Fleming v. Impax Laboratories Inc.

Background

New York Hotel Trades Council, identified as the lead plaintiff, alleged that Impax Laboratories Inc., George Wilkinson, Larry Hsu, Bryan Reasons, and Carole Ben-Maimon violated Sections 10(b) and 20(a) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5. The case concerned alleged false statements and material omissions related to the defendants’ alleged anticompetitive conduct.

The court had previously dismissed an amended complaint with permission to amend. It later dismissed the second amended complaint with prejudice. The Court of Appeals affirmed in part and reversed in part. After further proceedings, the parties accepted a mediator’s proposal to settle the case for $33 million. The court preliminarily approved the settlement in November 2021 and later considered the plaintiffs’ unopposed motion for final approval, approval of the allocation plan, attorneys’ fees and expenses, and payments to the named plaintiffs.

Settlement Terms and Notice

The settlement class included all people who purchased or acquired Impax common stock or 2% Convertible Senior Notes between February 20, 2014, and August 9, 2016, inclusive. The defendants were required to pay $33 million into a settlement fund. After taxes, administrative costs, litigation expenses, attorneys’ fees, and incentive awards, the remaining money would be distributed pro rata according to formulas estimating each authorized claimant’s recognized loss. At least 95% of the net fund would be allocated to common-stock claims, and no more than 5% would be allocated to claims involving the convertible notes.

If redistribution to claimants was no longer cost-effective, remaining funds could be donated to the Investor Protection Trust, a nonprofit organization dedicated to educating and protecting investors. The court found a sufficient connection between that organization and the class’s interests.

The claims administrator mailed 49,620 notice packets, published summary notices, maintained a settlement website, provided telephone and email assistance, and notified banks, brokers, and other nominees. The court found that the notice plan complied with the applicable class-action rules. No objections and no requests for exclusion were received by the deadline.

Court’s Analysis

Under Federal Rule of Civil Procedure 23, a court must determine that a class settlement is fundamentally fair, adequate, and reasonable and must protect absent class members. The court considered the strength and risks of the plaintiffs’ claims, the settlement amount, the stage of the litigation, the risks of maintaining class certification, counsel’s experience and views, and the class members’ reaction.

The court concluded that continued litigation carried significant risks, including a pending motion challenging subject-matter jurisdiction, possible additional dismissal motions, possible loss of class certification, summary judgment, and trial. The plaintiffs also faced difficulties proving that the defendants’ statements were false and material and proving class-wide causation and damages.

The court found that the expected net settlement fund was $22,567,419 and that the $33 million settlement represented approximately 12.5% of the damages plaintiffs’ counsel estimated could be recovered at trial. The court also found that counsel had enough information to evaluate the case after more than four years of litigation, investigation, appellate proceedings, and mediation. Considering these factors and the absence of objections or exclusion requests, the court found the settlement fair, adequate, and reasonable and found no evidence of collusion or conflicts of interest.

Fees, Expenses, and Named-Plaintiff Awards

The court approved $9.9 million in attorneys’ fees. That amount represented 30% of the $33 million settlement fund, above the Ninth Circuit’s 25% benchmark. As a cross-check, counsel had recorded 4,718 hours and a lodestar—the hours multiplied by reasonable hourly rates—of $3,815,664.75. The requested fee was approximately 2.6 times the lodestar, which the court found reasonable in light of the results, litigation risks, counsel’s work, and comparable awards.

The court also approved reimbursement of $176,501.78 in litigation expenses, plus interest. The expenses included consultant, mediation, filing, service, research, postage, and travel costs.

Finally, the court approved enhancement awards of $9,462.50 for New York Hotel Trades Council and $1,176.10 for Sheet Metal Workers’ Fund. The court found that both organizations added value to the case and that the requested amounts reasonably compensated them for their time and expenses.

Disposition

The court granted the plaintiffs’ motion for final approval of the class-action settlement, approval of the plan of allocation, attorneys’ fees and expenses, and awards to the plaintiffs under 15 U.S.C. § 78u-4(a)(4). It approved the $33 million settlement and the specified fees, expenses, and enhancement awards. The parties and claims administrator were directed to implement the settlement, file a short stipulated final judgment within seven days, and file a post-distribution accounting within 21 days after distributing the settlement funds. Judge Haywood S. Gilliam, Jr. signed the order.