May 12, 2005 · 11:35 pm

Interstate Bakeries Settles

Interstate Bakeries Corp. (OTC: IBCIQ.PK), the Kansas City-based manufacturer of Wonder Bread and Twinkies, has obtained preliminary court approval for a settlement of the securities class action pending against the company in the W.D. of Mo. The case was originally filed in 2003 and alleges that the company mislead investors about the market for its goods.

The settlement was agreed to last year, prior to Interstate declaring bankruptcy, and has been on hold waiting for the bankruptcy court to allow it to go forward. The settlement is for $18 million, with $15 million to be paid by insurers.

Addition: In related news, Twinkies have turned 75 years old.

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May 10, 2005 · 7:54 pm

It’s Good To Be The Kings

Business Week (May 16, 2005 edition) has a feature article profiling the plaintiffs’ counsel who handled the WorldCom securities class action. The article is entitled “The Kings of Class Actions.”

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Filed under All The News That's Fit To Blog, WorldCom

May 9, 2005 · 10:56 pm

Chubb In Action

Speaking of confidential sources, it has not taken long for the Third Circuit’s decision in Chubb to have an effect in the lower courts. In Freed v. Universal Health Services, Inc., 2005 WL 1030195 (E.D.Pa. May 3, 2005), the plaintiffs relied on confidential sources in alleging that UHS improperly accounted for its receivables and deliberately understated its bad debt reserves.

The confidential sources included numerous unnamed former employees of UHS, but all of them worked in individual hospitals owned by the corporation. The court, citing the Chubb decision, found that the statements could not be relied upon because “the Amended Complaint fails to allege how [the confidential sources] would have access to information regarding UHS’s operations nationwide.” The Legal Intelligencer has an article (via law.com – free regist. req’d) on the decision.

Holding: Dismissed with leave to amend.

Quote of note: “[C]omplaints that rely heavily on confidential sources to establish the ‘true facts’ must contain information describing the time period during which the confidential sources were employed by the defendant corporation, the dates on which they acquired the information they purportedly possess, and the manner in which they had access to such information.”

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Filed under Motion To Dismiss Monitor

May 5, 2005 · 8:12 pm

Fee Objectors

Fee objectors are becoming a more common feature in securities class action settlements and, in some cases, are getting results. The Elan securities litigation was settled last year for $75 million. Plaintiffs requested that their counsel be awarded attorneys’ fees of 20% of the settlement or $15 million. There were fifteen objectors to the proposed award, with two of the objectors presenting substantive grounds for their opposition.

In its decision (In re Elan Sec. Litig., 2005 WL 911444 (S.D.N.Y. April 20, 2005)), the court reduced the fee award to 12% of the settlement or $9 million. Notably, the court agreed with the fee objectors that the plaintiffs faced only a modest risk of dismissal at the outset of the case and that the plaintiffs’ attempt to use the hours worked by non-lead counsel to justify the size of the fee award should be rejected.

Quote of note: “Virtually all of Unappointed Counsel’s hours fall into two categories: (1) ‘Investigation, Initial Pleadings, Consolidated Complaint,’ and (2) ‘PSLRA Notice, Lead Plaintiff Motion.’ But Unappointed Counsel failed to segregate the hours devoted to investigation and/or preparation of the Consolidated Complaint and do not establish why they should be compensated for, among other things, seeking but failing to be appointed lead counsel.”

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May 4, 2005 · 6:09 pm

Confidential Sources

Confidential sources have become a hot topic in securities class actions. The Third Circuit and Ninth Circuit (see here and here) have issued recent decisions discussing the use of statements from confidential sources to help meet the PSLRA’s heightened pleading standards. The New York Law Journal has an informative article (via law.com – free regist. req’d) that summarizes these decisions and talks generally about the development of the case law in this area.

Quote of note: “[A] majority of courts addressing this issue have permitted the use of confidential sources, at least under certain circumstances. However, a review of recent decisions suggests that the courts are now closely scrutinizing the use of confidential sources in securities fraud cases and are becoming more vigilant in probing whether there is in fact such a source, whether that source would have been in a position to acquire first-hand knowledge of the matters attributed to it, and whether the information attributed to the source is corroborated by other, independent particularized facts pled in the complaint.”

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May 2, 2005 · 7:40 pm

What’s Reasonable To You . . .

Both the Federal Rules of Civil Procedure and the PSLRA provide that plaintiffs’ counsel in a securities class action may be awarded a “reasonable” fee as determined by the court. Courts generally agree that it is appropriate to cross-check a proposed percentage fee award using the lodestar method (take the reasonable hours expended times a reasonable hourly rate and enhance with a multiplier), but there is no uniformity as to what are the appropriate hours, rates, and multiplier to use.

In an interesting decision, Chief Judge Vaughn Walker of the N.D. of Cal. (who is no stranger to controversy on the subject of attorneys’ fees) attempts to establish a more rigorous method of assessing the reasonableness of a proposed fee. The court’s exhaustive lodestar analysis in In re HPL Technologies, Inc. Sec. Litig., 2005 WL 941586 (N.D. Cal. April 22, 2005) includes adjusting the value of the common stock portion of the settlement because of its illiquidity, lowering the hourly rates cited by the attorneys based on national standards, and creating hypothetical scenarios to establish a reasonable multiplier range. Although the court ultimately reduces the proposed percentage fee from 15% to 11% based on the lodestar crosscheck, it concedes that its “excursion has led it to take up legal issues that have not been briefed by counsel” and expressly grants leave for lead counsel to move for relief from the judgment. The 10b-5 Daily will keep an eye on further developments.

Quote of note: “The court can envision no defensible normative reason in this case–or indeed in common fund cases generally–that the amount of the fee ought to depend on the method used to compute it. Both methods should result in a ‘reasonable’ fee, and reasonableness cannot logically depend on whether the fee is expressed as a percentage of the recovery or the product of hours and rates.”

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April 29, 2005 · 9:13 pm

Down Under

The use of securities class actions is gaining favor in other legal systems. In an interesting article entitled “The Rise of Shareholder Class Actions in Australia” (via mondaq.com – free regist. req’d), an Australian attorney discusses the legal, regulatory, and environmental changes that have led to a spate of recent cases against Australian companies. He also compares the U.S. and Australian systems.

Quote of note: “There is an ever popular view among regulators and academics that shareholder class actions should be encouraged in order to supplement the often slow-moving cogs of government enforcement with much speedier private actions. Private enforcement is frequently more intimidating to corporations, particularly in the case of shareholder class actions which can aggregate the claims of thousands or even millions of shareholder and thereby significant increase a corporation’s legal exposure in comparison with the relatively meagre statutory fines that attach to corporate misfeasance.”

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April 27, 2005 · 7:18 pm

Lead Plaintiff Controls Attorneys’ Fees

In an interesting decision from earlier this month, the U.S. Court of Appeals for the Third Circuit has held that deference should be given to a lead plaintiff’s decision not to compensate non-lead counsel. The case stems from the $3.2 billion settlement in the Cendant Corp. securities litigation. Lead counsel for the plaintiffs obtained $52 million in legal fees, which it shared with twelve other law firms that had been authorized to work on the case. An additional forty-five firms that represented individual plaintiffs, however, were frozen out of any fees. Three of these firms appealed the lower court’s rejection of their fee applications.

In In re Cendant Corp. Sec. Litig., 2005 WL 820592 (3rd Cir. April 11, 2005), the Third Circuit held that the PSLRA “significantly restricts the ability of plaintiffs’ attorneys to interpose themselves as representatives of a class and expect compensation for their work on behalf of that class.” As a result, the lead plaintiff’s “refusal to compensate non-lead counsel will generally be entitled to a presumption of correctness.” The court did find that non-lead counsel can ask the court to compensate them for work done before the appointment of a lead plaintiff, but they must “demonstrate that their work actually benefited the class.”

The Legal Intelligencer has an article (via law.com – free regist. req’d) on the decision.

Quote of note: “After the lead plaintiff is appointed, however, the PSLRA grants that lead plaintiff primary responsibility for selecting and supervising the attorneys who work on behalf of the class. We conclude that this mandate should be put into effect by granting a presumption of correctness to the lead plaintiff’s decision not to compensate non-lead counsel for work done after the appointment of the lead plaintiff. Non-lead counsel may refute the presumption of correctness only by showing that lead plaintiff violated its fiduciary duties by refusing compensation, or by clearly demonstrating that counsel reasonably performed work that independently increased the recovery of the class.”

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Filed under Appellate Monitor, Lead Plaintiff/Lead Counsel

April 25, 2005 · 8:58 pm

Arthur Andersen Settles WorldCom-Related Claims

Arthur Andersen LLP, the last remaining defendant in the WorldCom securities class action, has agreed to settle the case. The settlement ends the the ongoing trial in the S.D.N.Y. According to a New York Times article, the settlement is for $65 million plus “20 percent of any amount [Arthur Andersen] paid to distribute its remaining capital to its present and former partners.” The settlement also reportedly includes a “most favored nation clause” that guarantees the plaintiffs “the difference between the $65 million and any larger settlement in any other lawsuit [Arthur Andersen] may settle in the future.”

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Filed under Settlement, WorldCom

April 21, 2005 · 5:31 pm

Dura Roundup

More on the Dura decision:

(1) The Legal Times has an article (via law.com – free regist. req’d) discussing the reaction of the parties to the decision.

(2) Forbes has a column stating that the decision was a “no-brainer” and providing some academic commentary.

(3) The Wall Street Journal has an editorial (subscrip. req’d) citing the decision as another reason why criminal sentencing in the Enron “barge” case should not be based on the alleged inflation of the company’s stock price.

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Filed under All The News That's Fit To Blog, Enron