Sanchez et al v. Crocs, Inc. et al, No. 1:2007cv02351 - Document 221 (D. Colo. 2014)
Court Description: ORDER granting 206 Motion for Final Approval of Proposed Partial Class Settlement, Plan of Allocation, and Final Certification of Settlement Class. The Court will issue a separate order setting forth the terms of the final judgment and partial dismissal with prejudice by Judge Philip A. Brimmer on 09/18/14.(jhawk, )
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Sanchez et al v. Crocs, Inc. et al Doc. 221 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Judge Philip A. Brimmer Civil Action No. 07-cv-02351-PAB-KLM (Consolidated with 07-cv-02412; 07-cv-02454; 07-cv-02465; and 07-cv-02469) In re Crocs, Inc. Securities Litigation ORDER This matter is before the Court on the Motion for Final Approval of the Proposed Partial Settlement, Plan of Allocation, and Final Certification of Settlement Class [Docket No. 206] filed by Plaintiffs.1 This Court has subject matter jurisdiction pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78aa et seq., and 28 U.S.C. § 1331. I. BACKGROUND A. Procedural History On or after November 8, 2007, five purported class actions were filed in this District alleging that Crocs, Inc., four of its executive officers, two members of its senior management, four members of its board of directors (collectively “Crocs” or the “Settling Defendants”), and Crocs’ auditor and principal accounting firm, Deloitte & Touche, LLP (“Deloitte”), violated the Exchange Act and rules promulgated by the Securities and Exchange Commission (“SEC”), 17 C.F.R. § 240.10b-1 et seq. See Dhingra v. Crocs, Inc., No. 07-cv-2351-REB; Muller v. Crocs, Inc., No. 07-cv-02412-MSK; Swanson v. 1 Terms used in this order have the meaning set forth in the parties’ Stipulation and Agreement of Partial Class Settlement [Docket No. 194] unless otherwise indicated. Dockets.Justia.com Crocs, Inc., No. 07-cv-02454-EWN; Hutchinson v. Crocs, Inc., No. 07-cv-02465-WYD; and Stewart v. Crocs, Inc., No. 07-cv-02469-DME. On December 19, 2007, the Court consolidated the five actions into the present case. Docket No. 9. On September 17, 2008, the Court appointed Antonio Ped rera Sanchez and Fernando Pedrera Sanchez (the “Sanchez Group”) as Lead Plaintiff.2 See Docket No. 67. After its appointment as Lead Plaintiff, on December 31, 2008, the Sanchez Group filed a consolidated class action complaint [Docket No. 87] on behalf of a putative class comprised of individuals who purchased Crocs securities between April 2, 2007 and April 14, 2008, inclusive. Docket No. 87 at 1. The amended complaint added Harvey Babbitt and Daniel J. Lundberg as named plaintiffs in the putative class action. Id. In the amended complaint, plaintiffs alleged that Crocs made materially false and misleading public statements about its inventory and the systems Crocs used to manage its inventory, which led to plaintiffs’ damages as the price of Crocs’ securities decreased once Crocs made corrective disclosures. See, e.g., Docket No. 87 at 36123, ¶¶ 113-169. On March 19, 2009, Crocs and Deloitte filed motions to dismiss. Docket Nos. 103, 107, 108. On February 28, 2011, the Court dismissed the consolidated complaint with prejudice for failure to state a claim upon which relief may be granted. Docket No. 167. On March 18, 2011, plaintiffs appealed the Court’s order dismissing the case. 2 The Court appointed the Sanchez Group as Lead Plaintiff because it had the “largest financial interest in the litigation.” Docket No. 67 at 6. The Court rejected arguments raised by the other plaintiffs challenging the Sanchez Group’s ability to represent the putative class because it found that contracts for difference (“CFDs”) qualify as securities under the Exchange Act and, therefore, the Sanchez Group was not an atypical plaintiff and was not subject to unique defenses. Id. at 6-9. 2 Docket No. 169.3 The parties completed appellate briefing on December 29, 2011. B. Settlement Negotiations Beginning on April 27, 2011, Plaintiffs and the Settling Defendants engaged in settlement negotiations. Docket No. 208 at 25. W hile the case was on appeal, the parties’ negotiations were conducted with the assistance of Kyle Ann Schultz, the Tenth Circuit Mediator. In addition, the parties engaged in mediation before retired United States District Judge Layn R. Phillips, who has extensive experience mediating complex cases. Id. at 26. During mediation, Lead Plain ex securities litigation, especially when the prospect is some recovery versus no recovery. See Strougo v. Bassini, 258 F. Supp. 2d 254, 258 (S.D.N.Y. 2003) (noting that it is “beyond cavil that continued litigation in this multi-district securities class action would be complex, lengthy, and expensive, with no guarantee of recovery by the class members.” (quotation marks omitted)). Accordingly, the Court finds this factor weighs in favor of approving the Settlement Agreement. With regard to the fourth factor, it is evident that the Settling Parties believe that the Settlement Agreement is fair and reasonable. The plaintiffs in this case are represented by experienced counsel who have extensive experience in litigating such matters. Moreover, the settlement was the result of arm’s length negotiations and was reached with the aid of experienced mediators. The reaction of the class members further supports the conclusion that the Settlement Agreement is fair. See In re Mego Financial Corp. Sec. Litig., 213 F.3d 454, 459 (9th Cir. 2000). Out of the approximately 300,000 notices sent to potential class members, only 13 putative class members opted out or expressed an intent to do so. Docket No. 213 at 5; Docket No. 211. After preliminary certification of the Settlement Class, only National Roofing and Mr. Encinosa objected, but neither objector attempted to explain why the proposed settlement was unfair under the Rule 23 factors. Based 32 upon the foregoing factors, the Court concludes that the settlement is fair, reasonable, and adequate. V. PLAN OF ALLOCATION “‘Approval of a plan of allocation of a settlement fund in a class action is governed by the same standards of review applicable to the approval of the settlement as a whole: the distribution plan must be fair, reasonable and adequate.’” Law v. Nat’l Collegiate Athletic Ass’n, 108 F. Supp. 2d 1193, 1196 (D. Kan. 2000) (q uoting In re Ikon Office Solutions, Inc., 194 F.R.D. 166, 183-84 (E.D. Pa. 2000) (internal quotation marks omitted). “As a general rule, a plan of allocation that reimburses class members based on the type and extent of their injuries is reasonable.” Id. The Plan of Allocation is fully set forth in the Notice. Plaintiffs contend that the division of proceeds is “based upon the formula that results in Plaintiffs’ best possible damages assuming success on the merits for all claims of the Settlement Class Members at the various different junctures during the Settlement Class Period.” Docket No. 208 at 42-43. As noted above, the estimated average recovery will be approximately $0.13 per share of Crocs’ common stock before deduction of Court-approved fees and expenses. Docket No. 194-2 at 2. After the deduction of fees and expenses, the Settlement Fund will be allocated pro rata among the Settlement Class based on the following factors: (1) the date class members purchased securities; (2) the type of security purchased; (3) the first-in first-out (“FIFO”) method of recognized loss; and (4) the Recognized Claim formula. Docket No. 194-2 at 11-16. The Recognized Claim formula helps to determine the basis upon which the Settlement 33 Fund will be proportionally allocated and is based on consultation with plaintiffs’ experts, the relative strengths and weaknesses of the Settlement Class claims, and the impact of the alleged misconduct by the Settling Defendants on the price of Crocs’ securities at various times during the Settlement Class Period. Docket No. 208 at 70. The Plan of Allocation indicates that, after the initial distribution, any remaining balance shall be reallocated and distributed among the class members who can receive at least $10.00 from such re-distribution. Docket No. 194 at 26, ¶ 6.2(c). Class counsel appears properly apprised of the merits of all claims as relevant to the Plan of Allocation and counsel further contends that the Plan of Allocation is fair and reasonable. See generally Docket No. 208 at 42-45; see also Maley v. Del Global Techs. Corp., 186 F. Supp. 2d 358, 367 (S.D.N.Y. 2002) (“An allocation formula need only have a reasonable, rational basis, particularly if recommended by experienced and competent class counsel.”). There is no evidence or allegations of collusion during the preparation of the Plan of Allocation. Plaintiffs represent that they have consulted with damages experts and indicate that the Plan of Allocation reflects the same formulas and reasoning that would have been used to show the Settlement Class members’ damages at trial. Docket No. 206 at 9. The Plan of Allocation also provides for the redistribution of remaining funds. See In re Tyco Int’l, Ltd. Multidistrict Litig., 535 F. Supp. 2d 249, 262 (D.N.H. 2007) (finding that redistribution of unclaimed funds weighed in favor of approving plan of allocation). There is no indication that the Plan of Allocation favors certain class members at the expense of others and no class member 34 has objected to the Plan of Allocation.21 See Maley, 186 F. Supp. 2d at 367 (“the favorable reaction of the Class supports approval of the proposed Plan of Allocation”). Moreover, the Court finds that the $10.00 threshold for payment from the Net Settlement Fund is proper in order to “preserve the settlement fund from excessive and unnecessary expenses.” In re Global Crossing Sec. and ERISA Litig., 225 F.R.D. 436, 463 (S.D.N.Y. 2004) (“Lead Counsel acted reasonably in including a $10 de minimis threshold in the allocation plan”). The Court concludes that the Plan of Allocation reimburses class members based on the extent of their injuries and is otherwise fair, reasonable, and adequate. Cf. In re IMAX Sec. Litig., 283 F.R.D. 178, 192 (S.D.N.Y. 2012) (analyzing favorably plan of allocation that divided settlement class period into two parts: (1) shares purchased during a time period affected by corrective disclosures, which were assigned an inflation factor to reflect the entire drop in share price and (2) shares purchased subsequent to the drop in price, which were assigned no inflation factor, rendering such claims worthless). VI. NOTICE TO THE SETTLEMENT CLASS Under Rule 23(e)(1), a district court approving a class action settlement “must direct notice in a reasonable manner to all class members who would be bound by the proposal.” Fed. R. Civ. P. 23(e)(1). Rule 23(c)(2)(B) provides, in relevant part, that for “any class certified under Rule 23(b)(3), the court must direct to class members the best notice that is practicable under the circumstances, including individual notice to all 21 The Court construes Mr. Encinosa’s objection as an objection to his potential personal recovery under the Plan of Allocation. Mr. Encinosa does not contend that the Plan of Allocation is unfair, unreasonable, or inadequate for the Settlement Class as a whole. 35 members who can be identified through reasonable effort.” Fed. R. Civ. P. 23(c)(2)(B). In addition to the requirements of Rule 23, the Due Process Clause also guarantees unnamed class members the right to notice of a settlement. DeJulius v. New England Health Care Emps. Pension Fund, 429 F.3d 935, 943-44 (10th Cir. 2005). However, due process does not require that each class member receive actual notice to be bound by the adjudication of a representative action. Id. Instead, the procedural rights of absent class members are satisfied so long as “the best notice practicable [is given] under the circumstances including individual notice to all members who can be identified through reasonable effort.” In re Integra Realty Resources, Inc., 262 F.3d 1089, 1110 (10th Cir. 2001) (citation omitted). Thus, the legal standards for satisfying Rule 23(c)(2)(B) and the constitutional guarantee of procedural due process are coextensive and substantially similar. DeJulius, 429 F.3d at 944. The Settling Parties made reasonable efforts, as set forth above, to identify potential members of the settlement class and provided nearly 300,000 Claim Packets to potential class members. Docket No. 218 at 3, ¶ 8. In addition, Plaintif fs sent out press releases over PR Newswire on September 12, 18, and 24, 2014. Docket No. 208 at 87-89. The Notice itself provided class members with information regarding the anticipated recovery under the partial Settlement Agreement, the outcome of the case without a settlement, the agreement on the amount of damages, reasons for the settlement, the amount of attorneys’ fees or costs sought, and a summary of the plan of allocation. See Docket No. 208 at 65-85; 15 U.S.C. § 78u-4(a)(7); Fed. R. Civ. P. 23(c)(2)(B)(i)-(vii). The fact that, as of February 20, 2014, approximately 29,400 claims 36 had been received is further evidence that the Notice was successful in fairly apprising class members of the terms of the proposed settlement and of their options for collecting, objecting, or opting out. Based on the foregoing, the Court is satisfied that the Notice was reasonably calculated to apprise the absent class members of the action. See In re Integra, 262 F.3d at 1111. VII. CONCLUSION For the foregoing reasons, it is ORDERED that Motion for Final Approval of Proposed Partial Class Settlement, Plan of Allocation, and Final Certification of Settlement Class [Docket No. 206] is GRANTED. The Court will issue a separate order setting forth the terms of the final judgment and partial dismissal with prejudice. DATED September 18, 2014. BY THE COURT: s/Philip A. Brimmer PHILIP A. BRIMMER United States District Judge 37
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