In re Splunk Inc. Securities Litigation

Background

Louisiana Sheriffs’ Pension & Relief Fund, the lead plaintiff, brought a federal securities class action against Splunk Inc., Chief Executive Officer Douglas Merritt, and Chief Financial Officer Jason Child under Section 10(b) of the Securities Exchange Act of 1934. The proposed class covered people and entities that purchased or otherwise acquired Splunk common stock from May 21, 2020, through December 2, 2020, inclusive, and continued to hold Splunk common stock after December 2, 2020.

The dispute concerned whether Splunk’s stock price was artificially inflated by allegedly false or misleading statements and omissions about professionals, and whether later clarifying statements caused a decline in the stock price. The court had previously granted in part and denied in part the defendants’ motion to dismiss. The parties later conducted discovery and participated in mediation. They accepted a mediator’s recommendation to settle the action for $30 million.

Settlement Terms and Notice

Splunk agreed to pay $30 million into a settlement fund. The fund would be used for taxes, notice and administration costs, court-awarded litigation expenses, court-awarded attorney’s fees, and other court-approved costs and fees. The remaining amount would be distributed to eligible claimants under the plan of allocation.

Eligible class members who submitted timely claims would receive pro rata payments based on recognized losses. The calculation considered when the stock was purchased and sold, the purchase and sale prices, and whether the stock was still held on March 2, 2021. Any remaining funds after additional distributions would be paid to the Investor Protection Trust as a cy pres recipient.

The settlement released claims related to the allegations, transactions, facts, and stock purchases involved in the action, subject to the exclusions described in the settlement agreement. The opinion also states that the agreement allowed Splunk to terminate the settlement if the number of opt-outs met conditions in a confidential supplemental agreement.

The court previously approved a notice plan. As of December 7, 2023, 291,713 copies of the notice and claim form had been mailed to potential class members and nominees. The notice was also published in The Wall Street Journal and through PR Newswire. No class member objected, and 11 individuals opted out.

Court’s Analysis

Under Federal Rule of Civil Procedure 23(e), a class settlement requires court approval. The court considered whether the notice was adequate and whether the settlement was fair, reasonable, and adequate. It found that the approved notice procedures sufficiently informed the settlement class.

For settlement purposes, the court finally certified Louisiana Sheriffs’ Pension & Relief Fund as the class representative and Bernstein Litowitz Berger & Grossmann LLP as class counsel. The court found no apparent conflicts, determined that counsel had vigorously prosecuted the case, and concluded that this factor supported approval.

The court also considered the risks of continued litigation. Defendants continued to dispute falsity, materiality, scienter, loss causation, and damages. The court found that these weaknesses and the other risks of litigation supported approval of the settlement. It found that the pro rata distribution method was effective, that the settlement treated class members equitably, and that the $30 million fund was fair and reasonable in light of the uncertainties of further litigation.

The court determined that the parties had conducted sufficient discovery to make an informed settlement decision. It also found no indicators of collusion identified in the governing precedent, including no clear-sailing provision and no arrangement returning undistributed funds to Splunk. The court gave little weight to counsel’s support for the settlement but found that the overall reaction of the class favored approval because there were no objections and only 11 opt-outs.

Disposition

The court granted final approval of the proposed settlement agreement and plan of allocation. It confirmed certification of the class for settlement purposes only and excluded class members who opted out. The court incorporated the settlement’s releases and definitions, provided that the judgment would be vacated if the settlement terminated or its effective date failed to occur, and stated that the parties would otherwise bear their own costs and expenses except as provided in the settlement agreement.

The court retained continuing jurisdiction solely to enforce the settlement, address settlement administration, and handle appropriate post-judgment matters. Judgment was entered, and the clerk was directed to close the file.