Category Archives: Settlement

The Chicago Tribune has a feature article (free regist. req’d) on the recent trend of requiring corporate governance reforms as part of the settlement of shareholder litigation. The article contains a list of prominent examples, including the Hanover Compressor settlement.

Quote of note: “Experts said companies’ willingness to make governance changes often depends on the situation. Firms dominated by a controlling shareholder or founding family, they said, are more likely to resist what they deem to be interference. Plaintiffs are more likely to succeed, experts said, in the worst cases of inattentive boards and companies that have cooked the books.”

Tut Systems, Inc. (Nasdaq: TUTS) has announced the preliminary settlement of the securities class action pending against the company in the N.D. of California (the company is also settling a related derivative case brought in California state court). According to an article on the settlement in the Oakland Tribune, Plaintiffs had alleged that the company’s financial results for the second and third quarters of 2000 “were false and misleading because the company failed to report a major recall of one of its products in the summer of 2000 that resulted in improperly recognized revenues on sales of defective products that were returned during the recall.”

The settlement of the securities class action, which is still subject to court approval, is for $10 million. The settlement of the derivative case involves Tut’s adoption of certain corporate governance measures and the payment of plaintiff’s legal fees and expenses. Both payments will be made by Tut’s insurance carrier.

The securities class action against Gaming Lottery Corp., pending in the S.D.N.Y. since 1996, has been preliminarily settled for $1 million (or about 7 cents per damaged share before the deduction of litigation expenses). Plaintiffs allege that the company engaged in misrepresentations concerning its acquisition and operation of Special Manufacturing Inc. In the spirit of the holiday season, the notice of proposed settlement states that plaintiffs’ counsel have declined to apply for any attorneys’ fees.

Quote of note: “Plaintiffs’ Counsel are NOT applying for any attorneys’ fees. Plaintiffs’ Counsel do intend to request the Court to approve a payment to Plaintiffs’ Counsel of $90,000 for reimbursement of expenses incurred in connection with the prosecution of this Action, which is less than 23% of the over $400,000 of expenses actually incurred.”

Two weeks ago, the D. of N.J. approved the settlement of the Lucent Technologies, Inc. securities litigation for over $600 million, the third-largest securities settlement ever. The settlement calls for claimants to receive $315 million in stock; $24 million in the stock of Lucent spin-off Avaya Inc.; $148 million in cash from the Lucent’s directors-and-officers insurance; and 200 million warrants. Now comes the battle over attorneys fees.

Co-lead counsel for the main securities class action on behalf of Lucent’s common shareholders (there are four other cases on behalf of other classes of investors that are also being settled) are asking for 17% of the $517 million those investors will be awarded: about $88 million. They also seek $3.5 million in expenses for the case, which was litigated for almost four years.

The New Jersey Law Journal has a lengthy article (via law.com – free regist. req’d) exploring the arguments for and against this fee award. The objectors suggest that the fees are excessive compared with the payout to investors, which amounts to no more than 15 cents a share. Plaintiffs’ counsel, however, notes that the warrants may make the value of the settlement increase dramatically if Lucent’s stock price rises (thereby lowering the percentage of the recovery going to attorneys fees). To bolster their fee request, plaintiffs’ counsel retained Columbia Law School Professor John Coffee to submit a supporting certification to the court.

Quote of note: “Typical was T. Tucker Hobgood, who bought 100 shares at $74 a week before it dove to the mid-50s, at which point he bought another 50 shares. All told, Lucent dropped from almost $80 in 1999 to 55 cents by the fall of 2002 after disclosures of inflated revenue reports and accounting shenanigans. ‘I’ll get $15, with the plaintiffs’ lawyers making about $4.50 off me and getting reimbursed another $1.50. Not to unduly hammer only one side of the equation. The company I still own part of paid untold sums to its lawyers to grind the plaintiffs under their feet,’ Hobgood wrote to [District Judge] Pisano. ‘I lost virtually my entire investment of $10,000. There is nothing fair about this process or this settlement to me. It is a complete waste of time to recover less than one-fifth of one percent of a loss,’ he continued.”

Quote of note: “[Professor Coffee] listed the 22 largest fee awards for class actions, which showed that 17 were above the 17 percent being sought in the Lucent case, with only five falling below that figure. However, most of those cases that garnered more than 17 percent were significantly smaller than the Lucent payout. Five of the class actions produced fees amounting to 30 percent, but those settlements ranged from $104 million to $185 million. The closest settlement in size to Lucent’s, the $687 million in the Washington Public Power Supply Systems case in 1990, resulted in a fee award of just 7.3 percent. Moreover, the $457 million settlement in this year’s Waste Management Inc. class action generated a fee amounting to only 7.9 percent. Another so-called megafund class action, brought against Bankamerica Corp., led to a $490 million settlement along with a fee of 18 percent for lead counsel.”

Reuters reports that Lucent Technologies, Inc. (NYSE: LU) has received final court approval for the roughly $600 million settlement of the securities litigation pending against the company in the D. of N.J. The settlement was originally announced last March and is one of the largest ever.

Securities class actions are often settled for a fraction of the potential damages. As a result, plaintiffs’ counsel can find themselves in the strange position of having to argue against the strength of their own case to justify a proposed settlement.

Although the DaimlerChrysler AG settlement is for $300 million, the Associated Press reports that plaintiffs’ counsel worked hard to convince the judge at the settlement hearing that plaintiffs’ case had “potentially fatal flaws.” The suit alleges that Daimler-Benz AG misrepresented the acquisition of Chrysler as a “merger of equals” to avoid paying Chrysler shareholders a takeover premium for their shares.

Quote of note: “‘The biggest problem for us was that the Chrysler division post-merger performance was horrific,’ the lawyer said. His comments were meant to convince the judge that the settlement was a nice result for a case that carried considerable risk.”

Interpublic Group (NYSE: IPG), a New York holding company for advertising agencies, has announced the preliminary settlement of the securities class action pending against the company in the S.D.N.Y. The case is the result of a restatement IPG did in August 2002 for the five years from 1997 to 2001, which corrected inter-company charges that had been wrongly declared as income for the European offices of one of IPG’s agencies.

The settlement, which still must be approved by the court, is for $115 million in cash and stock ($20 million cash; $95 million stock at $14.50 a share). According to the announcement, the “parties have also agreed that, should the price of Interpublic common stock drop below $8.70 per share prior to final approval of the settlement, Interpublic will issue at its sole discretion either additional stock or cash so that the consideration for the stock portion of the settlement will have a total value of $57 million.”

The 10b-5 Daily has previously discussed (in a post entitled “The Perfect Storm”), the court’s May 2003 denial of the motion to dismiss and (in a post entitled “The Perfect Storm Moves On” ) the court’s recent grant of class certification.

AdAge.Com also has an article on the settlement announcement.

SkillSoft, PLC, (Nasdaq: SKIL) a New Hampshire-based business and IT training software maker, has announced a preliminary settlement of the securities class action pending against the company in the N.D. of Cal. The case was originally filed in 1998 and the plaintiffs allege that SkillSoft misrepresented its financial condition and prospects in connection with its merger with ForeFront. The settlement is for $32 million, with $16 million being covered by insurance.

The Nashua Telegraph has an article on the settlement, which notes that there is another, more recent, securities class action pending against the company in the D. of N.H.

DPL, Inc. (NYSE: DPL), the parent company of Dayton Power and Light Co., and their former accountants, PricewaterhouseCooopers, have obtained preliminary court approval for the settlement of the securities class action pending against them in the S.D. of Ohio (as well as related state court derivative actions). The class action was originally filed in July 2002.
The settlement is for $145.5 million. The announced source of funds is as follows: 1) $70 million from DPL; 2) $70 million from DPL’s liability insurers; and 3) $5.5 million from PWC. According to an Associated Press article, plaintiffs’ counsel may receive up to $50.9 million in fees. Final arguments on the settlement will be heard December 22.

Aon Corp. (NYSE: AOC), a Chicago-based insurance holding company, has announced a preliminary settlement of the securities class action pending against the company in the N.D. of Ill. (a separate derivative action filed in state court is also included in the settlement). According to a report in the Chicago Tribune, the case was “filed after Aon announced disappointing earnings in the second quarter of 2002” and alleges that Aon had “released inaccurate information about the corporation’s performance” prior to that announcement.
The settlement, which is subject to court approval, is for $7.25 million. Aon is also required to enact certain corporate governance reforms.
Quote of note: “Aon paid a relatively small amount to settle the cases and make them go away, said D. Cameron Findlay, Aon executive vice president and general counsel. ‘While we thought these lawsuits were absolutely meritless, we settled for a nominal amount that reflects the nuisance value,’ he said.”