Yedlowski v. Roka Bioscience, Inc., Case No. 14-CV-8020-FLW-TJB

STANLEY YEDLOWSKI, etc., Plaintiffs, v. ROKA BIOSCIENCE, INC., et al., Defendants

Case No. 14-CV-8020-FLW-TJB

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY

November 10, 2016

Not for Publication

WOLFSON, United States District Judge:

Before the Court are the motions for final approval of a proposed settlement and an award of attorneys' fees and reimbursement of expenses filed by Lead Plaintiff Stanley Yedlowski, through counsel the Rosen Law Firm, PA. This settlement will resolve all claims asserted against Defendants Roka Bioscience, Inc., Paul G. Thomas, and Steven T. Sobieski. Defendants, through counsel Proskauer Rose LLP, support the motions for final approval of settlement and take no position on the motion for an award of attorneys' fees and reimbursement of expenses.

For the reasons set forth below, Lead Plaintiff's motion for final approval of the parties' $3.275 million settlement is granted. Lead Counsel is awarded $982,500 in attorney's fees and $20,972.82 in costs. Lead Plaintiff is awarded the nominal sum of $3,000. All attorney's fees, costs, and nominal awards are payable from the settlement fund.

I. FACTUAL BACKGROUND

This case is a securities class action brought on behalf of investors who bought Roka common stock in, pursuant to, or traceable to, Roka's July 17, 2014 Initial Public Offering, including persons who bought Roka common stock between July 17, 2014 and March 26, 2015.

Defendant Roka sells tests to detect foodborne pathogens to large-scale food testers such as food manufacturers and commercial testing labs. Roka's tests can only be run on its stand-alone, single purpose platform. In March 2014, shortly before the IPO, Roka discovered that with some customers, its test to detect Listeria (a foodborne pathogen) generated unacceptable levels of false positives, i.e., incorrect results showing that a testing sample contains Listeria when it does not. Roka implemented a change in the test protocol to reduce the chances of false positives.

Roka's IPO registration statement (the "IPO Registration Statement") disclosed that Roka's Listeria test had generated sporadic false positives. The IPO Registration Statement also represented that the change in the test protocol had adequately addressed customers' false positives problems. Roka held its IPO in July 2014, selling its stock at $12/share, raising $55.8 million.

The Complaint alleges that by the time of the IPO, Defendants already knew, but did not disclose, that (a) Roka's solution to the problem of false positives for Listeria had failed, and (b) Roka had begun to lose customers because of the Listeria false positives. The Complaint alleges that in the run up to the IPO, Roka received daily complaints of Listeria false positives and that five of Roka's testing platforms had been returned by dissatisfied customers. The Complaint also alleges that Roka received regular complaints from its customer Silliker, a testing lab which ran Roka's tests for food producer Hillshire Farm. The Complaint alleges that Hillshire Farmstopped using Roka's tests altogether before the IPO because it could not trust the Listeria test results.

In a November 6, 2014 conference call and press release, Roka announced that the Listeria false positives problem had caused its revenue growth to stall. Lead Plaintiff alleges that because of Roka's precarious financial condition, the stall dramatically increased the chance that Roka would ultimately fail. The next trading day, Roka's stock price fell from its previous close of $8.34 to close at $3.00. The Complaint alleges that the market only learned the true scope of the false positives problem when, on March 26, 2015, following another quarter of zero sales growth, Roka announced that its sales would not increase substantially until Roka replaced the Listeria tests. Roka's stock price fell from $4.01 to $3.13 over the next two trading days.

II. PROCEDURAL HISTORY

This Action was filed on December 24, 2014. In April 2015, the Court appointed Mr. Stanley Yedlowski as Lead Plaintiff and The Rosen Law Firm, P.A. as Lead Counsel. Lead Plaintiff and named plaintiff Pratik Pitroda ("Plaintiffs") timely filed their Complaint alleging violations of Section 11 of the Securities Act of 1933 (the "Exchange Act") against Defendants Roka, Thomas, and Sobieski.

In July 2015, following appointment of Lead Plaintiff and Lead Counsel and filing of an Amended Complaint, Defendants filed a letter motion seeking to have the Court strike, discount, or otherwise limit consideration of facts the Amended Complaint attributed to confidential witnesses. After considering Defendants' letter, Plaintiffs' response, and Defendants' reply, the Court declined to award any of the relief sought in Defendants' letter motion.

In September 2015, Defendants filed a motion to dismiss the Amended Complaint. A month later, Plaintiffs filed their opposition. The Court then stayed further briefing on Defendants' motion to dismiss while the Parties explored settlement discussions. To facilitate settlement discussions, the Settling Parties retained a mediator, the Hon. Faith S. Hochberg, U.S.D.J. (Ret.). Prior to a formal mediation, the parties submitted confidential mediation statements and replies.

The Settling Parties then held an all-day mediation before Judge Hochberg on December 15, 2015. Defendants' insurer also attended the mediation. There, the Parties signed a settlement term sheet, whose principal term was that the Action would be dismissed for a cash payment of $3.275 million.

The Parties then negotiated and drafted the Settlement Agreement. Plaintiffs filed for preliminary approval on May 20, 2016, and, on June 28, 2016, the Court granted Plaintiffs' motion; preliminarily approved the proposed settlement; certified the putative class for settlement purposes; approved the form and content of the proposed Individual Notice, Claim Form, and Summary Notice; authorized the mailing and publication of the notice materials; and scheduled a Fairness Hearing for November 9, 2016.

The Stipulation was conditioned on Lead Plaintiff's ability to conduct confirmatory discovery to determine whether the underlying facts were consistent with Lead Plaintiff's original understanding that the proposed settlement is fair, reasonable, and adequate. Defendants therefore made available to Lead Counsel some 8,074 documents, consisting of more than 377,000 pages.

The production consisted of documents from March 1 through August 31, 2014 that fit into at least one of the following categories: (i) documents that were generated by anyone on alist of Roka custodians who had been involved with the Listeria assay and that included at least one term on a list of search terms relating to the Listeria assay; (ii) minutes of meetings of Roka's Senior Management Team, and materials generated in preparation for those meetings; (iii) minutes of Roka's Board of Directors, and materials generated in preparation for those meetings; or (iv) Roka's complaint log during the relevant time period. Lead Counsel and defendants' counsel engaged in arm's-length negotiations to determine the lists of custodians and search terms used to generate the confirmatory discovery production.

Lead Counsel also interviewed three present or former Roka officials or employees, including Roka's former Chief Financial Officer and its Director of Product Marketing. After conducting their review, Lead Counsel and its clients have represented to the court that they continue to believe that the proposed settlement is fair, reasonable, and adequate and in the best interests of the Class.

On or before July 21, 2016, the Claims Administrator (Strategic Claims Services ("SCS")) mailed copies of the Court-approved Individual Notice and Claim Form by first-class mail to 49 potential Class Members for whom address information was available from Roka's transfer agent. SCS also mailed the notice materials to another 1,524 custodial banks and other institutions identified from SCS's proprietary databases. SCS later mailed the notice materials to an additional 2,582 potential Class Members identified by nominees or other individuals. Thus, SCS sent a total of 4,155 sets of notice materials to potential Class Members and Nominees. In addition, SCS sent the Individual Notice and Claim Form to the Depository Trust Company (the "DTC") for publication on the Legal Notice System. SCS also caused the Court-approved Summary Notice to be published once in The Wall Street Journal and in Investor's BusinessDaily, as well as on Globe Newswire. SCS also posted information and documents about the proposed settlement on its website.

The matter came before the Court for a Fairness Hearing on November 9, 2016. Counsel for the parties appeared. The parties did not appear. Lead Plaintiff's Counsel represented on the record that given the number of eligible claims that had been received, the projected recovery for individual class members would be between 16% and 18.5% of their losses, depending upon the number of currently deficient claims that may later be cured. With neither party wishing to make any additional supplements to the record, the Court summarized its findings, to be set forth in the opinion to follow.

III. TERMS OF SETTLEMENT

On May 17, 2016, the parties' counsel executed a Stipulation setting forth the terms of the settlement. The proposed settlement agreement provides for a payment of $3.275 million in cash (the "Settlement Amount") into a settlement fund to resolve all claims in this action. The $3.275 million has been paid into an escrow account in accordance with the terms of the Stipulation.

The Stipulation also states that notice and administrative costs, as well as Lead Counsel's fees and expenses, will be paid from the settlement fund. The remainder of the fund will be distributed to eligible Class Members. The Stipulation does not specify an allocation between Plaintiff's counsel and the class, leaving that issue for ...