Citations
- 912 F. Supp. 2d 1178
Full opinion text
MEMORANDUM OPINION AND ORDER
JAMES O. BROWNING, District Judge.
THIS MATTER comes before the Court on: (i) ■ the Plaintiffs’ Motion for Final Approval of Proposed Settlement, Plan of Allocation and Certification of Class for Settlement Purposes, filed July 23, 2012 (Doc. 391)(“Motion for Final Approval”); and (ii) Co-Lead Counsel’s Motion for an Award of Attorneys’ Fees and Expenses and Memorandum of Law in Support of Approval of Co-Lead Counsel’s Motion for an Award of Attorneys’ Fees and Expenses, filed July 23, 2012 (Doc. 392)(“Mo-tion for Attorneys’ Fees”). The Court held a hearing on August 27, 2012. The primary issues are: (i) whether the proposed Class meets the requirements of rule 23 of the Federal Rules of Civil Procedure and may be certified for settlement purposes; (ii) whether the proposed Settlement of $2,000,000.00. is fair and reasonable; and (iii) whether the requested attorneys’ award for twenty-percent of the $2,000,000.00 recovery, in. addition to costs, is reasonable. The Court determines that the proposed Class meets rule 23’s requirements and will certify the Class for settlement purposes only. The Court finds that the Settlement will be fair and reasonable, and will address the concerns of the objectors thereto, if: (i) a second distribution of the un-cashed checks is made, to Class members who cashed their checks in the first distribution; and (ii) a judgment reduction provision is added to the Settlement Order. The Court cannot order the parties to agree to a settlement over their objection. If the parties do not agree to these revisions, the Court believes that the Settlement would not be fair and reasonable, and will not approve the Settlement. If there is no approved settlement, the parties are free to negotiate different settlement terms and petition the Court for approval in the future, or the parties may proceed to trial. The Court believes that the requested attorneys’ award is reasonable, and thus approves the award.
FACTUAL BACKGROUND
This case — so far as is relevant to the disposition of this motion — involves four public offerings that, the Plaintiffs allege, were made pursuant to false or misleading offering documents. This consolidated action is brought by (i) W. Allen Gage, individually and on behalf of J. David Wrath-er, and Robert Ippolito, individually and as Trustee for the Family Limited Partnership Trust, and Nicholas F. Aldrich, Sr., individually and on béhalf of the Aid-rich Family (“Lead Plaintiffs”); and (ii) Betty L. Manning; (iii) John Learch; and (iv) Boilermakers Lodge 154 Retirement Plan, (collectively, with the Lead Plaintiffs, “the Plaintiffs”). Consolidated Amended Class Action Complaint at 1, filed June 14, 2011 (Doc. 361)(“CACAC”). The Plaintiffs purchased shares of Defendant Thornburg Mortgage, Inc. (“Thorn-burg Mortgage”) stock during the class period — from April 19, 2007 to March 19, 2008, inclusive — at prices that they allege were artificially inflated. They assert that they were damaged as a result of these inflated-price purchases, now that the truth has been revealed. See CACAC ¶¶ 55-59, at 25-26. Manning acquired 550 shares of Thornburg Mortgage common stock during the May, 2007 Offering. • See CACAC ¶ 56, at 25. She bought them on May 4, 2007, and paid $27.05 per share. See CACAC ¶ 56, at 25. Learch, as trustee for the Learch trust, acquired 400 shares of 07.5% Series E Cumulative Convertible Redeemable Preferred Stock in the June, 2007 Offering. See CACAC ¶ 57, at 25. He bought his shares on June 19, 2007, and paid $25.00 per share. See CACAC ¶ 57, at 2. Boilermakers Lodge purchased 860 shares of Thornburg Mortgage Series F Preferred Stock in the September, 2007 Offering. See CACAC ¶ 58, at 25. Boilermakers Lodge purchased these shares on August 30, 2007, and paid $25.00 per share. ' See CACAC ¶ 58, at 25.
1. The Defendants.
Thornburg Mortgage, the company whose securities are at the heart of this action, is a publicly traded residential-mortgage lender that represents that it focuses primarily on the “jumbo” and “super jumbo” segment, ie., loans totaling over $417,000.00, of the adjustable-rate mortgage (“ARM”) market. CACAC ¶ 6, at 10. “[Thornburg Mortgage] generates income from the small, net spread between the interest income it earns on its assets and the cost of its borrowings.” CACAC ¶ 6, at 10. Thornburg Mortgage was formed under the laws of the State of Maryland and has its principal place of business in Santa Fe, New Mexico. See CACAC ¶ 60, at 26. At all relevant times, Thornburg Mortgage’s securities have been traded on the New York Stock Exchange under the symbol “TMA.” CACAC ¶ 60, at 26. For federal income tax purposes, Thornburg Mortgage is classified as a Real Estate Investment Trust. See CA-CAC ¶ 115, at 44.
The “Individual Defendants” are: (i) Garrett Thornburg, the Chairman of Thornburg Mortgage’s Board of Directors; (ii) Larry A. Goldstone who served as the President and a Director of Thornburg Mortgage; (iii) Joseph H. Badal who served as a Director, Chief Lending Officer, and Executive Vice President of Thornburg Mortgage until his 2007 retirement; (iv) Paul G. Decoff who serves as Senior Executive Vice President and Chief Lending Officer; and (v) Clarence D. Simmons who served as Senior Executive Vice President and Chief Financial Officer until he left the company in 2009. See CACAC ¶¶ 61-66, at 26-27. The following Defendants constitute the “Underwriter Defendants,” which are all nationally recognized investment banking and asset management firms: (i) A.G. Edwards, Inc.; (ii) Bear Sterns & Co., Inc.; (iii) BB & T Capital Markets, a division of Scott & Stringfellow, Inc.; (iv) Citigroup' Global Markets, Inc.; (v) Friedman Billings Ramsey & Co.; (vi) Oppenheimer & Co. Inc.; (vii) RBC Dain Rauscher Inc.; (viii) Stifel Nicolaus & Company, Inc.; and (ix) UBS Securities LLC. CACAC ¶¶ 460-69, at 154-57. The “Director Defendants” include: (i) AnneDrue M. Anderson; (ii) David A. Ater; (iii) Eliot R. Cutler; (iv). Ike Kalangis; (v) Owen M. Lopez; (vi) Francis I. Mullin, III; and (vii) Stuart C. Sherman. CACAC ¶¶ 470-77, at 157-58.
2. The Claims.
This federal-securities class action sets forth claims under the Securities Act of 1933, 15 U.S.C. §§ 77a to 77aa (“Securities Act”), and under the Securities Exchange Act of 1934, 15' U.S.C. §§ 78a to 78oo (“Exchange Act”). CACAC ¶ 1, at 8. The Plaintiffs allege that “certain defendants acted knowingly or with recklessness in issuing materially false or misleading statements and/or failing to disclose material facts concerning the Company’s business and financial condition between April 19, 2007 and March 19, 2008.” CACAC ¶ 2, at 1.
3. Problems for Thornburg Mortgage.
Thornburg Mortgage has, historically, acquired capital through public offerings of its securities, short-term borrowings — including reverse repurchase agreements (“RPAs”) — the issuance of asset-backed commercial paper (“ABCP”), and the issuance of collateralized debt obligations (“CDO”). CACAC ¶ 7, at 10. Thornburg Mortgage was heavily leveraged — meaning that it borrowed a large amount of money compared to the amount of money that it had available to it. See CACAC ¶ 8, at 10.
Thornburg Mortgage publicly recognized the potential risk of the real-estate market going south, but repeatedly reassured analysts and its investors that its liquidity position — its ability to satisfy debt obligations as they arise — was not at risk. See CACAC ¶ 8, at 10-11; id. ¶ 126, 48. As late as July 20, 2007, Thornburg Mortgage reported that its unencumbered assets securing its highly leveraged financing were at their highest level “in the history of the organization.” CACAC ¶ 8, at 11. Thornburg Mortgage repeatedly stated in its filings with the Securities and Exchange Commission (“SEC”) that its focus was to acquire and originate high quality, highly liquid mortgage assets such that sufficient assets could be readily converted to cash, if necessary, to meet its financial obligations. See CACAC ¶ 10, at 11.
One of the primary allegations that the Plaintiffs level against all of the Defendants is that they improperly omitted any statement that Thornburg Mortgage held substantial “Alt-A” mortgage assets. CA-CAC ¶¶ 12-13, at 12. The Plaintiffs explain:
Alt-A loans are “alternatives” to the gold standard of conforming, GSE-backed mortgages. Often an Alt-A borrower is unable to provide the proof of income or the verification of assets necessary to obtain a prime mortgage, but has a satisfactory credit score, or vice versa. In other words, Alt-A or “alternative” loans are associated with and defined by a higher level of risk than prime loans due to a borrower’s inability to provide these fundamental guarantees.
CACAC ¶ 142, at 53. Thornburg Mortgage’s multi-billion dollar asset portfolio during the class period was comprised of various mortgage-related assets. See CA-CAC ¶ 14, at 12. Thornburg Mortgage’s mortgage-based holdings include both loans it originates, and loans it acquires or purchases. See CACAC ¶ 14, at 12. Thornburg Mortgage also purchased mortgage-backed securities (“MBS”), which are “a series of fixed-income assets that [a]re bundled and sold as securities.” CACAC ¶ 14, at 12. Thornburg Mortgage frequently posts these MBS assets as the collateral under its many short-term borrowing agreements.' See CACAC ¶ 14, 12. Thornburg Mortgage would originate loans, securitize them, and sell off interests in the securitized assets to obtain additional financing. See CACAC ¶ 14, at 12.
In 2006 and 2007, as the markets for subprime and Alt-A mortgages began to decline, and subprime and Alt-A borrowers began to default with increased frequency, many mortgage lenders announced that they were experiencing serious financial problems. See CACAC ¶ 15, at 13. Thornburg Mortgage represented, however, that its stringent underwriting standards and “high quality” assets insulated it from the market downturn. CACAC ¶ 15, at 13. As the prices for MBSs backed by Alt-A loans as collateral declined throughout 2007, Thornburg Mortgage never disclosed that it was holding billions of dollars worth of MBS backed by Alt-A collateral on its balance sheets. See CACAC ¶ 15, at 13. Notwithstanding the representations of Goldstone, President, Chief Operating Officer, and director of Thorn-burg Mortgage, that Thornburg Mortgage’s focus is on originating prime— rather than subprime or Alt-A — loans, several confidential witnesses state that Thornburg Mortgage originated Alt-A loans during the Class Period. See CA-CAC ¶ 16, at 13.
On May 4, 2007, Thornburg Mortgage had its first public offering, selling 4,500,-000 shares of Thornburg Mortgage common stock for a total of $121,700,000.00. See CACAC ¶ 501, at 164. Shortly thereafter, Thornburg Mortgage had its second offering, wherein it sold 2,750,000 shares of 07.5% Series E Cumulative Convertible Redeemable Preferred Stock at a price of $25.00 per share. See CACAC ¶ 508, at 166. In that offering, Thornburg Mortgage made $68,750,000.00. See CACAC ¶ 508, at 166.
Goldstone allegedly knew, by no later than June of 2007, but did not disclose, that the ABCP market was shrinking rapidly and, by July 2007, had more or less dried up. See CACAC ¶ 17, at 14; CA-CAC ¶¶ 175-76, 178, at 64-65.. Goldstone allegedly admitted this shrinking market to certain confidential sources during a private meeting on August 8, 2007. See CACAC ¶ 15, at 6. Goldstone reassured the confidential sources, however, that Thornburg Mortgage’s relationships with its lender banks “were fine.” CACAC ¶ 175, at 64. Also by July of 2007, the RPA market became an increasingly more costly source of financing as a result, in part, of a combination pf declining asset values and the illiquidity in the ABCP market. See CACAC ¶ 18, at 14. After early July, Thornburg Mortgage could not complete any securitization transaction “based on a lack of buyers in the marketplace.” CACAC ¶ 18, at 14.
On August 14, 2007, Thornburg Mortgage advised the market that, because of liquidity concerns, it was exploring the potential sale of assets. See CACAC ¶ 20, at 15; id. ¶ 179, at 65. Thornburg Mortgage had, however, already begun a sale of assets by August 10, 2007. See CACAC ¶ 20, at 15. On August 20, 2007, Thorn-burg Mortgage admitted that it had sold approximately thirty-five percent of its portfolio — $20,500,000,000.00 of its highest-rated mortgage-backed assets — to meet margin calls on its RPA agreements and to satisfy maturing ABCP obligations. See CACAC ¶ 20, at 15. Furthermore, Thorn-burg Mortgage had sold those assets at a discount, approximately ninety-five percent of their face value. See CACAC ¶ 20, at 15; id. ¶ 272, 95. Thornburg Mortgage did not disclose that it owned MBSs which were backed by Alt-A collateral. See CA-CAC ¶ 21, at 15.
On August 14, 2007, the price of Thorn-burg Mortgage common stock fell forty-three percent, from $13.81 per share to $7.89 per share. See CACAC ¶ 22, at 15. Also on that day, a substantial volume of shares — 27,293,100—were traded. See CACAC ¶ 22, at 15. Allegedly based on the series of false and misleading statements, Thornburg Mortgage was able to obtain hundreds of millions of dollars in its securities offerings. See CACAC ¶ 24, at 16. Specifically, Thornburg Mortgage made one stock offering in early September of 2007, . in which it raised $500,000,000.00 in sales, and two offerings in January of 2008, which garnered an additional $212,000,000.00 in total proceeds. See CACAC ¶ 24, at 16.
Over the next, few months, however, a series of disclosures by Thornburg Mortgage caused the stock price to fall dramatically. On February 28, 2008, Thornburg Mortgage announced in its 2007 Form 10-K Annual Report that..it was forced to meet over $300,000,000.00 in margin calls under its RPAs, that it owned $2,900,000,000.00 in MBSs that were backed by Alt-A collateral, and that the declining value of its Alt-A-backed MBSs was to blame for the margin calls. See CACAC ¶25, at 16. On the same day, Thornburg Mortgage’s common stock dropped, in value fifteen percent, from $11.54 per share to $9.86 per share. See CACAC ¶ 26, at 16.
On March 3, 2008, Thornburg Mortgage disclosed via a press release that it had “been subject to additional margin calls of approximately $270,000,000.00 as of February 29, 2008,” and that it was “currently in default with one RPA counter party.” CACAC ¶ 28, at 17. See id. ¶202, at. 72; id. ¶204, at 72. After this disclosure, Thornburg Mortgage’s stock price fell again. Between February 29, 2009, and March 3, 2009, the price of Thornburg Mortgage common stock decreased from $8.90 per share to $4.32 per share — a drop of fifty-one percent. See CACAC ¶ 26, at 17. Over the course of those three days, investors traded 76,858,800 shares of Thornburg Mortgage’s stock. See CACAC ¶ 30, at 17.
On March 5, 2008, Thornburg Mortgage disclosed to its investors that the February 28, 2009 JP Morgan default had triggered cross-defaults in all of Thornburg Mortgage’s RPAs. See CACAC ¶ 34, at 18. On the same day, the price of Thornburg Mortgage’s common stock fell again, from $3.40 per share to $1.26 per share — a 54.4% drop. See CACAC ¶ 35, at 18. '
On March 7, 2008, Thornburg Mortgage disclosed to the public that it had received a letter from KPMG, LLP withdrawing KPMG’s previous unqualified audit opinion, and further announced that it would restate its financial statements for 2007— but not for 2006. See CACAC ¶ 37, at 19. Thornburg Mortgage stated that the restatement was necessary, because of “a significant deterioration of prices of MBS[s], combined with a liquidity position under unprecedented pressure from increased margin calls[,] a portion of which [Thornburg Mortgage] has been unable to meet.” CACAC ¶37, at 19 (alteration omitted). Between March 7, 2008, and March 10, 2008, Thornburg Mortgage’s stock price fell another thirty-six percent, from $1.08 to $0.69, during which time 34,591,800 shares were traded. See CA-CAC ¶ 39, at 20.
On April 4, 2008, the SEC initiated an investigation into Thornburg Mortgage and informed Thornburg Mortgage that the SEC would be looking into the margin calls that Thornburg Mortgage received in March, 2008, which had pushed Thornburg Mortgage to the brink of bankruptcy. See CACAC ¶ 393, at 136. Thornburg Mortgage revealed the SEC investigation to the market on April 28, 2008. See CACAC ¶ 394, at 136. On May 1, 2009, Thornburg Mortgage’s financial woes came to a climax. Thornburg Mortgage filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. §§ 101-113, on May 1, 2009. See CACAC ¶ 402, at 138.
With respect to the Exchange Act claims, the Plaintiffs allege that Thorn-burg Mortgage and the Individual Defendants schemed to “create and/or maintain artificial inflation in the price of Thorn-burg Mortgage common stock throughout the class period, to the detriment of ordinary investors who were damaged when the truth began to be revealed to the market.” CACAC ¶ 4, at 9. They assert that Thornburg Mortgage and the Individual Defendants made a “series of affirmative statements during the class period, in Thornburg Mortgage’s SEC filings, prospectuses and registration statements, and during Thornburg Mortgage conference calls with analysts and investors, that were materially false and misleading when made.” CACAC ¶ 5, at 9. They further assert that Thornburg Mortgage and the Individual Defendants “omitted material information regarding the litany of liquidity issues facing Thornburg Mortgage that they were required to disclose.” CACAC ¶ 5, at 9-10. With respect to the Securities Act, the Plaintiffs allege that the Individual Defendants, Director Defendants, and Underwriter Defendants are strictly liable for omissions and material misstatements in connection with Thornburg Mortgage’s:
(1) May 4, 2007, public offering of 4.5. million shares of common stock at $27.05 per share for gross proceeds of $121.7 million (the “May 2007 Offering”); (2) June 19, 2007, public offering of 2.75 •million shares of 7.5% Series E Cumulative Convertible Redeemable Preferred Stock (“Series E Preferred Stock”) at $25 per share for gross proceeds of $68.8 million (the “June 2007 Offering”); (3) September 7, 2007, public offering of 20 million shares of 10% Series F Cumulative Convertible Redeemable Preferred Stock (“Series F Preferred Stock”) at $25 per share, for gross proceeds of $500 million (the “September 2007 Offering”); and (4) January 15, 2008, concurrent public offerings of 8,000,000 shares of Series F Preferred at $19.50 per share, for gross proceeds of $156 million, and 7,000,000 shares of common stock at $8.00 per share for gross proceeds of $56 million (the “January 2008 Offerings”).
CACAC ¶ 42, at 20-21.
PROCEDURAL BACKGROUND
This proceeding is four cases that have all been consolidated. Kenneth Slater, manager of KT Investments, LLC, filed the initial Complaint on August 21, 2007. See Class Action Complaint, filed Aug. 21, 2007 (Doc. l)(“Initial Complaint”). In the Initial Complaint, Slater sought to assert class claims against Thornburg Mortgage for violations of the Exchange Act, but did not assert any claims under the Securities Act. See Initial Complaint ¶¶ 101-117, at 33-38. On February 8, 2008, pursuant to a stipulation, the Court consolidated the action that Slater brought with several other actions — namely, Snydman v. Thornburg Mortgage, Inc., No. CIV 07-1025 JEC/RHS, Gonsalves v. Thornburg, No. CIV 07-1069 MV/WDS, and Smith v. Thornburg Mortgage, Inc., No. CIV 07-1115 MCA/RLP. See Order- Consolidating Related Actions, Appointing Lead Plaintiff, and Approving Lead Plaintiff’s Selection of Lead Counsel and Liaison Counsel at 2-3, filed Feb. 8, 2008 (Doc. 49)(“Consolidation Order”). At that same time, the Court selected Lead Plaintiffs, named the firms of Kessler, Topaz, Meltzer & Check, LLP and Wolf, Haldenstein, Adler, Freeman & Hertz, LLP, as Co-Lead Counsel, and named the Branch Law Firm as Liaison Counsel. See Consolidation Order at 3.
1. Consolidated Class Action Complaint.
After the Consolidation Order, the Plaintiffs filed a Consolidated Class Action Complaint. See Consolidated Class Action Complaint, filed May 27, 2008 (Doc. 68)(“CAC”). In the CAC, the Plaintiffs alleged five claims. The Plaintiffs’ first claim for relief was for a violation of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and rule 10b-5, 17 C.F.R. § 240.10b-5 (2012), and was alleged against the Individual Defendants and Thornburg Mortgage. See CAC ¶ 496, at 162. The Plaintiffs’ second claim for relief was for a violation of Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), and was alleged against the Individual Defendants. See CAC ¶ 507, at 165-166. The Plaintiffs’ third claim for relief was for a violation of Section 11 of the Securities Act, 15 U.S.C. § 77k, and was alleged against the Individual Defendants, the Director Defendants, Thornburg Mortgage, and the Underwriter Defendants. See CAC ¶¶ 598-606, at 182-183. The Plaintiffs fourth claim for relief was for a violation of Section 12(a)(2) of the Securities Act, 15 U.S.C. § 77i (a)(2), and was alleged against the Individual Defendants, the Director Defendants, Thornburg Mortgage and the Underwriter Defendants. See CAC ¶¶ 607-617, at 183— 184. Lastly, the Plaintiffs alleged, as their fifth claim for relief, a violation of Section 15 of the Securities Act, 15 U.S.C. § 77o, against the Individual Defendants. See CAC ¶¶ 618-620, at 185-186.
2. Thornburg Mortgage, the Individual Defendants, and the Director Defendants’ Motion to Dismiss the CAC.
On September 22, 2008, Thornburg Mortgage, the Individual Defendants, and the Director Defendants (collectively, “the Thornburg Defendants”) moved to dismiss the CAC. See Motion to Dismiss Consolidated Amended Complaint by Defendants Thornburg Mortgage, Inc., Garrett Thorn-burg, Larry A. Goldstone, Joseph H. Badal, Paul G. Decoff, Clarence D. Simmons, Anne-Drue M. Anderson, David A. Ater, Eliot R. Cutler, Ike Kalangis, Owen M. Lopez, Francis I. Mullin, Jr., and Stuart C. Sherman, Filed Sept. 22, 2008 (Doc. 126)(“Thornburg Mortgage MTD”). The Thornburg Defendants argued that the Court should dismiss the Plaintiffs’ claims under the Exchange Act because the Plaintiffs failed to allege “with .particularity facts supporting a strong inference that each of the defendants ... acted with intent to deceive, manipulate, or defraud,” Thornburg Mortgage MTD ¶ 1, at 2, and because the Plaintiffs failed to allege “with particularly facts demonstrating that each of the defendants ... made statements during the class period regarding Thorn-burg or its securities that were materially false or misleading when made,” Thorn-burg Mortgage MTD ¶ 2, at 2. The Thorn-burg Defendants argued that the Court should dismiss the Plaintiffs’ claims under the Securities Act for failing to allege sufficient causation, failing to show that any Plaintiff has standing, and because the Plaintiffs did not demonstrate that any Defendant was responsible for the allegedly materially false statement or material omission. See Thornburg Mortgage MTD ¶¶ 3-5, at 2.
3. The Underwriter Defendants’ Motion to Dismiss.
The Underwriter Defendants moved to dismiss the CAC on September 22, 2008. See Opposed Motion by May/June 2007 Underwriter Defendants to Dismiss Consolidated Class Action Complaint; Memorandum of Points and Authorities in Support Thereof, filed Sept. 22, 2008 (Doc. 128)(“Underwriter MTD”). The Underwriter Defendants argued that: (i) the Plaintiffs lacked standing to sue under the Securities Act; (ii) the CAC failed to state a claim against the Underwriter Defendants, because the CAC did not “allege facts sufficient to demonstrate that any statements of fact were materially false when made;” and (iii) the Underwriter Defendants “are not liable to purchasers of Thornburg securities after the Company’s disclosures in August 2007.” Underwriter MTD at 1.
4. The Court’s Order on the Thorn-burg Motion to Dismiss.
The Court granted in part, denied in part, and reserved judgment in part on the Thornburg MTD. See Amended Memorandum Opinion and Order; filed Jan. 27, 2010 (Doc. 252)(“Thornburg MTD MOO”). The Court ruled that the Plaintiffs’ claim under rule 10b-5 of the Exchange Act survived, but only as to Goldstone. See Thornburg MTD MOO at 36-74. The Court also ruled that the Plaintiffs had successfully alleged a claim under Section 20(a) of the Exchange Act against Goldstone. See Thornburg MTD MOO at 75.
Regarding the alleged violation of Section 20(a) of the Exchange Act against the other Individual Defendants, the Court found that the claim could possibly survive against Simmons and Decoff, who were, under Section 20(a) of the Exchange Act, control-persons. See Thornburg MTD MOO at 76. The Court found that the Plaintiffs had failed to allege sufficient facts for liability against the Individual Defendants Badal and Thornburg, as the only allegedly misleading acts or omissions by Thornburg Mortgage did not occur at the time when those Individual Defendants were in control of Thornburg Mortgage, an essential element for liability under Section 20(a). See Thornburg MTD MOO at 76-77. The Court also found that the Plaintiffs failed to plead sufficient facts to show liability under Section 20(a) against the Director Defendants, as the only document attributable to those Defendants had no materially false or misleading statements upon which to base liability. See Thornburg MTD MOO at 77. Because allegedly materially false or misleading statements or omissions were made while Goldstone was chief executive officer and chief operating officer of Thornburg Mortgage, the Court found that the Plaintiffs had successfully pled a violation as to him under Section 20(a). Further, Simmons, as chief financial officer when allegedly false or misleading statements were made, could also be liable under the facts in the Plaintiffs’ CAC. Lastly, because Decoff was the chief lending officer when, the Plaintiffs alleged, a report reflecting Thornburg Mortgage’s financial performance was issued, the Court found that Decoff could be liable under Section 20(a) based upon the facts in the CAC. See Thornburg MTD MOO at 77-78. The Court reserved judgment on the Plaintiffs’ claims for violations of Section 10(b) and 20(a) as to Thornburg Mortgage, Gold-stone, Simmons, and Decoff, because the Court found it could not determine whether Thornburg Mortgage had violated Section 10(b) by making materially false or misleading statement at the present time, when Thornburg Mortgage was in bankruptcy. See Thornburg Mortgage MTD MOO at 75.
The Court thus dismissed the Exchange Act claims against the Director Defendants and the Individual Defendants, except for the alleged violation of rule 10b-5 as to Goldstone, and the alleged violation of Section 20(a) as to Simmons and Decoff.
The Court also found that the Plaintiffs had failed to allege sufficient facts to show liability under the Securities Act against the Individual Defendants, Director Defendants, and Thornburg Mortgage. The Court thus dismissed all of the Plaintiffs’ claims under the Securities Act against Thornburg Mortgage, the Individual Defendants, and the. Underwriter Defendants. See Thornburg Mortgage MTD MOO at 78-79.
5. The Court’s Order on the Underwriter Motion to Dismiss.
On January 27, 2012, the Court ruled on the Underwriter MTD. See Memorandum Opinion and Order, filed Jan. 27, 2010 (Doc. 251)(“Underwriter MTD MOO”). Although the Court ruled that the Plaintiffs’ claims need not be dismissed for lack of standing, as the claims fall within the Court’s supplemental jurisdiction, the Court nonetheless dismissed the claims against the Underwriter Defendants. See Underwriter MTD MOO at 25-26. The Court examined the Plaintiffs’ CAC, and found that the Plaintiffs had failed to show how any statement or omission attributable to the Underwriter Defendants was materially false or misleading such as to give rise to liability under the Securities Act. See Underwriter MTD MOO at 28-36. Section 11 and Section” 12(a)(2) of the Securities Act require a showing that a defendant made a materially false or misleading statement or omission to trigger liability. See Underwriter MTD MOO at 36. Section 15 of the Securities Act is derivative in nature, in that “a person who controls a party that commits a violation of the securities laws may be held jointly and severally liable with the primary violator,” liability can only be found under that section if: the plaintiff establishes that: “(1) a primary violation of the securities laws” occurred; and (2) the alleged violator had “ ‘control’ over the primary violator.” Maher v. Durango Metals, Inc., 144 F.3d 1302, 1304-05 (10th Cir.1998). The Court thus explained that, because the Plaintiffs had failed to show that the Underwriter Defendants were liable under Section 11 or 12(a)(2) of the Securities Act, the Underwriter Defendants could not be liable under Section 15 either. See Underwriter MTD MOO ' at 36. On that basis, the Court dismissed all of the Plaintiffs’ claims against the Underwriter Defendants.
6. The Plaintiffs’ Motion for Reconsideration.
On July 9, 2010, the Plaintiffs filed a motion requesting the Court to “reconsider certain portions of its” Thornburg Mortgage MTD MOO and Underwriter MTD MOO, and requested leave to amend the CAC. Plaintiffs Omnibus Motion for (i) Leave to Amend the Consolidated Class Action Complaint and (ii) for Reconsideration of the Court’s January 27, 2010 Memorandum Opinions and Orders Granting in Part and Denying in Part Defendants’ Motions to Dismiss the Consolidated Amended Complaint, filed July 9, 2010 (Doc. 309)(“Motion for Reconsideration”). In support, the Plaintiffs filed the Plaintiffs’ Memorandum of Law in Support of Omnibus Motion for (i) Leave to Amend the Consolidated Class Action Complaint (ii) for Reconsideration of the Court’s January 27, 2010 Memorandum Opinions and Orders Granting in Part and Denying in Part Defendants’ Motions to Dismiss the Consolidated Amended Complaint, filed July 9, 2010 (Doc. 309)(“Memo. in Support of Reconsideration”).
The. Plaintiffs requested the Court to reconsider portions of its opinions which dismissed the Securities Act Claims against the Thornburg Defendants, Underwriter Defendants, and Director Defendants. The Plaintiffs argued that the Court should reconsider whether any Defendant had breached a duty to disclose certain information under Item 303 of Regulation S-K, 17 C.F.R. § 229.303, which the Plaintiffs asserted required the Defendants to disclose adverse liquidity trends. See Memo, in Support of Reconsideration at 17. The Plaintiffs also argued that the Defendants had breached the “abstain or disclose” rule, which, the Plaintiffs asserted, was recognized by the Supreme Court of the United States as creating a duty on the part of insiders who possess material, non-public information, to disclose such information to shareholders, or abstain from trading in the corporation’s securities. See Memo, in Support of Reconsideration at 18 (citing Chiarella v. United States, 445 U.S. 222, 227, 100 S.Ct. 1108, 63 L.Ed.2d 348 (1980)). The Plaintiffs argued that a violation of the duty to disclose under Item 303 would give rise to a claim under the Securities Act, and, accordingly, if a Defendant breached his, her, or its duty to disclose under Item 303, the Plaintiffs’ claims under Section 11 of the Securities Act should be sustained as to that Defendant. See Memo, in Support of Reconsideration at 19-21.
The Plaintiffs also asked the Court to reconsider its ruling that Thornburg Mortgage’s 2007 Form 10-K was materially false or misleading. See Memo, in Support of Reconsideration at 29. The Plaintiffs contended that their claims were not subject to the heightened pleading requirements of rule 9 of the Federal Rules of Civil Procedure, and thus, the facts put forth were sufficient under the liberal pleading standards of rule 8(a). See Memo, in Support of Reconsideration at 30.
The Plaintiffs also requested the Court to reconsider whether Regulation S-X, 17 C.F.R. § 210.4-01, imposed an affirmative duty on the Defendants to disclose that Thornburg Mortgage’s portfolio contained Alb-A backed MBS. See Memo, in Support of Reconsideration at 31. The Plaintiffs contended that Regulation S-X requires, among other things, that “disclosures in public offering documents comply with Generally Accepted Accounting Principles (‘GAAP’)”. Memo, in Support of Reconsideration at 32. The Plaintiffs contended that the Defendants had violated this requirement by not disclosing the make up of Thornburg Mortgage’s portfolio to shareholders. See Memo, in Support of Reconsideration at 25.
The Plaintiffs also requested the Court to reconsider whether certain statements that the Defendants made, which the Court had found were mere puffery, were actionable. See Memo, in Support of Reconsideration at 32-33 (citing Underwriter MTD MOO at 34 n. 16). The Court had found that some of Thornburg Mortgage’s assertions regarding its liquidity, portfolio, and profitability, were “akin to a mission statement or puffery,” and thus could not be considered objectively false or misleading. Underwriter MTD MOO at 34 n. 16. The Plaintiffs argued that these statements were “not merely setting forth an aspirational goal,” but, rather, “constituted a hard, affirmative representation that [Thornburg Mortgagees focus op high-quality assets created liquidity by giving the Company access to financing during market downturns.” Memo, in Support of Reconsideration at 33.
The Plaintiffs also asked the Court to reconsider its decisions to dismiss, or reserve judgment on the Exchange Act claims. See Memo, in Support of Reconsideration. at 34. The Plaintiffs argued that Thornburg and Badal had a duty, under Section 10(b) of the Exchange Act, to disclose all “material, nonpublic information” in their possession before buying or selling securities. Memo, in Support of Reconsideration at 34 (citing 15 U.S.C. § 78j(b); Chiarella v. United States, 445 U.S. at 227-30, 100 S.Ct. 1108). The Plaintiffs asserted that Thornburg Mortgage failed to disclose material nonpublic information in its offering documents before selling $900,000,000.00 of its stock and securities during the Class Period, and that Thornburg and Badal are liable for this nondisclosure. See Memo, in Support of Reconsideration at 34-35. The Plaintiffs also argued that their amended complaint contains facts sufficient to establish that Thornburg and Badal had control over Thornburg Mortgage in June-July, 2007, during which time Goldstone made materially false or misleading statements, thus giving rise to control-person liability on the part of Thornburg and Badal. See Memo, in Support of Reconsideration at 35.
Regarding the Court’s. decision to reserve judgment on , the Plaintiffs’ Exchange Act claims against, Thornburg Mortgage, Goldstone, Simmons, and Decoff, the Plaintiffs also argued that the Court should not reserve judgment because of Thornburg Mortgage’s bankruptcy. See Memo, in Support of Reconsideration at 35-36 (citing Thornburg Mortgage MTD MOO at 75). The Plaintiffs argued that, although their claim against Thornburg Mortgage was not actionable because of Thornburg Mortgage’s bankruptcy, the Court need not delay a ruling on the control-person liability of the Individual Defendants. See Memo, in Support of Reconsideration at 36-37. The Plaintiffs asserted that “the viability of a cause of action which required the pleading of a predicate violation does not turn on whether the predicate violation is, itself, actionable.” Memo, in Support of Reconsideration at 36. The Plaintiffs thus argued that their claims against Individual Defendants were actionable, as they had pled the requisite violation of Section 10(b), even though the requisite claim against Thorn-burg Mortgage, for a violation of Section 10(b), was not actionable at the time. See Memo, in Support of Reconsideration at 36-37.
71 The Court’s Memorandum Opinion and Order on the Plaintiff’s Motion for Reconsideration.
On June 2, 2011, the Court issued a Memorandum Opinion on the Plaintiffs’ Motion for Reconsideration. See Memorandum Opinion, filed June 2, 2011 (Doc. 360)(“Reconsideration Opinion”). The Court found that: (i) the Defendants’ duty to disclosure under Item 303 did not alter the Court’s holdings; (ii) Thornburg Mortgage’s 2007 Form 10-K was not actionable; (iii) certain statements, which the Plaintiffs asked the Court to reconsider as actionable, were puffery; (iv) Thornburg and Badal’s duties under Item 303 did not alter the Court’s analysis and decision to dismiss the Plaintiffs’ Section 10(b) claims against them; (v) it would reconsider reserving ruling on the dismissal of the Plaintiffs’ Section. 20(a) claims against Goldstone, Simmons, and Decoff, and the Court would dismiss the Plaintiffs’ claims against Decoff, but not dismiss the Plaintiffs’ claims against Goldstone .and Simmons. See Reconsideration Opinion at 2.
The Court first found that the abstain- or-disclose rule applied in insider, trading actions, and not to the Plaintiffs’ claims under the Securities Act, as the Plaintiffs had argued. See Reconsideration Opinion at 51-58. , Regarding the Defendants’ duty under Item 303, the Court concluded that a violation of Item 303 could give rise to a cause of action under Section 11 of the Securities Act, but also found that the Plaintiffs had failed to allege facts which showed that the Defendants violated a duty to disclose under Item 303. See Reconsideration Opinion at 60-77. Regarding whether the 2007 Form 10-K was actionable, the Court found that the Plaintiffs had failed to allege any new facts or change in the controlling law which would justify the Court altering its previous rulings that not only was the Form 10-K was not materially false or misleading, but also no' named Plaintiff had standing to challenge the only offering, January 2008, which the 2007 Form 10-K would implicate. See Reconsideration Opinion at 78-86. The Court did not reconsider its ruling that certain statements were inactionable puffery, as the Plaintiffs did not set forth new facts or show an intervening change in the law on which the Court could properly reconsider its previous decision that the statements the Plaintiffs pointed to were akin to “mission statement[s] or puffery.” See Reconsideration Opinion at 86-92 (quoting Thornburg Mortgage MTD MOO at 88 n. 43). .
The Court reconsidered its ruling dismissing the Plaintiffs rule 10b-5 claims against Thornburg and Badal, on the Plaintiffs’ theory that Thornburg and Badal had a duty to disclose material, nonpublic information. See Reconsideration Opinion at 88. The Court found, however; that Thornburg, and Badal had complied with their duty to disclose the allegedly material and nonpublic information to which the Plaintiffs pointed, and, also, that the Plaintiffs had failed to plead scienter as to Thornburg and Badal with particularity. See Reconsideration Opinion at 88-91.
' The Court also reconsidered its reservation of a decision of the Section 20(a) of the Exchange Act claims as to Goldstone, Simmons, and Decoff. See Reconsideration Opinion at 92. The Court agreed that it did not need to stay its decision as to Goldstone, Simmons, and Decoff, because of Thornburg Mortgage’s pending bankruptcy. See Reconsideration Opinion at 92. The Court found that it did not need to determine Thornburg Mortgage’s liability to determine the liability of Goldstone, Simmons, and Decoff. See Reconsideration Opinion at 93. The Court also found that the Plaintiffs’ allegations as to Gold-stone and Simmons under Section 20(a), as control-persons, were sufficient to survive a motion to dismiss. See Reconsideration Opinion at 99. On the other hand, the Court found that the Plaintiffs had failed to sufficiently allege that Decoff had control over Goldstone, or Thornburg Mortgage, when either issued allegedly false or misleading statements, and, thus, Decoff could not be., liable under Section 20(a). See Reconsideration Opinion at 100. ■
The Court granted the Plaintiffs leave to amend their CAC, on the basis of the Plaintiffs’ showing that they could plausibly allege a claim against Thornburg, as a control-person under Section 20(a) of the Exchange Act. See Reconsideration Opinion at 106.
8. The Plaintiffs’ Consolidated Amended Class Action Complaint.
On June 14, 2011, the Plaintiffs filed the CACAC. The Plaintiffs assert several claims, including: (i) a claim for violation of Section 10(b) of the Exchange Act and rule 10b-5 against Thornburg Mortgage and the Individual Defendants; (ii) a claim for violation of Section 20(a) of the Exchange Act against the Individual Defendants; (iii) a claim for violation of Section 11 of the Securities Act against Thornburg Mortgage, the Individual Defendants, the Director Defendants, and the Underwriter Defendants; and (iv) a claim for violation of Section 15 of the Securities Act against the Individual Defendants. See CACAC at ¶ 442, at 148; id. ¶456, at 151; id. ¶540, at 174; id. ¶¶ 548-550, at 177. The Plaintiffs ask that the Court certify this case as a class action, award preliminary and injunctive relief against all Defendants, award restitution of investors’ money, award compensatory damages, award costs and attorneys’ fees, and award any other relief the Court deems proper. See CA-CAC at 177-78.
9. Settling Parties’ Stipulation and Agreement of Settlement.
Thornburg Mortgage was dismissed voluntarily, with prejudice, on March 2, 2012. See Notice of Voluntary .Dismissal of Thornburg Mortgage, Inc., filed Mar. 2, 2012 (Doc. 384). Plaintiffs dismissed Thornburg Mortgage pursuant to rule 41(a)(1)(A)©, but did not explain their rationale for dismissing Thornburg Mortgage. See Notice of Voluntary Dismissal of Thornburg Mortgage, Inc. at 1.
On April 16, 2012, the Settling Parties filed a Stipulation and Agreement of Settlement. See Doc. 386-1 (“Stipulation”). The parties stipulate that “the terms of the Settlement were negotiated at arm’s length in good faith by the Settling Parties, and • reflect a settlement that was reached voluntarily, after consultation with experienced legal counsel after a full and fair opportunity .to review” all the terms and documents of the proposed Settlement. Stipulation at 40.
The Stipulation “is intended to settle and release all claims against the Settling Defendants and other Released Parties.” Stipulation at 2. The claims released in the Stipulation are the “Settled Claims,” which refers to all known and “Unkiibwn Claims” asserted in the litigation by the Plaintiffs and/or Class members, against Thornburg Mortgage and the Settling Defendants, as well as any claims that could have been alleged in relation to the purchase or acquisition of Thornburg Mortgage Stock. Stipulation at 15. The term “Unknown Claims” in the Stipulation refers to “any and all Settled Claims which [the Class does] not know or suspect to exist as of the Effective Date, which if known by him, her or it, might have affected his, her or its decision(s) with respect to the [settlement.” Stipulation at 18. The claims released in the Stipulation do not include any claim to enforce the terms of the proposed Settlement or any claims against the Non-Settling Defendants. See Stipulation at 15. The Settling Defendants “deny any wrongdoing whatsoever and this Stipulation shall in no event .be construed or deemed to be evidence of or an admission or concession on the part of any of the Settling Defendants.” Stipulation at 6-7. The parties also stipulate that the Stipulation, and “all negotiations, statements, and proceedings in connection therewith,” are not to be used in any way or construed “as an admission, concession, or evidence of any liability or wrongdoing of any nature,” or that the “Plaintiffs, any member of the Class, or any other Person, has or has not suffered any damage.” Stipulation at 8.
The Settling Parties conditionally stipulated, for the purposes of the Stipulation and proposed Settlement, that the litigation shall be certified for class treatment under rule 23. See Stipulation at 8. The parties have agreed to a “Settlement Amount” of $2,000,000.00 in cash. See Stipulation at 17. The Stipulation established that, if any funds remain from the settlement, after reasonable efforts have been made to locate putative class members and after one year has passed, any balance would be distributed to the Center for Civic Values in Albuquerque, New Mexico. See Stipulation at 27.
The Settling Parties stipulated that the Order and Final Judgment approving of the settlement must include a bar order,
as provided by 15 U.S.C. § 78u — 4(f)(7) and as broad as permitted by law, that bars all claims by any Person against the Individual Defendants, the Dismissed Defendants, or the Released Parties, or by any of them against Persons, for contribution, indemnification, or under any other theory, based upon, or related to any fact or circumstance involved in or arising out of the Litigation.
Stipulation at 19. The Settling Parties stipulated that the Plan of Allocation, and any award of attorneys’ fees and expenses are subject to Court approval and are neither included nor necessary terms to the proposed Settlement. See Stipulation at 29-30. With respect to attorneys’ fees, the Stipulation provided that the Plaintiffs’ counsel will submit an application for attorneys’ fees from the Settlement Fund, subject to Court approval. See Stipulation at 29-30.
The Plaintiffs informed putative class members that the Plaintiffs “estimate that approximately 200 million shares of [Thornburg Mortgage] common and preferred stock were purchased or otherwise acquired in the open market and/or traceable to the Offerings during the Class Period and potentially damaged.” Notice of Pendency of Class Action, Proposed Settlement, Settlement Fairness Hearing, and Motion for Attorneys’ Fees and Expenses at 3, filed Apr. 16, 2012 (Doc. 386-3)(“No-tice”). Accordingly, “if valid claim forms for all damaged shares are submitted, the average recovery per damaged shares will be $.01.” Notice at 3. Class members have the options of: (i) submitting a claim form to receive payment-from the Settlement Fund; (ii) excluding themselves from the Class; (in) objecting to the proposed Settlement, the Plan of Allocation, or the Co-Lead Counsel’s request for attorneys’ fees and expenses; (iv) attending the Court’s hearing on the Settlement to voice their opinions on the fairness of the Settlement; and (v) doing nothing, receiving nothing from the Settlement Fund, and relinquishing their rights to the claims in the litigation. See Notice at 4. The Notice informs putative class members that Co-Lead Counsel “will apply to the court for attorneys’ fees not to exceed 25% of the Settlement Amount and reimbursement of $260,000, plus interest earned on both amounts.” Notice at 11. The attorneys’ fees will be paid from the Settlement Fund and the average cost per share will be approximately $.004. See Notice at 2.
10. The Plan of Allocation.
The Notice described to putative Class members how the Net Settlement Fund would be distributed, as set forth in the Plan of Allocation of Net Settlement Fund Among Class Members. See Notice at 15-23. The Plan of Allocation provides that:
Payment pursuant to the Plan of Allocation approved by the Court shall be conclusive against all Authorized Claimants. No person shall have any claim against the Settling Defendants, Settling Defendants’ Counsel, Plaintiffs, Plaintiffs’ Counsel, or the Claims Administrator or other agent designated by Co-Lead Counsel based on the distributions made substantially in accordance with the Stipulation and the Settlement contained therein, the Plan of Allocation, or further orders of the Court.
Notice at 15. The Plan of Allocation explains that the each Class member submitting a claim (an “Authorized Claimant”) will receive a pro rata share of the Net Settlement Fund, based upon the Authorized Claimant’s “Recognized Loss,” which is the Authorized Claimant’s loss as determined by the Plan of Allocation. Notice at 15. The Class Administrator, Strategic Claims Services (“SCS”), will determine the amount of each Authorized Claimant’s pro rata share of the Net Settlement Fund. See Notice at 15. The Plan of Allocation further explains that the recovery provided therein is “not intended to be an estimate of the amount of what a Class Member might have been able to recover after at trial.” Notice at 15. Neither is the Recognized Loss formula “an estimate of the amount that will be paid to Authorized Claimants pursuant to the Settlement.” Notice at 15. Authorized Claimants may receive the Recognized Loss amount only if “there are sufficient funds in the Net Settlement Fund.” Notice at 16. If there are not enough funds in the' Net Settlement Fund to distribute the Recognized Loss amount to each Authorized Claimant, “each Authorized Claimant shall be paid the percentage of the Net Settlement Fund that each Authorized Claimant’s Recognized Loss bears to the total Recognized Losses of all Authorized Claimants.” Notice at 16. This amount is the Authorized Claimant’s “pro rata share.” Notice at 16.
An Authorized Claimant’s Recognized Loss is calculated based upon the time period in which the Authorized Claimant purchased shares of Thornburg Mortgage stock. See Notice at 16-22. The Recognized Loss for Thornburg Mortgage stock purchased or acquired during the Class Period is dependent upon whether the Authorized Claimant purchased and sold the stock during the Class Period, or retained the stock at the close of the Class Period. See Notice at 16-22. For stock purchased and sold during the Class Period, the Recognized Loss is the lesser of: (i) the inflation per share upon purchase (as set forth in Inflation Tables A-D in the Plan of Allocation, which vary depending on the share purchased and the lime period of purchase); or (ii) the purchase price per share minus the sale price per share. See Notice at 16-22. For share purchased and retained during the Class Period, the Recognized Loss is the lesser of: (i) the inflation price per share upon purchase; or (ii) the purchase price per share minus the average daily, closing price of Thornburg Mortgage stock during the 90-day look back period described- in Section 21D(e)(l) of the PSLRA.
The amount of an Authorized Claimant’s Recognized Loss is variable. For example, the inflation price per share purchases of Thornburg Mortgage common stock during the Class Period is $1.48 per share for shares purchased towards the end of the Class Period, between March 10, 2008 to March 19, 2008, while the inflation price per share for Thornburg Mortgage common stock purchased between April 19 and August 12, 2007, is $23.83 per share. See Notice at 17, “Inflation Table A.” The inflation price per share for Thornburg Mortgage 8% Series C Cumulative Redeemable Preferred Stock purchased or acquired during the Class Period varies from $2.08 per share, at the end of the Class Period, to $25.15 per share at the beginning of the Class Period. See Notice at 18, “Inflation Table B.” The-inflation price for other Thornburg Mortgage preferred securities is similar. See Notice at 19, “Inflation Table C” (providing an inflation price per share for Thornburg Mortgage Series D Adjusting Rate Cumulative Redeemable Preferred Stock from $2.50 to $22.88 per share); Notice at 22, “Inflation Table D” (providing an inflation price per share for Thornburg Mortgage 10% Series F Cumulative Convertible Redeemable Preferred Stock purchased or acquired during the Class Period from $3.27 to $23.79 per share). See Notice at 19-22.
The Plan of Allocation does not suggest, much less guarantee, that Authorized Claimants will recover the inflation price per share: they will receive the lesser of that amount, or the difference between the purchase and sale price, or, if the stocks were retained, the lesser of the inflation price per share or the purchase price minus the average daily closing price during the previous ninety-days. See Notice at 17-22. Further, Authorized Claimants will receive less than any of those amounts if the Net Settlement Fund is insufficient to provide for the Recognized Loss of each Authorized Claimant, which is almost certainly the case. See Notice at 16.
11. The Court’s Order Preliminarily Approving Settlement and Providing for Notice.
On April 16, 2012, the Plaintiffs filed the Motion for Preliminary Approval. See Doc. 386. In the Order, the Court preliminarily approved the proposed Settlement as set forth in the Stipulation. See Order Preliminarily Approving Settlement and Providing for Notice ¶ 5, at 4, filed Apr. 23, 2012 (Doc. 387)(“Order”). The Court preliminarily approved the Settlement with two exceptions. See Order at 15. The Court stated that it does not believe that “the cy pres relief is a sound judicial doctrine.” Order at 15. The Court stated that it would issue an opinion at a later date more fully setting forth its views on the cy pres doctrine and noted that it was not commenting on the Center for Civic Values in any way. See Order at 15. The Court also ordered the Settling Parties to delete the provision which established that any remaining balance would be distributed to the Center for Civic Values. See Order at 16. The Court also instructed the parties to delete the sentence: “No distribution will be made on a claim where the potential distribution amount is less than ten dollars ($10.00) in cash.” Order at 16. The Court stated that, “[i]f someone takes the time and resources to fill out the claim form, the member should be paid.” Order at 16.
The Court issued a Memorandum Opinion on July 24, 2012, explaining its reasoning for its Order. See Memorandum Opinion, filed July 24, 2012 (Doc. 394). The Court explained that the provision which distributed the remaining Settlement Funds to a third-party non-profit, not before the Court in this litigation, was inappropriate. See Memorandum Opinion at 13. The Court noted that the provision was rooted in the doctrine of cy pres, an equitable doctrine used in trust administration which “allows trust funds to be applied in the next best use that would most closely satisfy the testator’s intent.” Memorandum Opinion at 13 (quoting 5 James Wm. Moore et al., Moore’s Federal Practice § 23.171, at 23-599 (3d ed.2012)). The Court found, as some other courts have, that this doctrine is beyond the scope of a court’s permissible actions when determining how to allocate class action settlements. See Memorandum Opinion at 15-24. The Court listed several reasons why it did not approve the portion of the Stipulation which provided for remaining Settlement Funds to-be given to the Center for Civil Values:
(i) class actions are disputes between parties and the money damages should remain among the parties, rather than be distributed to some third party; (ii) it is unseemly for judges to engage in the selection of third-party beneficiaries and to distribute class action damages to third parties; (iii) judges are often not in the best position to choose a charitable organization that would best approximate the unpaid class members’ interests; and (iv) the doctrine encourages charitable organizations, and plaintiffs’ lawyers, to lobby the court for cy pres awards.
Memorandum Opinion at 15.
Regarding the Stipulation’s provision that Class Members must have damages of at least $10.00 to recover from the proposed Settlement, the Court stated that, while no award is likely to be significant, if the smallest shareholders are not allowed to collect then the Center for Civic Values could become the largest recipient of the class action award, a result which would not be appropriate. See Memorandum Opinion at 24. The Court further stated that, “[i]f Plaintiffs’ attorneys are going to propose a settlement of $.01 per share, and ask for a large award of attorneys’ fees, they should not at the same time say that an award of less than ten dollars is too small for them to process.” Memorandum Opinion at 24. Accordingly, the Court could not and did not approve the provisions -of the Stipulation which denied awards to holders of a small number of shares, or which would send funds to a party not before the Court in the litigation. See Memorandum Opinion at 24-25.
12. Underwriter Defendants’ Objection to the Proposed Settlement.
The Non-Settling, Underwriter Defendants object to the Settling Parties’ Proposed Order and Final Judgment, included with the Stipulation. See Objection of Underwriter Defendants to Proposed Order and Final Judgment at 1, filed May 18, 2012 (Doc. 388)(“Underwriter Objection”); Proposed Order and Final Judgment at 1-10, filed Apr. 16, 2012 (Doc. 386-3)(“Pro-posed Order & Final Judgment”). The Proposed Order & Final Judgment adopts the terms of the proposed Settlement. See Proposed Order & Final Judgment ¶¶ 1-22 at 2-10. The Proposed Order & Final Judgment contains a “bar order,” barring
all claims by any Person against the Settling Defendants and the Released Parties, or by any of them against any Persons, for contribution, indemnification or under any other theory, based upon, or related to any fact or circumstances involved in or arising out of the Litigation, with the scope and preclusive effect of this bar order as broad as that permissible under 15 U.S.C. § 78u-4(f)(7) and the common law.
Proposed Order & Final Judgment ¶ 14, at 8. The Underwriter Defendants assert that a “judgment reduction provision” is a term required by law in a settlement with a bar order such as this judgment. • Underwriter Objection at 1. The Underwriter Defendants assert that a judgment reduction provision is required as a matter of law to compensate the Non-Settling Defendants’ loss of contribution and indemnification claims. See Underwriter Objection at 1. The Underwriter Defendants contend that they have “substantial claims for both indemnification and contribution that purportedly will be eliminated” by the Court’s approval of the proposed Settlement, but they also have a “statutory right of contribution against the Released Parties for those parties’ proportionate share of any liability ultimately assessed against the Non-Settling Defendants.” Underwriter Objection at 3. The Underwriter Defendants assert that Section 11 of the Securities Act of 1933, codified at 15 U.S.C. § 77k(f)(l), expressly provides for this right to indemnification and contribution. See Underwriter Objection at 3. The Underwriter Defendants further assert that a settlement may only extinguish indemnification or contribution rights if it contains a judgment réduction provision that: “provides for a corresponding reduction in any future judgment against the non-settling defendant to compensate for that party’s missing contribution.” Underwriter Objection at 4. The Underwriter Defendants assert that court approval of a settlement that contains a bar order without a judgment reduction provision is reversible error. See Underwriter Objection at 4.
The Underwriter Defendants state that the Settling Defendants do not dispute the Underwriter Defendants’ legal right to a judgment reduction; rather, Settling Defendants disagree that the Order and Final Judgment must explicitly provide for such a provision. See Underwriter Objection at 2. The Underwriter Defendants argue that settled and controlling law requires a court to include a judgment reduction provision in any settlement which purports to bar future claims of indemnification and contribution and settling parties. See Underwriter Objection at 4.
13. Notice to Putative Class Members.
The Court appointed SCS to be the claims administrator for the Settlement. See Order ¶ 10, at 6. SCS mailed, by first class mail, the Notice to all individuals and organizations