the Settlement on behalf of Piedrahita (and the two other
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Founders) would be available on a non-voluntary basis from persons or trustees to satisfy a
judgment after summary judgment, trial and appeals.
All seven Representative Plaintiffs and Plaintiffs’ Lead Counsel, believe that the
Settlement provides the Settlement Class with significant and certain benefits now and eliminates
the risk of no recovery following what would be years of further uncertain litigation, including
disposition of the class certification motion, motions for summary judgment, and if summary
judgment is not granted to defendants, a contested trial and likely appeals.
Although Lead Counsel are confident that they would succeed on all issues (and will
succeed as well in the continued prosecution of their claims against the non-Dismissed
Defendants),Lead Counsel recognized that the FG Defendants had material legal and factual
defenses to this Action, including with respect to the legal issues identified herein at 9-11.
Moreover, on the facts, the FG Defendants vigorously maintained that they did not know
about wrongdoing at BLMIS until it was revealed to the public in December 2008, lost more
than $72 million of their own and family members’ money in the fraud, maintained a full time
professional staff to perform due diligence and risk monitoring, and were among many financial
firms and regulators that were fooled by Madoff, including the Securities and Exchange
Commission. They also point to the efforts to conceal the fraud by Madoff and seven others who
have pleaded guilty to crimes, including creating false trade blotters, trade confirmations and
DTC reports which they were shown, and aspects of Madoff’s activities that were not typical of a
Ponzi scheme, including refusing new investments and redeeming billions of dollars upon
request over many years.
Representative Plaintiffs, in proposing that the Court approve the Settlement as fair,
reasonable and adequate to the Settlement Class, have considered, among other factors,
Plaintiffs’ ability to prevail on the contested factual and legal issues summarized in the Joint
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Declaration (¶¶ 11, 53, 59 and 69) and herein at 9-11.. There was a significant risk that
Plaintiffs’ claims could have been dismissed or limited prior to or at trial, or on appeal from a
jury verdict.
In addition, and importantly, Lead Counsel considered that, by reducing the number of
defendants and defense counsel in the litigation, and the factual and legal issues in dispute, the
Settlement may have a substantial beneficial effect on Plaintiffs’ ability to successfully litigate
the remaining claims against the Non-Dismissed Defendants, who are believed to have
substantial assets that may through settlement or judgment provide significant additional
compensation to the Settlement Class.
5.
The Risk of Maintaining the Action as a Class Action Through Trial
Plaintiffs face uncertainty whether a litigation class will be certified, and if a litigation
class is certified, whether individual issues would remain that will require class member
participation to resolve disputed individual issues. The Settlement avoids any uncertainty with
respect to whether a litigation class may be maintained against the FG Defendants, and the
presence of these risks and uncertainty weighs in favor of the Settlement. See, e.g., In re Marsh
& McLennan Cos., Inc. Sec., No. 04 Civ. 8144, 2009 WL 5178546, at * 6 (S.D.N.Y. Dec. 23,
2009) (“Although Defendants have stipulated to certification of the Class for purposes of the
Settlement, there would have been no such stipulation had Lead Plaintiffs brought this case to
trial.”). See also In re AOL Time Warner, Inc. Sec. & ERISA Litig., MDL Docket No. 1500, 02
cv. 5575 (SWK), 2006 WL 903236, at *12 (S.D.N.Y. Apr. 6, 2006) (finding that risk of
plaintiffs’ not succeeding in certifying class supported approval of settlement), and In re Global
Crossing Sec. & ERISA Litig., 225 F.R.D. 436, 460 (S.D.N.Y. 2004) (same).
175802v5
15
6.
The Amount of the Settlement
The last three substantive factors courts consider are (i) the ability of the defendants to
withstand a greater judgment; (ii) the range of reasonableness of the settlement fund in light of
the best possible recovery; and (iii) litigation risks. Grinnell, 495 F.2d at 463.
Representative Plaintiffs and Lead Counsel carefully considered the risks of continued
litigation, including the likely difficulty of obtaining a significantly larger recovery from the FG
Defendants in light of their depleted finances, continued payment of large legal fees and
expenses, and the substantial potential difficulties in collecting on a judgment. Among other
things, the FG Defendants, as part of the settlement process, provided Plaintiffs’ Lead Counsel
with certified written disclosure about their assets and liabilities. Jt. Decl. ¶¶ 95-97. Plaintiffs
also anticipated great difficulty in reaching substantial assets that had been placed in trusts well
before 2008, primarily by the Founders, even if the Action were successful. No insurance is
available to fund the Settlement. Id. at 97.
Further, in connection with the Settlement, Plaintiffs’ Lead Counsel conducted
informational interviews of the principal FG Individual Defendants on matters relevant to the
Settlement and to Plaintiffs’ continued prosecution of claims against the remaining NonDismissed Defendants. Jt. Decl. ¶¶ 14, 93, and 96. As a result of those interviews, Plaintiffs
satisfied themselves that it was unlikely that a judgment substantially larger that the settlement
could be collected, or that a substantially larger settlement could be negotiated, from the FG
Defendants. See, e.g., In re Am. Bank Note Holographics, 127 F. Supp. 2d 418, 427 (S.D.N.Y.
2001) (finding that the substantially weakened financial condition of defendant, along with the
possibility of filing for bankruptcy protection, favored approval of the settlement agreement);
accord In re EVCI Career Colls. Holding Corp. Sec. Litig., Master File No. 05 CV 10240 (CM),
2007 WL 2230177, at *8 (S.D.N.Y. July 27, 2007). The FG Defendants’ financial limitations
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16
have been exacerbated because many of them have had difficulty obtaining employment since
Madoff’s arrest, which significantly constrained their ability to earn income or preserve assets.
Estimates of the percentage recovery on the potential claims that may be filed vary
depending on a number of factors. The Settlement Class is generally defined as “Beneficial
Owners” of the Funds’ shares or limited partnership interests who incurred a “Net Loss.” Based
on information provided by the Funds in bankruptcy and liquidation proceedings, Plaintiffs
determined that Greenwich Sentry, Greenwich Sentry Partners and Fairfield Sentry had an
aggregate net loss at the fund level of $1.33 billion. However, inasmuch as the loss at the Fund
level consists of both net winners and net losers, Plaintiffs believe that the total amount of net
losses at the investor level exceeds $1.33 billion. The percentage recovery on the claims that
may be filed will depend on (i) the difference between losses at the Fund level (estimated to be
approximately $1.33 billion) compared to losses at the Beneficial Owner level (which are not
known)9, (ii) the number of Settlement Class Members who file claims and the aggregate Net
Loss of those claims, and (iii) the ultimate amount distributed to the Settlement Class from the
$30 million Escrow Fund or the $5 million “most favored nations” provision, if any.
Based on the $1.33 billion reported losses of investments in BLMIS at the Fund level,
Plaintiffs approximate (assuming that claims are filed equal to the aggregate of the Funds’
losses) that Settlement Class Members will receive from the Settlement Fund, before deduction
of Court-awarded attorneys’ fees and expenses, approximately 4% to 6% of the Funds’ Net Loss
of principal, depending on the amount distributed to the Settlement Class from the Escrow Fund,
if any. That percentage recovery could be higher if Settlement Class Members with aggregate
Net Losses below $1.33 billion file claims and could be lower to the extent the aggregate Net
Losses of Settlement Class Members exceed $1.33 billion.
9
The aggregate Net Loss of principal of each possible Settlement Class Member is currently unknown to
Plaintiffs because many of the Funds’ holders of record are nominees and custodians who aggregate
numerous different Beneficial Owners, some of whom have net gains that offset net losses.
175802v5
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In addition to amounts that they would receive under the Settlement, Settlement Class
Members are likely to receive additional cash distributions from liquidation or bankruptcy
proceedings involving the Funds10 (including based on distributions from the BLMIS Trustee to
those Funds) and from the prosecution of non-settled claims against Citco, PwC, and GlobeOp.
In analyzing the reasonableness of the Settlement, the issue for the Court is not whether
the settlement represents the best possible recovery, but how the settlement relates to the
strengths and weaknesses of the case and the recoverability of defendants’ assets. In Grinnell,
the court instructed district courts to “‘consider and weigh the nature of the claim, the possible
defenses, the situation of the parties, and the exercise of business judgment in determining
whether the proposed settlement is reasonable.’” Id. at 462-3 (citation omitted). Courts agree
that the determination of a “reasonable” settlement “is not susceptible of a mathematical
equation yielding a particularized sum.” In re PaineWebber Ltd. P’ships Litig., 171 F.R.D. 104,
130 (S.D.N.Y. 1997) (citation and internal quotation marks omitted). Instead, “in any case there
is a range of reasonableness with respect to a settlement.” Newman v. Stein, 464 F.2d 689, 693
(2d Cir. 1972).
“‘The fact that a proposed settlement may only amount to a fraction of the potential
recovery does not, in and of itself, mean that the proposed settlement is grossly inadequate and
should be disapproved.’” In re Marsh & McLennan Cos. 2009 WL 5178546, at *7, quoting
Grinnell, 495 F.2d at 455 & n. 2 (“In fact there is no reason, at least in theory, why a satisfactory
settlement could not amount to a hundredth or even a thousandth part of a single percent of the
potential recovery.”).
10
Liquidation proceedings involving Sentry, Sigma, and Lambda are pending in the British Virgin
Islands (Claim No. 0074/2009) (Lambda), Claim NO. 0136/2009 (Sentry, (Claim No. 0139/2009
(Sigma)). Bankruptcy proceedings involving Greenwich Sentry and Greenwich Sentry Partners are
pending in the U.S. Bankruptcy Court for the Southern District of New York (Case No. 10-16229 (BRL)).
175802v5
18
C.
THE PLAN OF ALLOCATION IS FAIR, REASONABLE AND
ADEQUATE AND WARRANTS APPROVAL
“‘To warrant approval, the plan of allocation must also meet the standards by which the
… settlement was scrutinized – namely, it must be fair and adequate.’” Maley, 186 F. Supp. 2d
at 367 (citation omitted). “‘When formulated by competent and experienced counsel,’ a plan for
allocation of net settlement proceeds 'need have only a reasonable, rational basis.’” In re IMAX
Sec. Litig., 283 F.R.D. at 192 citing In re Telik Inc. Sec. Litig., 576 F. Supp. 2d 570, 580
(S.D.N.Y. 2008) (quoting In re Global Crossing, 225 F.R.D. at 462). This Court recently
approved a proposed allocation plan put forth by experienced counsel as being fair and
reasonable, and directed the defendant to implement the allocation plan according to the terms of
the stipulation. See Da Silva Ferreira v. EFG Capital Int’l Corp., et al., No.09-cv-00118-VM
(S.D.N.Y. Jun. 1, 2012) (Marrero, J.).
Here, the Plan, contained in the Stipulation and Notice (and discussed in the Joint
Declaration) includes a Net Loss formula, which is intended to equitably apportion the Net
Settlement Fund among Settlement Class Members.
D.
THE COURT SHOULD FINALLY CERTIFY THE SETTLEMENT CLASS
The Court’s Preliminary Approval Order conditionally certified the Settlement Class
pursuant to the Stipulation. Since then, nothing has occurred indicating that the Settlement Class
does not meet the requirements of Rule 23(a) and (b)(3). Accordingly, because this Action
satisfies the relevant provisions of Rule 23, this Court should fully and finally certify the
Settlement Class for settlement purposes.
Specifically, Rule 23(a) imposes four threshold requirements on a putative class action:
numerosity, commonality, typicality, and adequacy of representation. In addition, Rule 23(b)
requires that: (i) common questions must predominate over any questions affecting only
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19
individual members; and (ii) class resolution must be superior to other available methods for the
fair and efficient adjudication of the controversy.
As set forth in detail in Plaintiffs’ opening and reply memoranda in support of class
certification, with supporting Declarations (ECF Nos. 776-84 and 865), and in Plaintiffs’
Memorandum in Support of Preliminary Approval (ECF No. 998), the bases for certification of a
settlement class are clearly present here:11
1.
SettlementClass Members Are Too Numerous To Be Joined
Numerosity is presumed when a class consists of 40 members or more. See Consol. Rail
Corp. v. Town of Hyde Park, 47 F.3d 473, 483 (2d Cir. 1995). Here, there are in excess of 1,000
record owners of shares in the Funds and a larger number of Settlement Class Members are
beneficial owners. The sheer number of potential Settlement Class Members, coupled with their
widely-dispersed locations in the United States and dozens of different countries around the
world, makes joinder impracticable and class treatment appropriate. See, e.g., Zupnick v.
Thompson Parking Partners, No. 89 Civ. 6607 (JSM), 1990 WL 113197, at *3 (S.D.N.Y. Aug.
1, 1990). Thus, the Settling Class is sufficiently numerous that joinder of all members would be
impracticable and accordingly satisfies Rule 23(a)(1). See id.
2.
There Are Common Questions of Law or Fact
Rule 23(a)(2) requires at least one question of law or fact common to the
class. See Cent. States Se. & Sw. Areas Health & Welfare Fund v. Merck-Medco Managed Care,
L.L.C., 504 F.3d 229, 245 (2d Cir. 2007). In this Circuit, “[i]t is not necessary that all of the
questions raised by arguments are identical; it is sufficient if a single common issue is shared by
the class.” Weiss v. La Suisse, Societe D' Assurances Sur La Vie, 226 F.R.D. 446, 449 (S.D.N.Y.
11
The standards for certification of a settlement class are less stringent than for certification of a
litigation class, among other reasons, because manageability of the class action for trial is not at issue.
Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997).
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20
2005). The SCAC identifies numerous common issues of fact and law (SCAC at ¶ 353),
including:
Whether documents, including offering memoranda, annual reports, account
statements, audit reports and other materials disseminated to Plaintiffs, including
information on the FG Defendants’ websites, misrepresented, omitted or were
otherwise misleading with respect to material facts about the Funds.
Whether the FG Defendants acted knowingly, recklessly or negligently in
misrepresenting or omitting material facts about the Funds.
Whether the FG Defendants breached duties owed to the Plaintiffs.
Whether Plaintiffs’ losses would have been prevented had the FG Defendants
fulfilled their respective duties, and acted in accordance with their representations
concerning due diligence.
Whether the Settling Parties shared a mutual mistake that the assets of the Funds
were in fact being invested by BLMIS.
Whether the FG Defendants were unjustly enriched at Plaintiffs’ expense.
Whether a valid contract governed the relationship between Plaintiffs and each of
the FG Defendants.
Because Plaintiffs’ allegations implicate a common course of conduct that caused injury
to all members of the putative Settlement Class, the commonality requirement of Rule 23(a)(2) is
satisfied.
3.
Plaintiffs’ Claims Are Typical of Those of The Settling Class
Rule 23(a)(3) requires the claims of the class representatives be “typical” of the claims of
the class. See Fed. R. Civ. P. 23(a)(3). Typicality is established where “’the claims of the named
plaintiffs arise from the same practice or course of conduct that gives rise to the claims of the
proposed class members.’” In re Vivendi Universal, S.A. Sec. Litig., 242 F.R.D. 76, 85
(S.D.N.Y. 2007) (citation omitted).
The Representative Plaintiffs’ claims are typical of the claims of other Settlement Class
Members because their losses all derive from the same course of the FG Defendants’ conduct.
175802v5
21
Where, as here, “the lead plaintiff alleges a common pattern of wrongdoing and will present the
same evidence, based on the same legal theories, to support its claim as other members of the
proposed class, courts have held the typicality requirement to be satisfied.” Teachers’ Ret. Sys.
of La. v. ACL N. Ltd., No. 01-CV-11814 (LAP), 2004 WL 2997957, at *4 (S.D.N.Y. Dec. 27,
2004). See also In re WorldCom, Inc. Sec. Litig., 219 F.R.D. 287, 280 (S.D.N.Y. 2003) (“‘When
it is alleged that the same unlawful conduct was directed at or affected both the named plaintiff
and the class sought to be represented, the typicality requirement is usually met . . . .’”) (citations
omitted); In re Blech Sec. Litig., 187 F.R.D. 97, 106 (S.D.N.Y. 1999) (typicality satisfied
because “[p]laintiffs’ claims of fraud arise from the same course of conduct” as the rest of the
class); In re NASDAQ Market-Makers Antitrust Litig., 169 F.R.D. 493, 511 (S.D.N.Y. 1996)
(typicality shown where claims “all [arose] from the same price-fixing conspiracy”).
4.
Plaintiffs Will Fairly and Adequately Protect the Interests of
Settlement Class Members
Rule 23 (a)( 4) is satisfied if “the representative parties will fairly and adequately protect
the interests of the class.” Fed. R. Civ. P. 23(a)(4). The Court must measure the adequacy of
representation by two standards: whether (1) the claims of the Plaintiffs conflict with those of the
rest of the class; and whether (2) plaintiffs’ counsel are qualified, experienced, and
generally able to conduct the litigation. See In re Drexel Burnham Lambert Group, Inc., 960
F.2d 285, 291 (2d Cir. 1992).
The Representative Plaintiffs and the Settlement Class share the common objective of
maximizing their recovery, and no conflict exists between Representative Plaintiffs and the
members of the Settlement Class. See Drexel, 960 F.2d at 291; In re Polaroid ERISA Litig., 240
F.R.D. 65, 77 (S.D.N.Y. 2006) (“Where plaintiffs and class members share the common goal of
maximizing recovery, there is no conflict of interest between the class representatives and other
class members”). Plaintiffs’ Lead Counsel (Boies Schiller & Flexner LLP, Wolf Popper LLP,
175802v5
22
and Lovell Stewart Halebian & Jacobson LLP) have extensive experience and expertise in
complex litigation and class actions throughout the United States, and are qualified and able to
conduct this litigation. See Declarations attached as Exhibits B, C, and D to Plaintiffs’
Memorandum of Law in Support of Motion for Consolidation of All Actions and Appointment
of Interim Co-Lead Counsel dated January 27, 2009, ECF No. 22.
Plaintiffs’ Lead Counsel were appointed Interim Co-Lead Counsel for the putative class
on January 27, 2009, and the firms were appointed Lead Counsel for the PSLRA Plaintiffs on
July 7, 2009. In this capacity, Plaintiffs’ Lead Counsel have effectively performed extensive
work as detailed in the Joint Declaration. Therefore, Rule 23(a)(4) is satisfied.
5.
Plaintiffs’ Claims Satisfy Rule 23(b)(3)
In addition to satisfying Rule 23(a), a class action must satisfy the requirement of at least
one of the subdivisions of Rule 23(b); here, the Action satisfies Rule 23(b)(3). Rule 23(b)(3)
authorizes class certification if “the court finds that the questions of law or fact common to class
members predominate over any questions affecting only individual members, and that a class
action is superior to other available methods for fairly and efficiently adjudicating the
controversy.” Fed. R. Civ. P. 23(b)(3). Rule 23(b)(3) is “designed to secure judgments binding
all class members save those who affirmatively elect[] to be excluded,” where a class action will
“achieve economies of time, effort, and expense, and promote . . . . uniformity of decision as to
persons similarly situated, without sacrificing procedural fairness or bringing about other
undesirable results.” Amchem Products, Inc. v. Windsor, 521 U.S. 591, 614-15 (1997) (citations
omitted). Certification of the Settlement Class serves these purposes.
a.
Common Questions Predominate
In cases that involve a single, common scheme, the predominance requirement is met
notwithstanding that there may be questions of individualized reliance. See In re Beacon Assocs.
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23
Litig., 282 F.R.D. 315, 333 (S.D.N.Y. 2012); see also Bresson v. Thomson McKinnon Secs., Inc.,
118 F.R.D. 339, 343 (S.D.N.Y. 1988) (certifying a class in a case involving a Ponzi scheme,
where (as here) defendants included third-party service providers because common issues
predominated in spite of concerns over individualized reliance).
Here, the Settlement Class should be finally certified for purposes of settlement because
the predominance of common question is apparent. With respect to the claims against the FG
Defendants, there are multiple common questions of law or fact that apply to the entire
Settlement Class, i.e., Plaintiffs’ claims of negligence, breach of fiduciary duty, aiding and
abetting breach of fiduciary duty, and unjust enrichment and third-party breach of contract. As
this Court has recognized, “core facts [are] implicated in every cause of action in this lawsuit.”
Anwar II, 728 F. Supp. 2d at 400.
b.
A Class Action Is the Superior Method of Adjudication
Rule 23(b)(3) sets forth non-exhaustive factors to be considered in making a
determination of whether class certification is the superior method of litigation: “(A) the class
members’ interests in individually controlling the prosecution…of separate actions; (B) the
extent and nature of any litigation concerning the controversy already begun by…class members;
(C) the desirability or undesirability of concentrating the litigation of the claims in the particular
forum; and (D) the likely difficulties in managing a class action.” Fed. R. Civ. P. 23(b)(3).
Considering these factors, proceeding by means of a class action is clearly “superior to other
available methods for fairly and efficiently adjudicating” the claims against the FG Defendants.
Id. Specifically, the sheer scope and complexity of this controversy would make individual
litigation difficult for the vast majority of Settlement Class Members.
Because thousands of Settlement Class members reside outside the United States and
unfamiliar with the U.S. court system it makes sense to centralize the litigation here. This Court
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24
has presided over this action for four years and is deeply involved in the legal issues and the
factual circumstances. Moreover, this Court need not consider “the likely difficulties in
managing a class action” because a district court need not consider whether management
difficulties would arise if a case were to be tried when the parties request settlement-only class
certification. Fed. R. Civ. P. 23(b)(3)(D); see Amchem, 521 U.S. at 620 (1997); see also In re
Am. Int’l Group Inc., 689 F.3d 229, 238-39 (2d Cir. 2012).
6.
Plaintiffs’ Counsel Satisfy the Rule 23(g) standards
Rule 23(g) provides that class counsel “must fairly and adequately represent the interests
of the class.” Class counsel must be “qualified, experienced and generally able to conduct the
litigation.” See Drexel, 960 F.2d at 291. Lead Counsel are highly qualified in conducting class
action and complex litigation and have effectively prosecuted this Action, achieving a substantial
benefit for the Settlement Class.
IV.
CONCLUSION
For all of the foregoing reasons, Plaintiffs respectfully request that the Court approve the
Settlement and enter the Final Judgment annexed as Exhibit B to the Stipulation filed November
6, 2012 (ECF No. 996-5), subject to any modifications that may be requested by the Settling
Parties in advance of the hearing before the Court scheduled for March 22, 2013.
Dated: January 31, 2013
Respectfully submitted,
By:
Robert C. Finkel
James A. Harrod
Natalie M. Mackiel
WOLF POPPER LLP
845 Third Avenue
New York, NY 10022
Telephone: 212.759.4600
Facsimile: 212.486.2093
175802v5
/s/ David A. Barrett
David A. Barrett
Howard L. Vickery, II
BOIES, SCHILLER & FLEXNER LLP
575 Lexington Avenue
New York, NY 10022
Telephone: (212) 446-2300
Facsimile: (212) 446-2350
25
Christopher Lovell
Victor E. Stewart
LOVELL STEWART HALEBIAN JACOBSON LLP
61 Broadway, Suite 501
New York, NY 10006
Telephone: 212.608.1900
Stuart H. Singer
Carlos Sires
Sashi Bach Boruchow
BOIES, SCHILLER & FLEXNER LLP
401 East Las Olas Boulevard, #1200
Ft. Lauderdale, Florida 33301
Telephone: (954) 356-0011
Co-Lead Counsel for Plaintiffs and Lead
Counsel for PSLRA Plaintiffs
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