Vataj v. Johnson

Background

Christopher Vataj initially filed this securities class action on December 25, 2019. The operative complaint named PG&E Corporation and certain of its officers and directors as defendants. Plaintiffs alleged that, after California wildfires and PG&E’s bankruptcy, PG&E adopted wildfire-prevention measures including temporary power shutoffs, inspections of utility poles, and vegetation removal. They alleged that the individual defendants made materially false or misleading statements about those measures, failed to disclose that the measures were inadequate, and failed to disclose that PG&E was unprepared for rolling power outages.

Plaintiffs asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. They sought to represent people and entities that purchased or otherwise acquired PG&E securities on the New York Stock Exchange between December 13, 2018, and October 28, 2019. After Ironworkers Local 580 Joint Funds, Ironworkers Locals 40, 361 & 417 Union Security Funds, and Robert Allustiarti were appointed co-lead plaintiffs, the parties mediated and ultimately agreed to settle for $10 million.

Settlement Terms

The settlement class consisted of all persons and entities that purchased PG&E common stock on the New York Stock Exchange during the class period, including both dates. The $10 million payment was non-reversionary. Distribution to class members was to be based on a recognized-loss formula considering factors such as the timing and amount of purchases, whether shares were sold, and the timing and proceeds of sales. Class members had to submit a proof of claim to receive payment.

The agreement provided for attorneys’ fees of up to $2.5 million, litigation costs of up to $100,000, notice administration and claims processing costs, and possible incentive awards of up to $5,000 for each co-lead plaintiff. Remaining funds were to be redistributed to qualifying class members and, if funds still remained, paid to the University of San Francisco School of Law’s Investor Justice Clinic. The class would release claims asserted or that could have been asserted concerning the allegations, transactions, facts, representations, or omissions involved in the action and related to the purchase, acquisition, sale, disposition, or holding of PG&E common stock during the class period.

Provisional Class Certification

For settlement purposes, the court found that the proposed class met Federal Rule of Civil Procedure 23’s requirements. It found numerosity because joining the thousands of estimated class members would be impracticable. It found commonality because the case presented shared questions about whether defendants violated federal securities laws, made material misrepresentations, artificially inflated PG&E’s stock price, and caused class members damages. It found typicality because the co-lead plaintiffs alleged injuries based on the same conduct as the proposed class.

The court also found adequate representation, concluding that it was unaware of conflicts between the co-lead plaintiffs, their counsel, and other class members, and that counsel had prosecuted the case vigorously. For Rule 23(b)(3), the court found that common issues predominated for settlement purposes even though individual evidence would be needed to calculate damages. It also found that a class action was superior because it would use court and attorney resources efficiently, reduce costs by allocating them among class members, and present no obvious management difficulties. The court appointed the co-lead plaintiffs as class representatives and their counsel as class counsel.

Preliminary Approval Analysis

The court preliminarily found the settlement fair, reasonable, and adequate. It found no problematic signs of collusion, noting that the settlement was non-reversionary, did not contain a provision preventing defendants from objecting to a fee request, and was not conditioned on an attorneys’ fee award. The court also found a sufficient connection between the proposed recipient of any remaining funds—the University of San Francisco School of Law’s Investor Justice Clinic—and the class’s interest in preventing securities fraud.

The court did not decide the final amount of any incentive award or attorneys’ fees. It stated that those requests would be evaluated at the final approval stage. The court found the settlement within the possible range of approval because the $10 million recovery had to be weighed against the risks of continued litigation, including the complexity of evaluating PG&E’s wildfire-prevention efforts, reliance on expert testimony, questions about later wildfire results, and difficulty calculating damages amid PG&E’s stock volatility, prior wildfires, and bankruptcy.

The court also reviewed a confidential supplemental agreement that allowed defendants to terminate the settlement if requests for exclusion exceeded a specified number. The court found that provision fair and reasonable. Separately, because the parties had not complied with the local rule governing sealed filings, the court directed them to file a motion to seal the supplemental agreement that complied with that rule.

Notice Plan and Disposition

The court found that the proposed notice process was reasonably designed to inform class members. A.B. Data Ltd., the settlement administrator, was to mail notices to identifiable class members and nominees such as banks and brokers, publish a summary notice, maintain a settlement website, and provide materials through the Depository Trust Company’s Legal Notice System. The court required edits clarifying the deadlines for fee, cost, and incentive-award requests and the related objection deadline.

Judge Haywood S. Gilliam, Jr. granted Plaintiffs’ motion for preliminary approval. The order preliminarily approved the settlement, the plan of allocation, and the notice plan with the identified edits; directed the parties to implement the notice plan; directed them to meet and confer about a schedule; and directed them to submit a joint proposed order and joint proposed judgment with the motion for final approval. The order did not grant final approval of the settlement.