Pacheco v. Guyer

Background

Luis Pacheco brought this derivative action on behalf of Ophthotech Corporation against David R. Guyer, Glenn P. Sblendorio, David E. Redlick, Thomas Dyrberg, Axel Bolte, Michael J. Ross, Samir C. Patel, and Nicholas Galakatos. A derivative action is brought by a shareholder on behalf of a corporation. Pacheco asserted claims for breach of fiduciary duty, unjust enrichment, and waste of corporate assets.

The court had previously denied the defendants’ motion to dismiss, and the defendants later answered the complaint. The parties informed the court in October 2021 that they had reached a settlement. Pacheco then filed an unopposed motion seeking preliminary approval of the settlement, approval of the proposed notice to the shareholders or other class members, and a schedule for a fairness hearing.

Legal standard

The court explained that proposed class settlements generally receive preliminary approval before a fairness hearing. At the preliminary stage, the court evaluates whether there is sufficient reason to submit the settlement to class members and whether the proposal appears fair, reasonable, adequate, free of obvious deficiencies, and within the range of possible approval. Courts may give weight to the parties’ assessment of litigation risks and to settlements reached through informed, noncollusive negotiations.

Settlement evaluation

The court found that the settlement terms appeared to result from extensive, good-faith, arm’s-length negotiations. The negotiations involved two mediators, an all-day mediation session, continued discussions after mediation, and negotiations involving Ophthotech’s Special Litigation Committee and its independent counsel. Pacheco’s counsel investigated the case and reviewed material from Ophthotech’s production of more than 100,000 documents comprising over 4.2 million pages.

The court also found no obvious deficiencies in the settlement terms. Ophthotech agreed to maintain corporate-governance reforms for at least four years. The reforms addressed board independence and functioning, oversight and internal controls for clinical trials, public disclosures, and controls intended to detect and prevent insider selling. The court found the $2,450,000 in attorneys’ fees and expenses reasonable at that point, but stated that attorneys’ affidavits and billing records would still need to be examined before final approval. The opinion states that the fees and expenses would be paid by the individual defendants’ insurers.

Notice plan

The proposed notice plan called for filing the settlement documents and notice with the Securities and Exchange Commission, publishing a summary notice once in the national edition of Investors’ Business Daily, and posting the settlement documents and notice on an internet page linked through Ophthotech’s investor website.

The court concluded that the proposed notice was the best practicable notice under the circumstances and satisfied the seven requirements identified under Federal Rule of Civil Procedure 23(c)(2)(B), including explaining the nature of the action, the defined class, the claims, the right to appear through counsel, exclusion procedures, and the binding effect of a class judgment.

Disposition

The court granted Pacheco’s unopposed motion for preliminary approval of the settlement. It ordered the parties to resubmit a text-editable proposed order setting out the settlement procedure and schedule. The court stated that it would approve the proposed procedure in a separate order and directed the Clerk of Court to close the open motions on the docket. This opinion granted preliminary approval; it did not state that final approval had been entered.