Oklahoma Firefighters Pension and Retirement System v. Neustar, Inc. et al
Filing
54
MEMORANDUM OPINION re: Lead Pltf's Unopposed Motion for Preliminary Approval of Proposed Class Action Settlement. Signed by District Judge James C. Cacheris on 09/23/15. (pmil, )
IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
Alexandria Division
IN RE NEUSTAR, INC. SECURITIES
LITIGATION
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M E M O R A N D U M
1:14cv885 (JCC/TRJ)
O P I N I O N
This matter came before the Court on Lead Plaintiff’s
Unopposed Motion for Preliminary Approval of Proposed Class
Action Settlement.
[Dkt. 47.]
The motion includes unopposed
requests to certify a settlement-only class; preliminarily
approve the terms of settlement; approve the form of class
notice; and appoint a class representative, class counsel, and
claims administrator.
On September 22, 2015, the Court granted
the motion through a written order.
This memorandum opinion
details the Court’s reasoning.
I.
Background
This securities fraud class action concerns the
bidding process to win a lucrative government contract.
The
winning bidder would serve as the next Administrator of the
Local Number Portability Administration Center (“Center”), a
data registry that enables telephone customers to retain their
1
phone numbers when switching service providers.
[Dkt. 23] ¶ 1.)
(Am. Compl.
NeuStar has held the contract to serve as
Administrator since 1997, when the Center was created.
(Id.)
But in 2013, the Federal Communications Commission (“FCC”)
initiated a competitive bidding process for the Administrator
contract, threatening a major source of NeuStar’s revenue.
(Id.)
To facilitate the bidding process, the FCC appointed a
federal advisory committee, the North American Numbering Council
(“Council”), to work with a private-sector entity to review bids
and recommend the next Administrator.
(Id. ¶¶ 3, 44.)
The
bidding procedures, however, did not progress exactly according
to plan.
The FCC extended the submission deadline to allow
NeuStar’s competitor, Telecordia Technologies, to submit a
proposal.
Later, the Council delayed the selection deadline for
four months.
(Id. ¶ 58.)
offers was issued.
Then a request for best and final
(Id. ¶ 60.)
Despite these and other indications that NeuStar might
lose the bidding to serve as Administrator, Defendants allegedly
made public statements between April 18, 2013, and June 6, 2014,
reassuring investors of NeuStar’s confidence in the
competitiveness of its bid.
(Id. ¶¶ 101-49.)
Namely, after the
FCC extended the bid submission deadline, Neustar issued a press
2
release stating “We remain confident in the strength of our
proposal,” (Am. Compl. ¶ 102), followed by a quarterly report
and public statements reaffirming the strength of NeuStar’s
proposal, (Id. ¶¶ 109-11).
A NeuStar executive made similar
comments after the Council decided to delay the selection of the
next Administrator.
(Id. ¶ 117)
Lead Plaintiff alleges that
Defendants continued to make reassuring statements throughout
the class period and failed to adequately disclose indications
NeuStar might lose its lucrative contract.
(Id. ¶¶ 122-49.)
On June 6, 2014, the FCC inadvertently disclosed a
confidential email revealing that the Council had recommended
Telecordia to replace NeuStar as the next Administrator.
¶ 92.)
(Id.
The FCC substantiated this email the following Monday
and began a public notice-and-comment period regarding the
Council’s recommendation.
(Id. ¶¶ 97-98.)
The FCC approved the
recommendation in March 2015 and ordered NeuStar to facilitate
Telecordia’s transition to become the next Administrator.1
In July 2014, Lead Plaintiff’s predecessor filed this
lawsuit, alleging NeuStar executives’ statements or omissions
during the bidding process violated Sections 10(b) and 20(a) of
1
Independent of this action, NeuStar filed a Petition
for Review challenging the FCC’s order and bidding process. See
NeuStar, Inc. v. FCC, No. 15-1080 (D.C. Cir. filed Apr. 6,
2015). The FCC filed a motion to dismiss, which was still
pending as of September 23, 2015.
3
the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b),
78t(a), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5. (Am. Compl.
¶¶ 193-219.)
Pursuant to the Private Securities Litigation
Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4(a)(3)(B), the
Court appointed the Indiana Public Retirement System as Lead
Plaintiff and approved selected counsel.
[Dkt. 11.]
Thereafter, the Court heard arguments on Defendants’ motion to
dismiss.
The Court granted the motion, finding that Defendants’
statements were not actionable under the securities law, there
was no loss causation, and Defendants did not act with the
requisite mental state.
In re NeuStar Sec. Litig., No.
1:14cv885(JCC/TRJ), 2015 WL 364578 (E.D. Va. Jan. 27, 2015).
Lead Plaintiff timely noticed an appeal to the Fourth Circuit,
but the parties reached a settlement before briefing their
arguments.
The Fourth Circuit remanded the case to this Court
to consider the proposed settlement.
Lead Plaintiff now moves unopposed for the preliminary
approval of the proposed settlement, which requires: (1)
certification of a settlement class; (2) preliminary approval of
the terms of settlement; (3) approval of the proposed notice to
class members; and (4) appointment of a Class Representative,
Class Counsel, and Claims Administrator.
4
II.
Legal Standard
Federal Rule of Civil Procedure 23 imposes
requirements for class certification and settlement of a class
action.
Fed. R. Civ. P. 23(a)-(b), (e).
Even before a court
has certified a class, putative class plaintiffs may reach an
agreement of settlement with defendants.
In such cases,
plaintiffs may seek to give effect to this settlement through a
settlement-only class.
See Amchem Prods., Inc. v. Windsor, 521
U.S. 591, 618 (1997) (calling the settlement class a “stock
device”); see also Henderson v. Acxiom Risk Mitigation, Inc.,
No. 3:12cv589-REP, 2015 WL 4608265, at *1 (E.D. Va. Apr. 21,
2015) (approving a settlement class).
The prospect of
settlement often “nullifies a defendant’s incentive in
contesting the propriety of certification.”
Menkes v. Stolt-
Neilson S.A., 270 F.R.D. 80, 88 (D. Conn. 2010).
Despite this
lack of opposition, the court must continue to apply the
“rigorous analysis” Rule 23 requires.
See Gariety v. Grant
Thornton, LLP, 368 F.3d 356, 367 (4th Cir. 2004) (discussing the
“important responsibility conferred on courts by Rule 23”).
In
fact, the requirements of Rule 23 “demand undiluted, even
heightened attention” when evaluating settlement classes because
the court will “lack the opportunity, present when a case is
litigated, to adjust the class, informed by proceedings as they
5
unfold.”
Amchem Prods., Inc., 521 U.S. at 620.
These
principles guide the Court’s analysis of this proposed
settlement agreement.
III. Analysis
A.
Class Certification
A settlement class, like a litigation class, must
satisfy the requirements of Federal Rule of Civil Procedure
23(a).
Under Rule 23(a), plaintiff must prove the threshold
elements of (1) numerosity, (2) commonality, (3) typicality, and
(4) adequacy.
Fed. R. Civ. P. 23(a).
The class must also
qualify as one of the three Rule 23(b) class types.
Plaintiff proceeds as a Rule 23(b)(3) class.
Here, Lead
Thus, plaintiff
must show that common issues of law or fact predominate over any
individual questions and that the class action is the superior
method for adjudicating the controversy.
Id. at 23(b)(3).
The
Court applies the preponderance of the evidence standard to this
Rule 23 analysis.
See In re The Mills Corp. Sec. Litig., 257
F.R.D. 101, 104 (E.D. Va. 2009) (applying preponderance standard
to a Rule 23 inquiry).
The Court first addresses the 23(a) requirements,
followed by the 23(b)(3) analysis.
6
i)
Rule 23(a) Prerequisites
a)
Numerosity
Numerosity exists when the proposed class “is so
numerous that joinder of all members is impracticable.”
Civ. P. 23(a)(1).
Fed. R.
Numerosity is “seldom disputed in securities
fraud cases,” In re BearingPoint, Inc. Sec. Litig., 232 F.R.D.
534, 538 (E.D. Va. 2006), as “a showing that a large number of
shares were outstanding and traded during the relevant period”
would prove that joinder is impractical.
In re NYSE Specialists
Sec. Litig., 260 F.R.D. 55, 70 (S.D.N.Y. 2009).
That standard
is clearly satisfied in this case.
NueStar had around 60 million shares outstanding on
the New York Stock Exchange (“NYSE”) during the proposed class
period.
(Mem. in Supp. at 13.)
At that time, investors traded
hundreds of thousands, if not millions, of these shares daily.
(See Am. Compl. ¶¶ 139, 152 (listing average daily trading
volumes as 838,620 within the year before the end of the class
period).)
The shares outstanding and trading volumes imply that
thousands of putative class members could exist, which far
exceeds the number of plaintiffs a court could practically join.
See, e.g., Dashiell v. Van Ru Credit Corp., 283 F.R.D. 319, 322
(E.D. Va. 2012) (presuming the joinder of 65 individuals to be
impracticable).
7
b)
Commonality
The Court also finds that the second Rule 23(a)
requirement of commonality is met here.
Commonality exists when
“there are questions of law or fact common to the class.”
R. Civ. P. 23(a)(2).
Fed.
This is not a heavy burden in securities
fraud class actions as “[m]embers of a proposed class in a
securities case are especially likely to share common claims and
defenses.”
539.
In re BearingPoint, Inc. Sec. Litig., 232 F.R.D. at
Plaintiffs certifying a class under Rule 23(b) carry a
related, but more demanding, burden of proving that these common
questions of law or fact not only exist, but also “predominate
over any questions affecting only individual members.”
Civ. P. 23(b)(3).
Fed. R.
Because the predominance inquiry is “more
stringent,” that analysis may “subsume[] . . . or supersede[]”
the Rule 23(a)(2) commonality analysis.
Lienhart v. Dryvit
Sys., Inc., 255 F.3d 138, 146 n.4 (4th Cir. 2001) (quoting
Amchem Prods., Inc., 521 U.S. at 609.
The Court, therefore,
reserves its discussion of the common questions of law and fact
in this case to its predominance analysis in part III(A)(ii)(a)
below.
There, the Court finds that common questions of law and
fact predominate over any individual issues.
8
c)
Typicality
The Court finds the third class-certification
requirement met because “the claims or defenses of the
representative parties are typical of the claims or defenses of
the class.”
Fed. R. Civ. P. 23(a)(3).
This typicality
prerequisite requires that the class representative “be part of
the class and possess the same interest and suffer the same
injury as the class members.”
Lienhart, 255 F.3d at 146
(quoting Gen. Tel. Co. of the Sw. v. Falcon, 457 U.S. 147, 156
(1982)).
Typicality ensures that “the class representative’s
interests will be sufficiently aligned with those of the other
class members.”
In re Computer Sci. Corp. Sec. Litig., 288
F.R.D. 112, 117 (E.D. Va. 2012).
Here, the class
representative’s interests are so aligned.
Like all putative class members, the Lead Plaintiff in
this case alleges that it purchased NeuStar common stock during
the class period and was injured by Defendants’ allegedly
fraudulent statements or omissions.
(See Am. Compl. ¶ 184.)
Putative class members and Lead Plaintiff alike would attempt to
prove securities fraud by showing (1) Defendants’ material
misrepresentation or omission; (2) scienter; (3) a connection
between the misrepresentation or omission and the purchase or
sale of a security; (4) reliance; (5) economic loss; and (6)
9
loss causation.
See Halliburton Co. v. Erica P. John Fund,
Inc., 134 S. Ct. 2398, 2407 (2014) (stating elements of Section
10(b) and Rule 10b-5 violation).
Lead Plaintiff would rely on
evidence of Defendants’ public statements or omissions and the
resulting effect on share value, as would all putative class
members.
Although each class member’s claim may vary slightly
based on the date of purchase and sale, “such minor distinctions
will not preclude the propriety of class adjudication.”
Menkes,
270 F.R.D. at 92 (citing In re Flag Telecom Holdings, Ltd. Sec.
Litig., 574 F.3d 29, 37 (2d Cir. 2009)).
Furthermore, Lead
Plaintiff does not face any unique defenses that threaten to
misalign its interests and the class’s interests.
See In re
Computer Sci. Corp. Sec. Litig., 288 F.R.D. at 122 (considering
whether the “class representative is subject to unique defenses
that threaten to become the focus of the litigation”).
Therefore, the Court finds Lead Plaintiff’s claims are typical
of the claims of the class.
d)
Adequacy
Lastly, the Court is satisfied that Lead Plaintiff
will fairly and adequately protect the interests of the proposed
settlement class.
Fed. R. Civ. P. 23(a)(4).
The adequacy
requirement is met when (1) the named plaintiff does not have
interests antagonistic to those of the class; and (2)
10
plaintiff’s attorneys are “qualified, experienced, and generally
able to conduct the litigation.”
In re Serzone Prods. Liab.
Litig., 231 F.R.D. 221, 238 (S.D.W. Va. 2005).
This inquiry
“serves to uncover conflicts of interest between named parties
and the class they seek to represent.”
Amchem Prods., Inc., 521
U.S. at 625.
Lead Plaintiff represents that it “has common
interests” with the proposed settlement class and the Court has
identified nothing that might indicate antagonism with the
class’s interests.
(Mem. in Supp. at 15.)
As mentioned above,
Lead Plaintiff purchased NeuStar common stock during the class
period and alleges a loss in share value, just like all putative
class members would claim.
See Broussard v. Meineke Disc.
Muffler Shops, Inc., 155 F.3d 331, 338 (4th Cir. 1998) (“The
Supreme Court ‘has repeatedly held [that] a class representative
must be part of the class and ‘possess the same interest and
suffer the same injury’ as the class members.’” (quoting E. Tex.
Motor Freight Sys. Inc. v. Rodriquez, 431 U.S. 395, 403
(1977))).
Furthermore, the proposed class members’ claims are
homogenous and nothing indicates the existence of subgroups that
might require the creation of subclasses.
See Amchem Prods.,
Inc., 521 U.S. at 626 (identifying conflicts of interest between
11
prospective class members with current asbestos-related injuries
and those with only exposure to asbestos).
Lead Counsel is also sufficiently qualified and
experienced to fairly represent the interests of the class.
“The inquiry into the adequacy of legal counsel focuses on
whether counsel is competent, dedicated, qualified, and
experienced enough to conduct the litigation and whether there
is an assurance of vigorous prosecution.”
Liab. Litig., 231 F.R.D. at 239.
In re Serzone Prods.
Lead Counsel has an extensive
record of representing plaintiffs in securities class actions,
which indicates counsel’s ability to properly leverage the value
of this case into a fair settlement.
[Dkt. 48-3].)
(See Mem. in Supp. Ex. 2
That record was reaffirmed throughout this case,
wherein Lead Counsel argued vigorously at the motion to dismiss
stage, pursued its case at the appellate level, and engaged
Defendants in settlement mediation.
In light of the foregoing, the Court finds that Lead
Plaintiff has satisfied all of the Rule 23(a) class
certification prerequisites.
ii)
Rule 23(b)(3) Requirements
In addition to meeting the threshold requirements of
Rule 23(a), a plaintiff seeking class certification must prove
the case qualifies as one of the three Rule 23(b) class types.
12
In this case, Lead Plaintiff seeks to qualify as a Rule 23(b)(3)
class,
which requires proof (1) that common questions of law or
fact predominate and (2) that a class action is the superior
method of adjudication.
Fed. R. Civ. P. 23(b)(3).
For the
following reasons, the Court finds Lead Plaintiff has proven
these requirements by a preponderance of the evidence.
a)
Predominance
The first requirement of Rule 23(b)(3) is that
“questions of law or fact common to class members predominate
over any questions affecting only individual members.”
Civ. P. 23(b)(3).
Fed. R.
“The common questions must be dispositive and
over-shadow other issues.”
Lienhart, 255 F.3d at 146.
This
inquiry “tests whether proposed classes are sufficiently
cohesive to warrant adjudication by representation.”
Prods., Inc. 521 U.S. at 623.
Amchem
That standard is certainly met in
this securities fraud class action.
In this case, at least five of the six elements of a
Section 10(b) and Rule 10b-5 violation involve proof common to
the class.
To succeed on the merits, each class member must
prove “(1) a material misrepresentation or omission by the
defendant; (2) scienter; (3) a connection between the
misrepresentation or omission and the purchase or sale of a
security; (4) reliance upon the misrepresentation or omission;
13
(5) economic loss; and (6) loss causation.’”
Erica P. John
Fund, Inc., 134 S. Ct. at 2407 (quoting Amgen Inc., 133 S. Ct.
at 1192).
“[T]he questions of whether Defendants’ statements or
omissions were material, whether they were made in connection
with the purchase or sale of securities, and whether they were
made with scienter, are necessarily common to each class member
given that Defendants’ conduct alone is relevant to their
proof.”
Menkes, 270 F.R.D. at 91.
Additionally, class members
would prove loss causation through common evidence like event
studies, expert testimony, or other evidence demonstrating that
the “misrepresentation or omission was one substantial cause of
the investment’s decline in value.”
Katyle v. Penn Nat. Gaming,
Inc., 637 F.3d 462, 472 (4th Cir. 2011).
Thus, the elements of
materiality, connection to securities, scienter, and loss
causation are quickly identifiable as common questions.
This
leaves only the elements of reliance and plaintiffs’ economic
losses left to assess.
Reliance is also a common question in this case,
although the Court must detour slightly to reach that
conclusion.
In a Section 10(b) and Rule 10b-5 action, reliance
“ensures that there is a proper connection between a defendant’s
misrepresentation and a plaintiff’s injury.”
Ct. at 1192.
Amgen Inc., 133 S.
To prove reliance directly, a putative class
14
member must show “that he was aware of the company’s statement
and engaged in a relevant transaction . . . based on that
specific misrepresentation.”
Id.
This direct proof of reliance
would cause individual class members’ questions of fact to
dominate common questions, thereby preventing certification
under Rule 23(b)(3).
See id. at 1193 (“[T]he requirement that
Rule 10b-5 plaintiffs establish reliance would ordinarily
preclude certification of a class action seeking money damages
because individual reliance issues would overwhelm questions
common to the class.”).
Lead Plaintiff overcomes the direct-
proof problem in this case, however, by demonstrating indirect
reliance through the “fraud-on-the-market” theory.
(See Mem. in
Supp. at 18.)
The fraud-on-the-market theory allows a court to
presume reliance when defendants make public, material
misrepresentations regarding securities traded in an efficient
market.
See Basic Inc. v. Levinson, 485 U.S. 224, 247 (1988)
(recognizing the fraud-on-the-market theory).
This presumption
arises from the premise that an efficient market will
incorporate all public information into the security’s price.
See Amgen Inc., 133 S. Ct. at 1192.
Additionally, “it is
reasonable to presume that most investors . . . will rely on the
security’s market price as an unbiased assessment of the
15
security’s value in light of all public information.”
Id.
Thus, courts may presume that investors indirectly rely on the
defendant’s public, material misrepresentations by trusting the
integrity of the market price.
Id. at 1192–93.
To prove such
indirect reliance at trial, a plaintiff must show “(1) that the
alleged misrepresentations were publicly known, (2) that they
were material, (3) that the stock traded in an efficient market,
and (4) that the plaintiff traded the stock between the time the
misrepresentations were made and when the truth was revealed.”
Halliburton Co., 485 U.S. at 248.
At the class certification
stage, however, no proof of materiality is required.2
Amgen
Inc., 133 S. Ct. at 1196 (“[P]roof of materiality is not
2
This Court’s finding of lack of materiality at the
motion-to-dismiss stage does not preclude the fraud-on-themarket theory at class certification.
Regardless of the merits
of the materiality inquiry, proving materiality remains a common
question. See Amgen, Inc., 133 S. Ct. at 1196. (“Connecticut
Retirement’s failure to present sufficient evidence of
materiality to defeat a summary-judgment motion or to prevail at
trial would not cause individual reliance questions to overwhelm
the questions common to the class.”) Materiality remains a
common issue because it is an objective concept, requiring the
court to consider how a reasonable investor would interpret a
public statement. Id. This can be shown through “evidence
common to the class.” Id. Furthermore, a failure of proof of
materiality would not convert reliance into an individual
question. Instead, the entire lawsuit would terminate for all
class members, exactly as occurred in this case below. See id.
(“A failure of proof on the common question of materiality ends
the litigation and thus will never cause individual questions of
reliance or anything else to overwhelm questions common to the
class.”).
16
required to established that a proposed class is ‘sufficiently
cohesive to warrant adjudication by representation’—the focus of
the predominance inquiry under Rule 23(b)(3).”).
For the
following reasons, the Court finds the fraud-on-the-market
theory makes reliance a common question in this case.
First, NeuStar’s common stock is traded on an
efficient market.
To assess market efficiency, courts consider
“whether the security is actively traded, the volume of trades,
and the extent to which it is followed by market professionals,”
among other factors.
Gariety v. Grant Thornton, LLP, 368 F.3d
356, 368 (4th Cir. 2004).
NeuStar’s common stock trades on the
NYSE, which “is not itself necessarily dispositive, but
certainly weighs in favor of finding that the stock is traded in
the sort of ‘impersonal, well developed market for securities’
that the Supreme Court envisioned when it adopted the fraud-onthe-market theory.”
In re Computer Sci. Corp. Sec. Litig., 288
F.R.D. 112, 119 (E.D. Va. 2012).
Additionally, NeuStar had
around 60 million shares outstanding during the class period.
(See Am. Compl. ¶ 182.)
Furthermore, average daily trading
volume during the Class Period exceeded 1% of outstanding
shares.
See NeuStar Inc. Cl A, MarketWatch,
http://www.marketwatch.com/investing/stock/nsr (last visited
Aug. 31, 2015).
Trading volume of this magnitude on a prominent
17
national exchange like the NYSE is sufficient to justify a
strong presumption of market efficiency.
See In re Comp.
Sciences Corp. Sec. Litig., 288 F.R.D. at 119 (finding efficient
market with 155 million shares outstanding on NYSE and weekly
trading volume exceeding 4%).
Second, Defendants made their alleged
misrepresentations publicly.
The misrepresentations that Lead
Plaintiff identifies in its complaint were made in press
releases, security analyst conference calls, and SEC filings.
These statements were sufficiently public to have been
incorporated into NeuStar’s stock price.
See In re Red Hat,
Inc. Sec. Litig., 261 F.R.D. 83, 91 (E.D.N.C. 2009) (summarily
finding statements made “via SEC filings, press releases,
analyst conferences calls, and an interview” to be public).
Finally, the class is limited to investors who
purchased stock after Defendants’ alleged misstatements, but
before the FCC inadvertently revealed that NeuStar would not
likely win the Administrator contract.
(See Proposed Order
[Dkt. 48-2] ¶ 1(e) (defining class period).)
Viewed together,
the foregoing factors lead the Court to find, for purposes of
class certification only, that the fraud-on-the-market theory
makes reliance a common question here.
Therefore, this case
presents common questions regarding materiality, scienter,
18
connection with the sale or purchase of securities, loss
causation, and reliance.
The only remaining element in the Section 10(b) and
Rule 10b-5 claim is each plaintiff’s economic loss.
Although
economic losses must be proven individually, the proof required
is not overly burdensome.
Each plaintiff could show his or her
losses through evidence of purchase and sale dates.
This
minimal showing would not predominate the common questions.
See
Menkes, 270 F.R.D. at 92 (finding that variances in “dates of
purchase and sale . . . will not preclude the propriety of class
adjudication”).
Similarly, the Section 20(a) claims against individual
defendants present predominantly common questions.
Section
20(a), in short, imposes liability on a person who controls
someone who violates the securities laws.
15 U.S.C. § 78t(a).
To show a violation of Section 20(a), each putative class member
must prove a violation of Section 10(b), the Defendants’ direct
or indirect control over the violator, and rebut any affirmative
defense of good faith.
See In re Cable & Wireless, PLC, Sec.
Litig., 321 F. Supp. 2d 749, 760 (E.D. Va. 2004) (stating
elements of Section 20(a)).
Thus, “each class member’s control
person claim should be identical given that Defendants’ conduct
alone is relevant to satisfying the applicable standard, and
19
given that each class member’s claim arises from the same
statements made by Defendants.”
Menkes, 270 F.R.D. at 91.
Therefore, common questions predominate over this
federal securities fraud case, satisfying the first requirement
for certifying a Rule 23(b)(3) class.
b)
Superiority
Turning to the second, and last, element of the Rule
23(b)(3) inquiry, the Court finds class action to be the
superior method of settling this case.
Superiority exists when
“a class action is superior to other available methods for
fairly and efficiently adjudicating the controversy.”
Civ. P. 23(b)(3).
Fed. R.
Rule 23(b)(3) directs a court to consider
four factors in its superiority analysis:
[T]he
class
members’
interest
in
individually controlling the prosecution or
defense of separate actions; the extent and
nature of any litigation concerning the
controversy already begun by or against
class
members;
the
desirability
or
undesirability
of
concentrating
the
litigation of claims in the particular
forum;
and
the
likely
difficulties
in
managing the class action.
Droste v. Vert Capital Corp., No. 3:14-cv-467, 2015 WL 1526432,
at *8 (E.D. Va. Apr. 2, 2015) (quoting Fed. R. Civ. P.
23(b)(3)(A)–(D)).
In settlement classes, however, courts need
not consider the last factor, “whether the case, if tried, would
20
present intractable management problems, for the proposal is
that there will be no trial.”
Amchem Prods., 521 U.S. at 593.
Looking to class members’ potential interest in
initiating separate actions, the Court finds such suits unlikely
due to the size of probable recovery and expense of individual
litigation.
See In re Kirschner Med. Corp. Sec. Litig., 139
F.R.D. 74, 81 (D. Md. 1991) (“[A] class action is the most
efficient means of litigating a securities fraud suit where the
class consists of numerous investors, many of whom in all
likelihood have individual claims too small to warrant an
individual suit.” (internal quotation omitted)).
NeuStar’s
common stock price dropped $18.14 over the entire class period
and fell $32.08 from its peak during that time.
151-52.)
(Am. Compl. ¶¶
Although this loss in value is not insignificant,
individual class members would need to have purchased a large
number of shares for their potential recovery through litigation
to justify the expense of proceeding alone.
Furthermore, the
drop in share price is likely more than each class member could
expect to recover per share.
Proving damages requires evidence
of a decrease in value and that Defendants’ statements were a
“substantial cause of the investment’s decline.”
Katyle, 637
F.3d at 472 (quoting In re Mutual Funds Inv. Litig., 566 F.3d
111, 128 (4th Cir. 2009)).
This small likelihood of recovery
21
would also reduce an individual plaintiff’s leverage in
settlement negotiations.
Therefore, interest in initiating
individual suits is likely low.
The second Rule 23(b)(3) factor addresses whether
class members have already begun other litigation.
P. 23(b)(3)(C).
Fed. R. Civ.
Lead Plaintiff “is not aware of other pending
individual litigation in the United States that tracks the
allegations set forth in the Complaint other than those
purported class actions already consolidated within this
action.”
(Mem. in Supp. at 19.)
Additionally, NeuStar did not
identify any other litigation pending against it in its most
recent SEC filing on June 30, 2015.
See NeuStar, Inc.,
Quarterly Report (Form 10-Q) (July 30, 2015), available at
http://www.sec.gov/Archives/edgar/data/1265888/00012658881500004
0/nsr-2015630x10q.htm#s06832911617B556C87D8BE016BB6AA73.
The
absence of independent actions weighs in favor of certifying a
settlement class here.
The Court turns now to the last Rule 23(b)(3) factor,
the propriety of consolidating all claims in this particular
forum.
Fed. R. Civ. P. 23(b)(3)(C).
This Court is apprised of
the facts and procedure of the case, such that it would promote
judicial economy to resolve this case as a class with this
Court, rather than require individual plaintiffs to file
22
separate actions elsewhere.
Furthermore, a class action
presents plaintiffs the greatest leverage for settlement when
compared to individual litigation in courts that may render
inconsistent rulings.
See EQT Prod. Co. v. Adair, 764 F.3d 347,
371 (4th Cir. 2014) (noting concerns of judicial economy and
avoidance of inconsistent judgments as factors “relevant to the
superiority analysis”).
In conclusion, Lead Plaintiff has sufficiently proven
the prerequisites for certification under Rule 23(a) and that
this case qualifies as a Rule 23(b)(3) class.
Therefore, this
Court certifies the Settlement Class defined in the accompanying
order.
B.
Proposed Settlement Agreement
Before parties may settle a class action, a court must
approve the settlement.
Fed. R. Civ. P. 23(e).
Final approval
of the settlement requires a hearing to determine whether the
agreement is “fair, reasonable, and adequate.”
Id. at 23(e)(2).
This standard includes an assessment of both the procedural
fairness of the settlement negotiations and the substantive
adequacy of the settlement itself.
See In re Am. Capital
S’holder Derivative Litig., No. 11-2424 PJM, 2013 WL 3322294, at
*3 (D. Md. June 28, 2013) (identifying procedural and
substantive prongs of settlement analysis).
23
The procedural
fairness inquiry protects against “the danger of
counsel . . . compromising a suit for an inadequate amount for
the sake of insuring a fee.”
Id.
The substantive adequacy
inquiry, by contrast, “weigh[s] the likelihood of the
plaintiff’s recovery on the merits against the amount offered in
the settlement.”
Id. (internal quotations omitted).
Together,
these requirements serve to protect “class members whose rights
may not have been given adequate consideration during the
settlement negotiations.”
In re Jiffy Lube Sec. Litig., 927
F.2d 155, 158 (4th Cir. 1991).
Before a court conducts its final fairness hearing, it
may apply the same principles at a preliminary fairness hearing.
During the preliminary review, a court evaluates whether there
is a “basic showing” that the proposed settlement “is within the
range of possible approval.”
In re Am. Capital S’holder
Derivative Litig., 2013 WL 3322294, at *3.
In other words, the
court considers whether there is “‘probable cause’ to submit the
proposal to members of the class and to hold a full-scale
hearing on its fairness.”
Id.
(quoting Manual for Complex
Litigation § 1.46 (5th ed. 1982)).
Lead Plaintiff’s memorandum in support of its motion
and counsel’s responses at the preliminary hearing satisfy the
Court that the proposed settlement agreement is within the range
24
of approval required by Federal Rule of Civil Procedure 23(e).
i)
Fairness
Four factors from In re Jiffy Lube Securities
Litigation, 927 F.2d 155 (4th Cir. 1991), guide the Court’s
analysis of whether the settlement was reached through goodfaith bargaining at arm’s length.
Those factors are “(1) the
posture of the case at the time settlement was proposed, (2) the
extent of discovery that had been conducted, (3) the
circumstances surrounding the negotiations, and (4) the
experience of counsel in the area of securities class actions
litigation.”
Id. at 159; see also In re Am. Capital S’holder
Derivative Litig., 2013 WL 3322294, at *4 (looking to nearly
identical factors at the preliminary hearing stage).
Looking to the first factor, the Court considers
whether the case has progressed far enough to dispel any
wariness of “possible collusion among the settling parties.”
In
re The Mills Corp. Sec. Litig., 265 F.R.D. 246, 254 (E.D. Va.
2009) (quoting In re Jiffy Lube Sec. Litig., 927 F.2d at 159).
Since the initial complaint was filed, Lead Plaintiff has filed
an amended complaint, argued at the motion to dismiss stage,
noticed an appeal, and engaged Defendants in settlement
mediation.
These adversarial encounters dispel any apprehension
of collusion between the parties.
25
The Court turns next to the second Jiffy Lube factor,
the extent of discovery.
This factor permits the Court to
ensure that all parties “appreciate the full landscape of their
case when agreeing to enter into the Settlement.”
Mills Corp. Sec. Litig., 265 F.R.D. at 254.
In re The
The Fourth Circuit
has “held that a reasonable judgment of the possible merits of
the case is best achieved when all discovery has been completed
and the case is ready for trial.”
927 F.2d at 159.
In re Jiffy Lube Sec. Litig,
Although this case never reached fact or class
discovery proceedings, Lead Counsel represents that it has a
“thorough understanding of the strengths and weaknesses of its
claims against Defendants after almost two years of
investigation and litigation.”
(Mem. in Supp. at 7.)
At the
preliminary fairness hearing, Lead Plaintiff’s counsel
represented that it had conducted in-depth reviews of publicly
available information, conducted market efficiency and loss
causation analysis, and received detailed damages analysis from
an expert.
This informal discovery satisfies the Court that the
parties sufficiently understood the nature of their positions.
See In re Jiffy Lube Sec. Litig, 927 F.2d at 159 (noting the
district court’s reliance on “plaintiffs’ informal discovery”
when approving a settlement).
26
The Court also finds that the settlement negotiations
satisfied the third Jiffy Lube factor.
Parties reached this
proposed settlement after one day of mediation before a Judicial
Arbitration and Mediation Services neutral.
Parties exchanged
“comprehensive mediation statements and supporting evidence,
including information and analyses from experts.” (Mem. in Supp.
at 7.)
These features indicate an arm’s length negotiation.
See In re Jiffy Lube Sec. Litig, 927 F.2d at 159.
Lastly, the Court is satisfied that Lead Plaintiff’s
legal counsel are sufficiently experienced in this field of law
to adequately represent the interests of class members.
Counsel
may be evaluated by their “affiliat[ion] with well-regarded law
firms with strong experience” in the relevant field.
In re Am.
Capital S’holder Derivative Litig., 2013 WL 3322294, at *4.
Counsel in this case are affiliated with national law firms
recognized for their experience in securities litigation and
class representation.
They have proffered that “the Settlement
is fair and in the best interest of the Settlement Class.”
(Mem. in Supp. at 8.)
In light of counsel’s experience and
familiarity with this case, the Court finds these
representations persuasive.
See In re The Mills Corp. Sec.
Litig., 265 F.R.D. at 256 (“[W]hen Class Counsel are nationally
recognized members of the securities litigation bar, it is
27
entirely warranted for this Court to pay heed to their judgment
in approving, negotiating, and entering into a putative
settlement.”
(internal quotation omitted)).
Taken together, these factors indicate that the
proposed settlement agreement is the product of a fair process
of adversarial litigation and negotiation.
ii)
Adequacy
The Court is also satisfied with the adequacy of the
terms of the proposed settlement agreement.
The adequacy
analysis “weigh[s] the likelihood of the plaintiff’s recovery on
the merits against the amount offered in settlement.”
In re Am.
Capital S’holder Derivative Litig., 2013 WL 3322294, at *3.
factors to consider include:
(1) the relative strength of the plaintiffs’
case on the merits, (2) the existence of any
difficulties of proof or strong defenses the
plaintiffs are likely to encounter if the
case goes to trial, (3) the anticipated
duration
and
expense
of
additional
litigation,
(4)
the
solvency
of
the
defendants and the likelihood of recovery on
a litigated judgment, and (5) the degree of
opposition to the settlement.
In re Jiffy Lube Sec. Litig, 927 F.2d at 159.
In this case, the above factors weigh in favor of
finding the proposed settlement adequate.
On the one side,
plaintiffs are not likely to recover if this case does not
settle.
The Court dismissed this case in January 2015, thus
28
The
indicating the weakness of Lead Plaintiff’s claims and the
obstacles of proof it faces moving forward on appeal.
The Court
found many deficiencies in Lead Plaintiff’s case, including
failure to show loss causation, lack of scienter, absence of
actionable statements, and application of the bespeaks caution
doctrine.
See In re NeuStar Sec. Litig., No.
1:14cv885(JCC/TRJ), 2015 WL 364578, at *5-12 (E.D. Va. Jan. 27,
2015).
Any one of these deficiencies would have been sufficient
for the Court to dismiss the complaint.
Furthermore, any
recovery would be offset by substantial litigation costs.
If
this case is not settled, parties must prepare appellate briefs
and argue the merits before the Fourth Circuit.
If plaintiffs
succeed on appeal, the case must proceed to the costly
procedures of class certification, discovery, summary judgment,
and trial before any putative class members may recover.
In light of the low likelihood of plaintiff’s recovery
through trial, the $2,625,000 benefit from settlement weighs
heavily on the side of finding the agreement adequate.
This
remains true despite the attorney’s fees that will be deducted
from this settlement amount.
The court is not currently aware
of any putative class member objections to the sufficiency of
this settlement.
Therefore, the Court finds that the proposed
settlement is sufficiently adequate.
29
In conclusion, the Court is satisfied that the
proposed agreement is both fair and adequate enough for notice
of settlement to issue.
The Court will make a final fairness
determination after the final fairness hearing.
C.
Notice Requirements
Lead Plaintiff also seeks approval of its proposed
method of notifying class members of the settlement. (Mem. in
Supp. at 1-2, 10-11.)
The Court finds the proposed notice
satisfies Federal Rule of Civil Procedure 23(c)(2), the United
States Constitution, and the PSLRA, 15 U.S.C. § 78u-4(a)(7).
These authorities impose requirements on both the method and
substance of notice, which the Court considers in turn.
The method of notice to a Rule 23(b)(3) class must be
“the best notice that is practicable under the circumstances,
including individual notice to all members who can be identified
through reasonable effort.”
Fed. R. Civ. P. 23(c)(2)(B).
Additionally, settlement of a class requires the court to
“direct notice in a reasonable manner to all class members who
would be bound by the proposal.”
Id. at 23(e)(1).
When
certification and settlement occur simultaneously, as here, one
notice may satisfy both requirements.
See Menkes, 270 F.R.D. at
105 (“[I]n the simultaneous certification and settlement
context, as here, a single notice suffices if it constitutes the
30
best notice that is practicable under the circumstances in
accordance with Rule 23(c)(2)(B).”).
Use of the best notice
practicable under the circumstances ensures due process for
class members.
See Eisen v. Carlisle & Jacquelin, 417 U.S. 156,
173 (1974)(reviewing language and intent of Rule 23(c)(2)).
Lead Plaintiff’s proposed method of notice satisfies this
standard.
Lead Plaintiff proposes to send notice by first-class
mail to all potential class members reasonably identifiable from
NeuStar’s electronically searchable transfer records.
Supp. Ex. 1 at 48.)
(Mem. in
An experienced claims administrator will
also strive to contact class members through nominee purchasers,
such as brokerage firms.
(Id. at 49.)
Additionally, Lead
Counsel proposes to cause Summary Notice to be published in
Investor’s Business Daily and transmitted over PR Business
Newswire within 14 calendar days of the Court’s preliminary
approval of settlement and class certification.
(Id.)
The
Court finds this proposed method of notice to be adequate.
See
Menkes, 270 F.R.D. at 106 (approving substantially similar
methods of notice).
Of course, a sufficient method of notice is not
enough.
The content of the notice must also be adequate to
inform class members of the case and their rights.
31
To that end,
Federal Rule of Civil Procedure 23(c)(2)(B) and the PSLRA impose
specific notice content requirements.
Under Rule 23(c)(2)(B),
notice must state the following in clear, concise, and easily
understood language:
(i) the nature of the action; (ii) the
definition of the class certified; (iii) the
class claims, issues, or defenses; (iv) that
a class member may enter an appearance
through an attorney if the member so
desires; (v) that the court will exclude
from the class any member who requests
exclusion; (vi) the time and manner for
requesting exclusion; and (vii) the binding
effect of a class judgment on class members.
Fed. R. Civ. P. 23(c)(2)(B).
Furthermore, the PSLRA requires
(i) a statement of plaintiff recovery; (ii) a statement of
potential outcome of the case; (iii) a statement of attorneys’
fees and costs sought; (iv) identification of lawyers’
representatives; (v) reasons for settlement; (vi) other
information the court requires; and (vii) a cover page
summarizing that information.
15 U.S.C. § 78u-4(a)(7).
Lead Plaintiff’s detailed proposed notice satisfies
these requirements.
Thus, the Court approves the proposed form
of notice.
D.
Appointment of Class Representative, Class Counsel,
and Claims Administrator
Lead Plaintiff also seeks to be appointed as Class
Representative and to have Lead Counsel appointed as Class
32
Counsel.
Defendants consent to this appointment.
The parties
propose A.B. Data, Ltd. (“A.B. Data”) as Claims Administrator.
(Mem. in Supp. at 11.)
A Class Representative must be both adequate and
typical of the class.
Fed. R. Civ. P. 23(a)(3)-(4).
The Court
addressed these criteria in its discussion of the prerequisites
for class certification.
Consistent with those findings, the
Court appoints Lead Plaintiff Indiana Public Retirement System
as Class Representative.
The Court must also appoint class counsel when
certifying a class.
Fed. R. Civ. P. 23(g)(1).
This appointment
is based on (1) counsel’s work identifying and investigating
claims in this action; (2) counsel’s experience handling this
type of case; (3) counsel’s knowledge of the applicable law; and
(4) the resources counsel will commit to its representation.
Id. at 23(g)(1)(A).
Additionally, class counsel must “fairly
and adequately represent the interests of the class.”
Id. at
23(g)(4).
For the reasons elaborated in subsection III.(A)(i)(d)
above, the Court finds Lead Counsel Labaton Sucharow LLP
satisfies the requirements of Rule 23(g)(1)(A) and 23(g)(4).
Therefore, the Court appoints Labaton Sucharow LLP as Class
Counsel.
33
Lastly, A.B. Data has submitted a detailed summary of
its experience administering claims in complex class actions.
(See Ex. 3 [Dkt. 48-4].)
Furthermore, Lead Plaintiff described
how A.B. Data will notify class members of their rights and
obligations and the Court approved that notice.
Accordingly,
the Court appoints A.B. Data as Claims Administrator.
IV.
Conclusion
For the foregoing reasons, the Court grants Lead
Plaintiff’s Unopposed Motion for Preliminary Approval of
Proposed Class Action Settlement.
An appropriate order issued
on September 22, 2015.
September 23, 2015
Alexandria, Virginia
/s/
James C. Cacheris
UNITED STATES DISTRICT COURT JUDGE
34
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