Howard v. Liquidity Servs. Inc.

LEONARD HOWARD, individually and on behalf of all others similarly situated, Plaintiff, v. LIQUIDITY SERVICES INC., et al., Defendants.

Civil Action No. 14-1183 (BAH)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

October 5, 2018

Chief Judge Beryl A. Howell

MEMORANDUM OPINION

After over four years of litigation, the parties in this securities class action have reached a Settlement Agreement, pursuant to which all of the plaintiffs' claims will be resolved in exchange for a cash payment of $17,000,000. Class Representatives Caisse de dépôt et placement du Québec ("Caisse") and the City of Newport News Employees' Retirement Fund ("NNERF") have now filed an Unopposed Motion for Final Approval of Class Action Settlement ("Pls.' Mot. Final Approval"), ECF No. 120, while Class Counsel Labaton Sucharow LLP ("Labaton Sucharow") and Spector Roseman & Kodroff, P.C. ("Spector Roseman") have filed a Motion for an Award of Attorneys' Fees and Payment of Litigation Expenses ("Pls.' Mot. Att'ys' Fees"), ECF No. 121. Following a hearing, on October 5, 2018, to consider whether the proposed settlement is fair, reasonable, and adequate, and finding that the settlement meets these standards, for the reasons set out below, both motions are granted.

I. BACKGROUND

The plaintiffs' allegations and details about the alleged misrepresentations and omissions are detailed in the Court's prior opinions in this action. See Howard v. Liquidity Servs., Inc. ("Howard I"), 177 F. Supp. 3d 289, 295-303 (D.D.C. 2016); Howard v. Liquidity Servs., Inc. ("Howard II"), 322 F.R.D. 103, 108-12 (D.D.C. 2017). The factual and procedural background relevant to understanding the pending motions thus are summarized only briefly, followed by a discussion of the settlement and related proceedings.

A. Facts and Procedural Background

Defendant Liquidity Services, Inc. ("LSI") "provides online auction marketplaces for surplus and salvage assets—also known as a reverse supply chain—for which service the company retains a percentage of the sale proceeds." Howard II, 322 F.R.D. at 108 (internal quotation marks omitted). In their complaint, the Class Representatives allege that LSI and individual defendants William Angrick, LSI's Chief Executive Officer, and James Rallo, LSI's Chief Financial Officer (collectively, "defendants" or "LSI"), "constructed a story of sustained growth and expansion of LSI's business"—specifically, in LSI's retail division—by issuing a series of "fraudulent and misleading public statements" that "artificially inflated stock prices throughout the class period." Id. at 110. According to the complaint, the market learned the truth about the declining growth in LSI's retail division and its troubles with acquisitions "through a series of partial corrective disclosures." Jt. Decl. of Jonathan Gardner & Andrew D. Abramowitz ("Jt. Decl.") ¶ 9, ECF No. 122. After the defendants announced, on May 8, 2014, "below guidance" financial results for the second quarter of fiscal year 2014, Howard II, 322 F.R.D. at 111, "LSI's stock price fell from $17.31 per share on May 7, 2014 to $12.17 per share on May 8, 2014, a 29.7% drop," Jt. Decl. ¶ 9, ECF No. 122.

On July 14, 2014, individual investor and original lead plaintiff Leonard Howard filed this class action against LSI asserting claims under § 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and § 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). Compl. ¶ 1, ECF No. 1. Institutional investors Caisse and NNERF were then appointed co-lead plaintiffs, pursuant to the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15U.S.C. § 78u-4(a)(3), see Order Appointing Lead Pl. & Approving Selection of Counsel at 1, ECF No. 32, and filed an amended complaint on December 15, 2014. See generally Am. Compl., ECF No. 35. The defendants' subsequent motion to dismiss, pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b), and the PSLRA, see generally Defs.' Mot. Dismiss Am. Compl., ECF No. 40, was granted in part and denied in part, allowing the plaintiffs to proceed with their claim of alleged "misrepresentations regarding the health of LSI's retail and commercial capital assets divisions," as well as their claim that the individual defendants were jointly and severally liable for LSI's alleged § 10(b) violation, Howard I, 177 F. Supp. 3d at 311, 316-17. The defendants' motion for reconsideration of the partial denial of their motion to dismiss was also denied. See Minute Order (dated Dec. 21, 2016).

The plaintiffs then moved to certify a class consisting of "all persons and entities who purchased or otherwise acquired the publicly traded common stock" of LSI "during the period of February 1, 2012 through May 7, 2014, inclusive," and "who were damaged thereby." Pls.' Mem. Supp. Mot. Class Cert. at 1, ECF No. 64. Meanwhile, the defendants moved for partial summary judgment on the issue of reliance. See generally Defs.' Mot. Summ. J., ECF No. 83. On September 6, 2017, the Court addressed both motions, certifying the class as requested by the plaintiffs, Howard II, 322 F.R.D. at 117-41, 144, and denying the defendants' motion for partial summary judgment, citing the fact that the defendants' arguments supporting that motion were "virtually identical to the arguments the defendants raise[d] in opposition to the plaintiffs' class certification motion," id. at 141. On November 21, 2017, the Court approved the Class Representatives' unopposed motion for approval of the form and content of the notice of pendency and method for providing notice of the class action to potential class members. See generally Order, dated Nov. 21, 2017, ECF No. 111. The Garden City Group, LLC ("GCG")was retained as notice administrator, and notice of the class action was mailed to potential class members, posted on the website designated for the lawsuit, published in Investor's Business Daily, and transmitted over PR Newswire. Id. at 3-4.

B. Terms of the Settlement and Notice to the Class

In December 2017, the parties retained Judge Layn R. Phillips, a former judge of the United States District Court for the Western District of Oklahoma, "to assist them in exploring a potential negotiated resolution of the Action." Pls.' Mot. Prelim. Approval of Settlement ("Pls.' Mot. Prelim. Approval") at 7, ECF No. 116. The parties met with Judge Phillips for a full day on February 8, 2018, and failed to reach an agreement, but Judge Phillips nevertheless "continued his efforts to facilitate discussions and to mediate a potential resolution" and the parties "reached an agreement in principle to settle the Action on March 7, 2018." Id. The parties executed a Term Sheet on April 12, 2018, and a Stipulation of Settlement on June 19, 2018. Jt. Decl. ¶ 64. On June 20, 2018, the parties notified the Court that they had reached a proposed settlement that, "if approved by the Court, will resolve all claims asserted, or that could have been asserted, against Defendants in the Action," and requested preliminary approval of that settlement. Pls.' Mot. Prelim. Approval at 1.

The proposed settlement "provides for the resolution of all claims in the Action and related claims . . . in exchange for a cash payment of $17,000,000." Jt. Decl. ¶ 3. The proposed Plan of Allocation "provides for distribution of the Net Settlement Fund among Authorized Claimants on a pro rata basis based on 'Recognized Loss' formulas tied to liability and damages," id. ¶ 95, and the "Recognized Loss Amount" for each authorized claimant "will be calculated by the Claims Administrator for each share of LSI common stock purchased or acquired during the Class Period, as listed in the Claim Form, and for which adequate documents is provided," id. ¶ 96. If "[a]ny balance [ ] still remains in the Net Settlement Fund after suchdistributions," and that balance "is not feasible or economical to reallocate, after payment of outstanding Notice and Administration Expenses, Taxes, and attorneys' fees and expenses," that remainder "will be donated to one or more not-for-profit organizations recommended by Class Representatives, on notice to Defendants and Defendants' Counsel, and approved by the Court." Pls.' Mot. Final Approval at 18. Class Counsel requests a fee of 25 percent of the Settlement Fund, as well as $790,897.81 in litigation expenses and a "collective request of $26,974.66 to reimburse Class Representatives for their reasonable costs and expenses, including lost wages, pursuant to the PSLRA." Jt. Decl. ¶ 7.

On June 21, 2018, the Court preliminarily approved the settlement agreement, appointed GCG as Claims Administrator, scheduled the final settlement hearing, and approved a plan for providing notice of the proposed settlement to the Class. See Order, dated June 21, 2018 at 3-4, ECF No. 118. The Settlement Notice informed potential class members of "their right to opt-back into the Class (for those who previously requested exclusion in connection with the Class Notice); their right to object to any aspect of the Settlement, the Plan of Allocation, or the Fee and Expense Application; and the manner for submitting a Claim Form in order to be eligible to receive a payment from the net proceeds of the Settlement." Jt. Decl. ¶ 67. The Notice also "informed Class Members of Class Counsel's intention to apply for an award of attorneys' fees of no more than 25% of the Settlement Fund and for payment of litigation expenses in an amount not to exceed $980,000." Id.

GCG began mailing "Claim Packets" to potential class members, banks, brokerage firms, and other third-party nominees on July 6, 2018, and, as of September 27, 2018, had mailed 93,237 Claim Packets. Pls.' Reply Supp. Mot. Final Approval ("Pls.' Reply") at 1, ECF No. 124. In addition, on July 16, 2018, GCG published the Summary Notice in Investor's Business Daily and transmitted itover the PR Newswire. Jt. Decl. ¶ 69; see also Jt. Decl., Ex. 3, Aff. of Brian Stone ("Mailing Aff.") ¶ 8, ECF...