IN RE TAL EDUCATION GROUP SECURITIES LITIGATION

Background

This securities-fraud class action involved purchases of TAL Education Group’s American Depositary Shares from June 1, 2016, through June 13, 2018. TAL provides educational services, and its shares traded on the New York Stock Exchange. The plaintiffs sued TAL and three individual defendants who were senior TAL executives.

The plaintiffs alleged that TAL falsely reported transactions involving its Guangzhou one-on-one tutoring business, known as GZ 1-1, and a company called Shunshun. According to the allegations, TAL improperly recognized $37.5 million in net income from the supposed GZ 1-1 transfer and $25.2 million from a revaluation of its interest in Shunshun. The plaintiffs alleged that TAL failed to disclose material information about its financial condition and business prospects. After Muddy Waters published a report on June 13, 2018, exposing the alleged transactions, TAL’s share price fell by approximately 9.95 percent, according to the complaint.

The plaintiffs initially filed the action in June 2018. The district court dismissed the amended complaint in September 2019, but the Court of Appeals for the Second Circuit reversed that judgment and sent the case back for further proceedings in November 2020. The parties later participated in private mediation and reached an agreement in principle to settle all claims.

Settlement and Class Certification

The proposed settlement class covered people and entities that purchased or otherwise acquired TAL American Depositary Shares during the settlement period and were damaged as a result. The agreement excluded, among others, TAL, the individual defendants, certain related persons and entities, certain TAL officers and directors and their immediate family members, and TAL’s liability insurers.

TAL agreed to provide a $7.5 million cash settlement fund. Each eligible class member’s share would be calculated on a pro rata basis using the member’s net losses compared with the total value of valid claims. The settlement required class members who accepted payment to release claims arising from the allegations, transactions, and events involved in the case, while preserving claims to enforce the settlement and claims of people whose exclusion requests were accepted.

The court certified the class for settlement purposes under Federal Rule of Civil Procedure 23. It found that the class was sufficiently numerous, that common questions and the representative plaintiffs’ claims were adequately shared with the class, and that the representatives and counsel could fairly protect class members’ interests. It also found that common issues predominated and that a class action was the superior method for resolving the dispute.

Fairness Analysis

Under Rule 23, a court may approve a class settlement only after finding that it is fair, reasonable, and adequate. The court examined both the negotiation process and the settlement’s terms. It found that experienced counsel investigated the case, conducted discovery, litigated the motion to dismiss and appeal, and negotiated through a neutral mediator. These circumstances supported a finding of procedural fairness.

The court also found the settlement substantively fair. It considered the complexity and likely duration of continued litigation, the costs of obtaining and translating evidence from China, the risks of proving liability and damages, the potential difficulties of maintaining class certification through trial, and the uncertainty of collecting a judgment. The court noted that the settlement amount represented 5.3 percent of the class’s estimated maximum damages and concluded that the amount was reasonable in light of the litigation risks.

The court approved the allocation plan because it provided an established claims process, allowed claimants to cure deficiencies or seek court review of a denial, and distributed the net settlement fund proportionally among authorized claimants. The court also noted that there were no objections and only three requests for exclusion.

Fees, Costs, and Incentive Awards

Plaintiffs’ counsel requested attorneys’ fees equal to 33 1/3 percent of the settlement fund, reimbursement of $159,013.14 in costs, and incentive awards of $7,500 for each of the two lead plaintiffs, Edward Lea and Dios Asset Management PTE. LTD.

The court approved the fee request after considering counsel’s 2,836.90 hours of work, the case’s complexity, the risks undertaken on a contingent basis, counsel’s experience and quality of representation, and the relationship between the requested fee and the settlement. The court stated that the percentage produced a lodestar multiplier of 1.3 and was reasonable. It also found the documented costs reasonable and approved them. Finally, based on the lead plaintiffs’ declarations that they spent approximately 50 hours each assisting with the litigation, the court granted an incentive award of $7,500 to each lead plaintiff.

Disposition

The court granted the motion for final approval of the settlement. It also granted the motion for attorneys’ fees and costs. The court stated that it was issuing a judgment, a plan-of-allocation order, and a fee-and-expense order at the same time as the opinion. The opinion approved the settlement and related awards; it did not decide whether the alleged securities fraud occurred or whether the defendants were legally liable on the underlying claims.