Wednesday, August 27, 2003

NOTICE TO THE CLASS If you have ever received a class action settlement notice you know they are very uninformative. There are various steps being considered to improve that, including a requirement of plain english in the now pending Class Action Fairness Act of 2003 [which is mostly about moving class actions now filed in state courts to the federal system], and Classobjector will report more on this in the future.

For securities class actions the PSLRA requires that, if the parties agree, the notice state the amount of damages, per share, if plaintiffs prevailed on their claims. 15 USCS § 78u-4(a)(7)(B). The legislative history makes clear that this was so class members would have some idea of how good the settlement is. The Act also says that if the parties don't agree there should be "a statement from each settling party concerning the issue or issues on which the parties disagree." You might think that would lead statement like: Defendants think the recovery will be no more than X per share because of this and that issue, and plaintiffs think the recovery will be at least Y." But in practice, all you get is a statement saying the parties disagee about this issue and that issue, and no monetary estimates.

Classobjector thinks the last thing either the class counsel or the defendants want, once they've struck a deal, is for class members to have any way to figure out if its a bad deal. No one with experience of securities class actions would expect the parties to ever agree on the amount of damages. So, by accident or design, the legislative intention was finessed at the outset. Therefore Classobjector was pleased to see the following editorial by the publisher of the Class Action Reports.

"If Congress really wanted to reform class action procedures, it would require a Final Report to be filed in each fderal class action detailing (1) the total money paid out by defendants, whether those costs are paid out by the defendant on top of damages or are deducted from the class before distribution to class members, and (2) the amount of that total recovery consumed by attorneys fees and expenses. These figures would include notice and later settlement administration costs incurred after the main fees are awarded. Also included would be the amount of the claims made if it is a claims made settlement and the redemption rate and thus the cost to defendant of any coupons issued. Also before the Final Report, settlement proceedings and settlement notices should require mandatory best estimates of the potential trial recovery vs. the settlement amount. The latter provision in the 1995 Securities Reform Act has become a dead letter, because both sides disingenuously claim they do not know the amount. If some range of estimates is required by the facts of a particular case, so be it. But it is important for society as well as class members to know whether their case recovers ten cents on the dollar or 100 cents.”
Commentary, Class Action Reports, Vol. 24. No. 2, March-April 2003, page 1.

HALLIBURTON. Update. The court denied the motion to show cause - really a motion to remove lead counsel Schiffrin and Barroway, without prejudice. I think the "without prejudice" part is the most important. It sounds like the court will defer a close look until the settlement is presented for approval.

Friday, August 22, 2003

One immediately interesting item is the action taking place in the Halliburton securities litigation, pending in the Northern District of Texas, Dallas Division, case no. 02-CV-1152N. [Pleadings on-line via Pacer] Counsel for one lead plaintiff [Scott & Scott]("S&S), apparently not appointed lead counsel but appointed to an executive committee, are seeking to oust Schiffrin & Barroway (S&B) as lead counsel, in favor of themselves. There are several complaints: (1) S & B reached a settlement without any consultation with S&S, the executive committee or S&S's client; (2) S & B improperly failed to name or pursue V.P. Cheney, who allegedly has exposure from his time as an executive of Halliburton. S&S also seem to be arguing the reported settlement of $6M is way too cheap and is not supported by sufficient investigation. Two other firms serving on the executive committee, Stull, Stull & Brody and Wolf Halderstein, are siding with S&B. S&B respond that S&S and its client should wait and object to the settlement if, and when, it is presented to the court for approval and that S&S's order to show cause approach, seeking S&B's removal, is improperly premature and draconian. From the Objector's point of view the most striking allegation is that S & B have done little or nothing on which to base the reported settlement. There are even assertions that imply, if not directly assert, that S&B has been cooperating with defense counsel in dumbing down the plaintiffs' case so as to justify a low settlement. S&S assert that S & B's client, one of four lead plaintiffs, with a reported loss of about $800K, will only receive $40 from the reported settlement! Hearing scheduled for Monday the 25th. If that is anywhere near accurate, one has to wonder why they would agree to such a settlement. However this order to show cause turns out one has to believe this settlement, and the support for it, will receive close scrutiny. S&B say they still have to do "confirmatory discovery" to complete their due diligence on the settlement they have already reduced to a memo of understanding. Objector thinks that "confirmatory discovery" is a distinctly suspect process by which plaintiffs' counsel put window dressing on a settlement to which they are already committed. It is particularly dangerous in early settlement cases where there has been little or no real discovery. Halliburton is apparently such a case.

Classobjector is born.

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