A Magistrate Judge for the United States District Court for the District of Massachusetts recently issued a Report and Recommendation ("R&R") on the Lead Plaintiffs’ Motion for Final Approval of Class Action Settlement and Plan of Allocation in Hill v. State Street Corporation. The recommendation contains language that is useful to institutional investors, as it enumerates what constitutes adequate class representation and proper notice to potential settlement claimants in complex litigation matters. The presiding judge adopted the R&R on January 8, 2015.
This order outlines what is required of a lead plaintiff and its counsel in disseminating settlement notices. The notices need not reach every potential class members, and the plan of dissemination does not need to be perfect. As long as the manner of distribution is reasonably calculated, and as long as the notice itself contains the information outlined in the court’s order, a finding of adequacy in regards to counsel’s performance should survive any objections from aggrieved potential class members.
On March 12, 2014, after over two years of discovery, and after the Lead Plaintiffs filed a motion for class certification, the parties reached an agreement in principle to settle the action for a cash payment of $60 million to be made on behalf of the Defendant for the benefit of the proposed settlement class. In the R &R, the Court recommended that the District judge now presiding over the case certify the settlement class, concluding, among other things, that the Lead Plaintiffs and Co-Lead Counsel adequately represented the settlement class.
Prior to the final approval hearing and the issuance of the R &R, only two objections were received in response to the notice program. In the objection discussed here, the shareholders primarily argued that they were denied procedural due process because the class notice packets were allegedly not timely disseminated to – according to the objectors – many other potential class members. The objectors held their shares in “street name” as the beneficial owners. As a result, their identities were not initially known to the claims administrator. Pursuant to the dissemination process, the objectors received their packet on October 6, 2014, the established deadline for exclusion from the class.
The objectors argued that the best notice practicable was direct mail notice to each potential class member’s last known address, arriving in time to allow each potential class member to make an informed decision on whether to object. They argued that, because their notice packets were sent on October 1 and October 2, they were justifiably concerned that the dissemination practice may have led to a “massive failure” to provide timely notice to “hundreds and thousands of settlement class members,” although they pointed to no concrete evidence that any other shareholders actually received their notice in an untimely fashion. Essentially, the objectors contended that, because they allegedly received their notice immediately before the deadline for exclusion, Co-Lead counsel’s failure to move to extend the deadline for exclusion or to use “the best notice practicable” in expediting the mailing of the notice packets constituted inadequate performance.
The court concluded that Co-Lead Counsel adequately represented the interests of the class, largely because it also concluded that the notice provided to the settlement class satisfied the requirements of both Fed. R. Civ. P. Rule 23 and due process. According to the materials cited by the Court, on August 18, 2014, the claims administrator directly mailed the notice packet to every record holder of company stock identified by the Defendant. Because many potential class members – including the objectors – held their stock in “street name,” they were not record holders and their identities were thus not immediately known to the claims administrator or the Defendant. In order to identify those potential class members, the claims administrator also mailed the notice packet to over 1,800 of the largest and most common banks, brokers and other nominees on August 18, 2014, along with a cover letter informing the nominees that a court order required them to take time-sensitive action as a means of complying with the order.
Following the initial mailing, the claims administrator began to receive responses from the nominees, with either names and addresses of potential class members or requests for additional copies of the notice packet to forward to its customers. Some nominees were late in submitting their responses to the notice packet; others failed to do so in the form requested by the claims administrator, which further delayed the process. Through this process – which complied with the court’s Preliminary Approval Order – the claims administrator and nominees were able to disseminate 293,873 notice packets by September 22, 2014. As of October 6, 2014, that number rose to 628,436 notice packets, which represented 80.8% of all notice packets mailed. By October 15, 2014, 98.5% of the notice packets were disseminated. The claims administrator also published the summary notice in the Wall Street Journal and over the PR Newswire, established a website containing copies of the notice, claim form, and other documents, and published notice of the settlement on the website of Co-Lead Counsel.
Simply put, the court concluded that the Lead Plaintiffs’ method of giving notice to potential class members – which completely comported with the method ordered by the court in the Preliminary Approval Order – constituted adequate notice. It stated that neither Rule 23 nor due process require that every potential class member receive notice at all. Rather, Rule 23 requires that “[t]he court must direct notice in a reasonable manner to all class members who would be bound by the proposal.” Fed. R. Civ. P. 23(e)(1). Similarly, due process requires that the notice must be “reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” In re Prudential Sec. Inc. Ltd. P’Ships Litig.
Given the enormity of the settlement class, and the necessary reliance on timely responses from a number of nominees to determine the identity of shareholders who held stock in “street name,” it was simply inevitable that a percentage of potential class members would receive their notice around or after the date of exclusion. In addition, the notice was made available in the Wall Street Journal and online. Put another way, the results of the notice process are not necessarily of the utmost importance; it is inevitable in litigation as complex as this that some potential class members will not receive notice in a timely manner, if at all. As long as the method of disseminating the notice was reasonably calculated to give notice to any interested parties in a timely manner, an objection to the timeliness of the notice will probably be denied.
The objectors have appealed to the United States Court of Appeals for the First Circuit.