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Erica P. John Fund Inc. v. Halliburton Co.

United States District Court, N.D. Texas, Dallas Division

April 25, 2018

THE ERICA P. JOHN FUND, INC., et al., on Behalf of Itself and All Others Similarly Situated, Plaintiffs,



         On February 21, 2017, the Erica P. John Fund, Inc. (“EPJF”), Lead Plaintiff in this securities class action case, filed a Stipulation of Settlement, (ECF No. 794), and a Motion for Preliminary Approval of Class Action Settlement, (ECF No. 795). The Court granted preliminary approval. (ECF No. 805).

         EPJF then filed the Motion for Final Approval of Class Action Settlement and Plan of Allocation. (ECF No. 818). Class Counsel-Boies Schiller Flexner LLP (“BSF”), Kahn Swick & Foti, LLC (“KSF”), and Lawrence “Larry” Vincent-filed the Motion for Award of Attorneys' Fees and Reimbursement of Litigation Expenses. (ECF No. 820). Several other firms have also moved for fees and expenses, namely Federman & Sherwood, (ECF No. 812), Kilgore & Kilgore, PLLC (ECF No. 815), and Robbins Geller Rudman & Dowd LLP, (ECF No. 817). Robbins Geller Rudman & Dowd has since withdrawn its request for fees and instead seeks only expenses. (ECF No. 823).

         On July 31, 2017, the Court held a final fairness hearing regarding the Motion for Final Approval and heard argument on the fee and expense motions. For the reasons stated below and on the record, the Motion for Final Approval of Class Action Settlement and Plan of Allocation is GRANTED; Class Counsel's Motion for Award of Attorneys' Fees and Reimbursement of Litigation Expenses is GRANTED; Federman & Sherwood's Motion for Attorney Fees and Reimbursement of Expenses is GRANTED IN PART and DENIED IN PART; Kilgore & Kilgore's Motion for Award of Attorneys' Fees and Expenses is GRANTED IN PART and DENIED IN PART; and Robbins Geller Rudman & Dowd's Motion for Award of Expenses is GRANTED.

         I. Factual and Procedural Background

         a. Background of the Case

         Erica P. John Fund, Inc. (EPJ Fund), is the lead plaintiff in a putative class action against Halliburton and one of its executives (collectively Halliburton) alleging violations of section 10(b) of the Securities Exchange Act of 1934, and Securities and Exchange Commission Rule 10b-5. According to EPJ Fund, between June 3, 1999, and December 7, 2001, Halliburton made a series of misrepresentations regarding its potential liability in asbestos litigation, its expected revenue from certain construction contracts, and the anticipated benefits of its merger with another company-all in an attempt to inflate the price of its stock. Halliburton subsequently made a number of corrective disclosures, which, EPJ Fund contends, caused the company's stock price to drop and investors to lose money.

Halliburton Co. v. Erica P. John Fund, Inc., 134 S.Ct. 2398, 2405-08 (2014) (Halliburton I). Numerous complaints alleging misrepresentations by Halliburton were filed in 2002 and consolidated into this action. (ECF No. 22). Four lead plaintiffs were appointed, including the Archdiocese of Milwaukee Supporting Fund, Inc. (“AMSF”), the precursor in name to EPJF. (Id. at 22). Schiffrin & Barroway, LLP (“S&B”) was appointed as lead counsel, and Federman & Sherwood (“F&S”) and The Emerson Firm were appointed co-liaison counsel. (Id.)

         On May 10, 2004, all lead plaintiffs except for AMSF moved for preliminary approval of settlement, asserting that all claims had been settled for $6 million. (ECF No. 94). AMSF opposed the settlement, arguing that it had not been included in settlement discussions and that the proposed figure was insufficient. AMSF further moved to have S&B removed as lead counsel. Following a final fairness hearing, the Court denied approval and held that there was insufficient proof that the proposed settlement was fair, reasonable, and adequate. (ECF No. 133 at 16). On October 7, 2004, Kilgore & Kilgore, PLLC (“K&K”) was appointed local counsel for AMSF. (ECF No. 149). On May 3, 2005, S&B was removed as lead counsel. (ECF No. 195). AMSF became the sole remaining lead plaintiff in the action, and at its request and with the Court's approval, Scott䧊, LLP and Lerach Coughlin Stoia Geller Rudman & Robbins LLP were appointed co-lead counsel. (Id.)

         In February of 2007, Scott䧊 and Lerach Coughlin Stoia Geller Rudman & Robbins were relieved of their duties as lead counsel and were replaced by BSF. (ECF No. 308). AMSF subsequently changed its name to the “Erica P. John Fund, Inc.” (ECF No. 472). At the class certification stage, the case was subject to multiple appeals, and the Supreme Court granted certiorari twice to resolve various issues. See Halliburton I, 563 U.S. 804 (2011); Halliburton Co. v. Erica P. John Fund, Inc., 134 S.Ct. 2398 (2014) (Halliburton II). The following excerpt from Halliburton II provides a concise summary of the procedural history and legal issues raised during this stage:

EPJ Fund moved to certify a class comprising all investors who purchased Halliburton common stock during the class period. . . . [E]xcept for one difficulty, the court would have also concluded that the class satisfied the requirement of Rule 23(b)(3) that “the questions of law or fact common to class members predominate over any questions affecting only individual members.” The difficulty was that Circuit precedent required securities fraud plaintiffs to prove “loss causation”-a causal connection between the defendants' alleged misrepresentations and the plaintiffs' economic losses-in order to invoke Basic's presumption of reliance and obtain class certification. Because EPJ Fund had not demonstrated such a connection for any of Halliburton's alleged misrepresentations, the District Court refused to certify the proposed class. The United States Court of Appeals for the Fifth Circuit affirmed the denial of class certification on the same ground. Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co., 597 F.3d 330 (2010).
We granted certiorari and vacated the judgment, finding nothing in “Basic or its logic” to justify the Fifth Circuit's requirement that securities fraud plaintiffs prove loss causation at the class certification stage in order to invoke Basic's presumption of reliance. Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. __ __, __, 131 S.Ct. 2179, 2185-2186, 180 L.Ed.2d 24 (2011) (Halliburton I). “Loss causation, ” we explained, “addresses a matter different from whether an investor relied on a misrepresentation, presumptively or otherwise, when buying or selling a stock.” We remanded the case for the lower courts to consider “any further arguments against class certification” that Halliburton had preserved.
On remand, Halliburton argued that class certification was inappropriate because the evidence it had earlier introduced to disprove loss causation also showed that none of its alleged misrepresentations had actually affected its stock price. . . . The District Court declined to consider Halliburton's argument, holding that the Basic presumption applied and certifying the class under Rule 23(b)(3).
The Fifth Circuit affirmed. 718 F.3d 423 (2013). The court found that Halliburton had preserved its price impact argument, but to no avail. Id., at 435- 436. While acknowledging that “Halliburton's price impact evidence could be used at the trial on the merits to refute the presumption of reliance, ” id., at 433, the court held that Halliburton could not use such evidence for that purpose at the class certification *2407 stage, id., at 435. “[P]rice impact evidence, ” the court explained, “does not bear on the question of common question predominance [under Rule 23(b)(3)], and is thus appropriately considered only on the merits after the class has been certified.” Ibid. We once again granted certiorari, this time to resolve a conflict among the Circuits over whether securities fraud defendants may attempt to rebut the Basic presumption at the class certification stage with evidence of a lack of price impact.

Halliburton II, 134 S.Ct. at 2405-08. In Halliburton II, the Supreme Court held that Halliburton could introduce evidence of a lack of price impact at the class certification stage to show the absence of predominance. Id. at 2414-17. The Supreme Court again vacated the judgment of the Fifth Circuit and remanded the case to this Court for further proceedings. Id. at 2417. After briefing and oral argument addressing Halliburton II, this Court certified the class. (ECF No. 601). After Defendants took another appeal to the Fifth Circuit, EPJF filed the Stipulation of Settlement. (ECF No. 794).

         b. Summary of the Settlement

         The Stipulation of Settlement is between EPJF, on behalf of itself and each of the class members, and Defendants Halliburton Company and David Lesar. (ECF No. 794). Plaintiffs are agreeing to release all claims based on the purchase or acquisition of common stock during the Class Period, which is defined as between August 16, 1999, and December 7, 2001, inclusive. The Parties agreed to settle the case for $100, 000, 000.00 subject to the Court's approval. The Stipulation of Settlement does not include claims stemming from purchases of stock between December 8, 2001, and July 22, 2002, which are part of the Magruder putative class action. See Magruder v. Halliburton Co., No. 3:05-cv-1156-M (N.D. Tex.). These claims are expressly not released.

         II. Motion for Final Approval of Class Action Settlement

         Under Rule 23(e), a court must review any “settlement, voluntary dismissal, or compromise” of the “claims, issues, or defenses of a certified class.” Fed.R.Civ.P. 23(e). Rule 23(e) establishes certain procedures in considering a proposed settlement, each of which will be considered in turn:

(1) The court must direct notice in a reasonable manner to all class members who would be bound by the proposal.
(2) If the proposal would bind class members, the court may approve it only after a hearing and on finding that it is fair, reasonable, and adequate.
(3) The parties seeking approval must file a statement identifying any agreement made in connection with the proposal.
(4) If the class action was previously certified under Rule 23(b)(3), the court may refuse to approve a settlement unless it affords a new opportunity to request exclusion to individual class members who had an earlier opportunity to request exclusion but did not do so.
(5) Any class member may object to the proposal if it requires court approval under this subdivision (e); the objection may be withdrawn only with the court's approval.


         a. Notice Must Be Directed in a Reasonable Manner to All Class Members

         Notice of the settlement was reasonable, provided ample due process, [1] and satisfied the requirements for settlement notices set out in the Private Securities Litigation Act (“PSLA”).[2]Notice was disseminated through the procedures provided in the Court's Preliminary Approval Order. (ECF No. 805). In the Motion for Final Approval, Class Counsel stated that by April 14, 2017, 42, 194 copies of the notice had been mailed to potential class members identified through Halliburton's transfer agent records and their nominees, and as of June 28, 2017, an additional 67, 008 copies had been sent. (ECF No. 818 at 21). Notice was published in Investor's Business Daily and disseminated on PR Newswire. (Id.) The Claims Administrator maintained a toll-free phone number and a website providing additional information; as of April 27, 2017, the Claims Administrator had received 56 calls and 174 hits on the website. (Id.) In terms of timing, the class members had 87 days between the initial mailing of the notice on April 14, 2017, and the deadline to request exclusion from the class, which was on July 16, 2017. See DeJulius v. New Eng. Health Care Emps. Pension Fund, 429 F.3d 935, 946 (10th Cir. 2005) (notice program upheld as providing sufficient due process even though 70.7% of the class members received fewer than thirty-two days' notice); Silber v. Mabon, 18 F.3d 1449, 1452, 1454 (9th Cir. 1994) (due process requirement and Rule 23 satisfied when settlement notices were sent out forty days before the opt-out deadline). Furthermore, the fairness hearing was scheduled more than 75 days after the notice date. See Schwartz v. TXU Corp., 2005 WL 3148350, at *11 (N.D. Tex. Nov. 8, 2005) (stating that a gap of 62 days between when notice was first sent out and the fairness hearing was adequate). Except for the lead plaintiff in Magruder, the Court received no objections to the settlement, and only one objection to the fees sought.

         b. The Proposed Settlement Must be Fair, Reasonable, and Adequate

         Courts evaluate the Reed factors to determine whether a proposed class action settlement is fair, reasonable, and adequate. See Reed v. General Motors Corp., 703 F.2d 170 (5th Cir. 1983). The Reed factors are: (1) evidence that the settlement was obtained by fraud or collusion; (2) the complexity, expense, and likely duration of the litigation; (3) the stage of the litigation and available discovery; (4) the probability of plaintiffs prevailing on the merits; (5) the range of possible recovery and certainty of damages; and (6) the opinions of class counsel, class representatives, and absent class members. Newby v. Enron Corp., 394 F.3d 296, 301 (5th Cir. 2004). In light of the Reed factors, the proposed settlement is fair, reasonable, and adequate.

         i. Evidence that the Settlement Was Obtained by Fraud or Collusion

         Nothing in the record indicates that the current settlement was the result of secret negotiations or improper collusion. No parties (other than the lead plaintiff in Magruder) have objected, and those objections do not assert any fraud or collusion. Furthermore, the settlement was obtained through formal mediation before former U.S. District Judge Layn R. Phillips, which strongly suggests that the settlement was not the result of improper dealings. See In re Bluetooth Headset Products Liability Litig., 654 F.3d 935, 948 (9th Cir. 2011) (noting that the “presence of a neutral mediator” is a factor “weighing in favor of a finding of non-collusiveness”).

         ii. The Complexity, Expense, and Likely Duration of the Litigation

         Having been heard twice by the Supreme Court and multiple times by the Fifth Circuit, and having lasted more than fifteen years, this case is indisputably complex and of lengthy duration.

         iii. Stage of the Litigation and Available Discovery

         The litigation was set for trial, subject to the last appeal. The parties have produced over 1.3 million documents and have taken 28 fact depositions. The appendices to the cross-motions for summary judgment exceeded 9, 400 pages.

         “A presumption of fairness, adequacy, and reasonableness may attach to a class settlement reached in arm's-length negotiations between experienced, capable counsel after meaningful discovery.” In re Heartland Payment Sys., Inc., 851 F.Supp.2d 1040, 1063 (S.D. Tex. 2012) (internal quotation marks omitted). Here, the parties have engaged in substantial and meaningful discovery, and thus the parties were fully aware of the complete facts and the strengths and weaknesses of their respective positions.

         iv. The Probability of Plaintiffs Prevailing on the Merits EPJF succeeded in certifying the class on the December 7, 2001, disclosure and had a not insignificant probability of prevailing on the merits. However, there remained a substantial risk for all parties in proceeding to trial.

         v. Range of Possible Recovery and Certainty of Damages

         In the Motion for Final Approval, EPJF states that the “$100, 000, 000 all cash recovery constitutes approximately 11.8% of the maximum recoverable damages for the Class (approximately $848 million, as determined in consultation with Lead Plaintiff's damages expert).” (ECF No. 818 at 14). However, EPJF also points out that Defendants had strong arguments that the alleged misrepresentations were not wholly actionable, which would have limited “the maximum recoverable damages to as low as $233 million according to Lead Plaintiff's damages expert.”[3] (Id. at 14-15). Under this lower recovery, the $100 million settlement would constitute 42.9% of the maximum recoverable damages for the class.

         The focus of this factor is whether the settlement falls within the range of reasonableness. The Court is not to try the case via the fairness hearing because “the very purpose of the compromise is to avoid the delay and expense of such a trial.” Reed, 703 F.2d at 172. In ascertaining whether a settlement falls “within the range of possible approval, ” courts will compare the settlement amount to the relief the class could expect to recover at trial, i.e., the strength of the plaintiff's case. See, e.g., In re Nat'l Football League Platers' Concussion Injury Litig., 961 F.Supp.2d 708, 714 (E.D. Pa. 2014) (“To determine whether a settlement falls ‘within the range of possible approval, ' a court must ‘consider plaintiffs' expected recovery balanced against the value of the settlement offer.'”). “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.” Parker v. Anderson, 667 F.2d 1204, 1210 n.6 (5th Cir. 1982) (citing City of Detroit v. Grinnell Corp., 495 F.2d 448, 455 (2d Cir. 1974)).

         Here, the recovery is 11.8% to 42.9% of the maximum possible recovery, depending on the conservativeness of the figures set forth by EPJF. As final approval is frequently given to settlements even when “the settlement amount is a very small fraction of the damages amount projected by the Plaintiffs, ” this recovery is reasonable in light of the possible damages. See In re Enron Corp. Sec., Derivative, & ERISA Litig., 228 F.R.D. 451, 566 (S.D. Tex. 2005). Even the “low” estimate, 11.8%, is a fairly sizeable recovery compared to other approved securities class action settlements. See, e.g., In re Initial Public Offering Sec. Litig., 671 F.Supp.2d 467, 483 (S.D.N.Y. 2009) (approving a settlement representing two percent of aggregated expected recovery). Furthermore, the amount to be recovered is more than fifteen times what the Court rejected in 2004, when it found a $6 million settlement not fair, reasonable, or adequate.

         vi. Opinions of Class Counsel, Class Representatives, and Absent Class Members

         Class Counsel and Lead Plaintiff all agree to the settlement. See also Cotton v. Hinton, 559 F.2d 1326, 1330 (5th Cir. 1977) (“[T]he trial judge, absent fraud, collusion, or the like, should be hesitant to substitute its own judgment for that of counsel.”). After notice to the class was given, the only person objecting to the Settlement is Magruder, who is not a member of the class. “Receipt of few or no objections can be viewed as indicative of the adequacy of the settlement.” In re Enron Corp., 228 F.R.D. at 567 (internal quotation marks omitted).

         c. The Parties Seeking Approval Must File a Statement Identifying Any Agreement Made in Connection with the Proposal

         Rule 23(e) requires “[t]he parties seeking approval [to] file a statement identifying any agreement made in connection with the proposal.” Fed.R.Civ.P. 23(e)(3). This requirement does not only concern disclosure of the basic settlement terms; “[i]t aims instead at related undertakings that, although seemingly separate, may have influenced the terms of the settlement by trading away possible advantages for the class in return for advantages for others.” Id. Committee Notes (2003). “The spirit of [Rule 23(e)(3)] is to compel identification of any agreement or understanding, ” written or oral, “that might have affected the interests of class members by altering what they may be receiving or foregoing.” Slipchenko v. Brunel Energy, Inc., 2015 WL 338358, at *6 (S.D. Tex. Jan. 23, 2015) (quoting Manual for Complex Litigation (Fourth) § 21.631 (2004)).

         The parties have satisfied this requirement by filing the Stipulation of Settlement, which publicly discloses the terms of the agreement between EPJF and Defendants made in connection with the settlement. The Stipulation also describes a “supplemental confidential agreement” between the parties, which “gives Halliburton the right, but not the obligation, to terminate the settlement in the event that a certain portion of the Class delivers timely and valid requests for exclusion from the Class.” (ECF No. 794 at 36-37).

         d. An Additional Opt-Out Opportunity

         Rule 23(e)(4) provides that “[i]f the class action was previously certified under Rule 23(b)(3), the court may refuse to approve a settlement unless it affords a new opportunity to request exclusion to individual class members who had an earlier opportunity to request exclusion but did not do so.” Rule 23(e)(4) “comes into play when the opt-out opportunity expired before the members received notice of a proposed settlement.” Slipchenko, 2015 WL 338358, at *7. This factor is inapplicable here. The members of the class received notice of the Settlement well before the opt-out opportunity expired.[4]

         e. Class ...

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