Fleming v. Impax Laboratories Inc.

Background

New York Hotel Trades Council asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 against Impax Laboratories Inc., George Wilkinson, Larry Hsu, Bryan Reasons, and Carole Ben-Maimon. The claims alleged that defendants made materially false or misleading statements and omitted material facts concerning Impax securities. The earlier complaint was dismissed with leave to amend, and the second amended complaint was later dismissed with prejudice. The Ninth Circuit affirmed in part and reversed in part that dismissal. The parties then continued settlement negotiations, including mediation.

The proposed settlement class consisted of people who purchased or acquired Impax common stock or 2% Convertible Senior Notes between February 20, 2014, and August 9, 2016, inclusive, subject to stated exclusions and the right to opt out. The court considered the settlement before final approval and while motions to intervene and to dismiss were pending; the opinion does not state that those motions were decided in this order.

Provisional Class Certification

For settlement purposes, the court found that the requirements of Federal Rule of Civil Procedure 23 were met. It found numerosity because potentially hundreds of thousands of class members would make individual litigation impracticable. It found commonality because the alleged misrepresentations, defendants’ knowledge or recklessness, control of Impax, artificial inflation, causation, and damages presented common questions. It found typicality because Sheet Metal Workers’ Pension Plan of Southern California, Arizona and Nevada alleged injuries similar to those of other class members. It also found adequacy because the record showed no conflicts between the proposed representative, class counsel, and other class members.

The court further found that common issues predominated over individual issues and that a class action was the superior method for resolving the dispute. It appointed Sheet Metal Workers’ Fund as Class Representative and Robbins Geller Rudman & Dowd LLP as Class Counsel.

Settlement Terms

Under the Second Amended Settlement Stipulation, defendants would deposit $33 million into a settlement fund. After taxes, administration costs, litigation expenses, attorneys’ fees, and any incentive award approved by the court, the remaining fund would be distributed to authorized class members under the Plan of Allocation. At least 95 percent of the net fund would be allocated to Impax common stock and no more than 5 percent to the convertible notes.

The allocation formula would calculate each claimant’s recognized loss based on the timing and number of securities transactions. The net fund would be distributed pro rata according to each claimant’s recognized loss, with any calculated distribution below $10 increased to $10. Additional distributions could occur if cost-effective. Funds remaining after those distributions could be given to the Investor Protection Trust as a cy pres distribution if Lead Counsel, in consultation with the Claims Administrator, determined that further distribution was not cost-effective or efficient.

The settlement included releases of claims related to the allegations, transactions, events, statements, and omissions in the action, as well as releases of claims defendants could have asserted concerning the institution, prosecution, or settlement of the action. Claims to enforce the settlement were excluded from those releases. Lead Plaintiffs could request incentive awards totaling no more than $15,000, and Lead Counsel stated that it would request no more than 30 percent of the settlement amount in attorneys’ fees and no more than $250,000 in expenses. The court did not decide the final amounts of fees, expenses, or incentive awards in this order.

Preliminary Approval Analysis

The court found that the settlement appeared to result from serious, informed, non-collusive negotiations; did not improperly favor class representatives; fell within the range of possible approval; and had no obvious deficiencies. The court noted that the settlement was non-reversionary, contained no clear-sailing provision, and did not condition the settlement on a fee award. It preliminarily found the Investor Protection Trust sufficiently connected to the class because of its work concerning investor education, protection, and fraud prevention.

The court also found the $33 million settlement amount to be within the range of possible approval. The opinion states that Lead Plaintiffs viewed the amount as 12.5 percent of estimated reasonably recoverable damages, while defendants disputed liability, scienter, causation, and the amount of recoverable damages. After reviewing the confidential supplemental agreement, the court found its termination provision fair and reasonable.

Allocation and Notice

The court preliminarily approved the Plan of Allocation because it used a rational recognized-loss formula tied to the timing and sale of Impax securities, alleged periods of artificial inflation, corrective disclosures, and the number of shares involved. It approved JND Legal Administration as Claims Administrator and approved a notice plan involving mailed notices, notice to banks and brokers, publication in The Wall Street Journal and PR Newswire, a settlement website, a toll-free telephone number, an email address, and notice through the Depository Trust Company’s Legal Notice System. The court found that the plan was reasonably calculated to inform class members and that the proposed notice contained the information required by Rule 23.

Disposition

The court GRANTED Plaintiffs’ motion for preliminary approval of class action settlement. It also provisionally certified the settlement class, appointed the class representative and class counsel, preliminarily approved the Plan of Allocation, approved JND as Claims Administrator, approved the notice plan, and directed the parties to implement that plan. The parties were directed to submit a schedule for settlement events, including deadlines for notice, objections, opt-outs, fee and incentive-award motions, the final-approval motion, and the final fairness hearing.