Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_01-cv-00932/USCOURTS-cand-3_01-cv-00932-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 28:1331 Fed. Question

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

In re QUINTUS SECURITIES

LITIGATION

This Document Relates To:

ALL ACTIONS

 /

No C-00-4263 VRW

ORDER

This consolidated securities fraud class action was

brought on behalf of all persons who purchased or acquired common

stock of Quintus Corporation (“Quintus”) during the period November

15, 1999, through November 15, 2000, inclusive (the “class

period”). The parties have reached a settlement and now seek final

approval of the proposed settlement and the proposed plan of

allocation. Doc #274. Lead plaintiff and lead counsel also submit

an application for award of attorney fees and reimbursement of

expenses. Doc #375. For the reasons discussed below, final

approval of the class settlement and plan of allocation is GRANTED

and the application for award of attorney fees and reimbursement of

expenses is GRANTED.

Case 3:01-cv-00932-VRW Document 13 Filed 12/05/06 Page 1 of 10
United States District Court

For the Northern District of California

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I

When Quintus was incorporated in 1984, its business was

artificial intelligence software. During the class period, Quintus

provided “e-Customer Relationship Management” or “eCRM” solutions,

primarily through its “eContact” software. Quintus grew through a

series of acquisitions in 1997 through 1999. 

As part of an initial public offering completed November

15, 1999, Quintus sold 5.175 million shares of Quintus common stock

at $18/share. Consistent with those heady times, the stock price

soon reached $55/share. On February 28, 2000, Quintus announced

its intent to acquire Mustang.com, which developed corporate e-mail

management software. Quintus filed a registration statement in

connection with the Mustang acquisition on March 28, 2000.

On November 15, 2000, its first anniversary as a publicly

traded company, Quintus announced that it was reviewing previously

filed financial statements. The price of Quintus shares fell from

$6.00/share to $2.97/share before trading was halted by NASDAQ

shortly after noon, representing a one-day (or less) price drop of

just over 50%. On November 22, 2000, Quintus announced the results

of a financial audit, which revealed that Quintus had overstated

revenue on several occasions. The truth regarding Quintus’s

financial condition continued to emerge over the next few months

and NASDAQ delisted Quintus stock on February 16, 2001. After two

days of over-the-counter trading, the price of Quintus common stock

sank to $0.14 on February 22, 2001, when Quintus filed for Chapter

11 bankruptcy.

A flurry of class actions alleging securities fraud were

Case 3:01-cv-00932-VRW Document 13 Filed 12/05/06 Page 2 of 10
United States District Court

For the Northern District of California

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filed in this court and ultimately consolidated. Doc #71. The

court designated the law firm of Weiss & Yourman (now Weiss &

Lurie) as lead counsel pursuant to a competitive selection process. 

See In re Quintus Sec Litig, 148 F Supp 2d 967 (ND Cal 2001). 

Following two rounds of motions to dismiss, the court designated

Roman Reznik as lead plaintiff. Doc #201. 

The first amended consolidated class action complaint,

Doc #215 (CAC), alleges that false and misleading statements of

material fact appeared in the Quintus IPO registration statement,

the Mustang registration statement and various periodic financial

reports. Accordingly, the CAC asserts claims under sections 11,

12(a)(2) and 15 of the Securities Act of 1933 (the “1933 Act”) as

well as claims under sections 10(b), 14(a)(9) and 20(a) of the

Securities Exchange Act of 1934 (the “1934 Act”). Id ¶¶291-357.

This litigation is only one current in Quintus’s wake. 

As noted, Quintus initiated a Chapter 11 bankruptcy proceeding in

the United States District Court for the District of Delaware. 

Additionally, various shareholder actions were filed in California

and Texas state courts. Thus, the proposed settlement presently

under consideration is part of a global settlement to be

administered by the Chapter 11 trustee. 

On July 7, 2006, the court preliminarily approved the

proposed settlement and certified the class. Doc #269. The court

ordered that notice of the pending settlement and final approval

hearing be mailed to potential class members on July 25, 2006. Doc

#273. Over 20,000 notice letters were mailed to potential

settlement class members and shareholders of record. Doc #277 at

¶5. Not a single class member objected to the settlement or

Case 3:01-cv-00932-VRW Document 13 Filed 12/05/06 Page 3 of 10
United States District Court

For the Northern District of California

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requested exclusion from the class settlement in response to the

notice letter. Id at ¶7-8. Similarly, no objection was raised at

the final settlement approval hearing on December 5, 2006.

II

The proposed settlement agreement provides that

defendants will pay $10.1 million in cash into a common fund to be

distributed to class members. 

The question currently before the court is whether this

settlement should be approved. “The court must approve any

settlement, voluntary dismissal, or compromise of the claims,

issues, or defenses of a certified class.” FRCP 23(e)(1)(A). The

court bears in mind the Ninth Circuit’s “strong judicial policy

that favors settlement, particularly where complex class action

litigation is concerned.” Class Plaintiffs v City of Seattle, 355

F2d 1268, 1276 (9th Cir 1992). While no class member has objected,

the court must still review the proposed settlement. Manual for

Complex Litigation (Fourth) §21.635 (“Even if there are no or few

objections or adverse appearances before or at the fairness

hearing, the judge must ensure that there is sufficient record as

to the basis and justification for the settlement”).

The court may approve a settlement “only after a hearing

and on finding that the settlement * * * is fair, reasonable and

adequate.” FRCP 23(e)(1)(C). A final approval hearing was held on

December 5, 2006. The Ninth Circuit has set forth the following

factors for courts considering approval of class action

settlements: 

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United States District Court

For the Northern District of California

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(1) the strength of the plaintiffs’ case; (2) the risk,

expense, complexity, and likely duration of further

litigation; (3) the risk of maintaining class action

status throughout the trial; (4) the amount offered in

settlement; (5) the extent of discovery completed and the

state of the proceedings; (6) the experience and views of

counsel; (7) the presence of a governmental participant;

and (8) the reaction of the class members to the proposed

settlement. 

Churchill Village v General Electric, 361 F3d 566, 575 (9th Cir

2004). These factors overwhelmingly support approval of the class

settlement. The court discusses the settlement evaluation factors

that are relevant in this case. Id at 576 n7.

This settlement follows six years of protracted

litigation, discovery and negotiation. Further litigation would

require plaintiffs to survive motions for summary judgment and, if

successful, present their case to a jury. The considerable risk

and cost associated with further litigation is enhanced by

Quintus’s pending bankruptcy litigation. This court noted early in

these proceedings that “plaintiffs are going to have trouble

finding deep pockets in this case.” Doc #85 at 37. This global

settlement divides the limited resources of a bankrupt corporation

among the many litigants suing Quintus. Doc #276 at ¶ 6. Much of

the remaining value to be apportioned among the litigants is from

Quintus’s directors and officers liability insurance policies. The

settlement class, however, is receiving the “lion’s share” of the

insurance coverage. Doc #276 at ¶46. Weighing the risks and costs

of further litigation, the court concludes that this settlement is

advisable.

The settlement amount, $10.1 million, closely resembles

the $9,996,000 settlement predicted by the Haas Study referenced by

this court in its previous order. Quintus, 148 F Supp 2d at 985. 

Case 3:01-cv-00932-VRW Document 13 Filed 12/05/06 Page 5 of 10
United States District Court

For the Northern District of California

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This proposed settlement’s settlement/potential investor loss (PIL)

ratio of 16.83% marginally exceeds the average class action

securities litigation settlement/PIL ratio of 16.66%. Mukesh

Bajaj, Sumon C Mazumdar & Atuya Sarin, Securities Class Action

Settlements, 43 Santa Clara L Rev 101, 116 tbl 11 (2003). 

Achieving the average settlement/PIL ratio despite having to

compete with Quintus’s bankruptcy estate for remaining resources

indicates the fairness of this settlement to class members.

Following the hearing, plaintiffs’ counsel expressed

concern that courts’ use of studies to predict recovery at the

outset of litigation may tend to cap recovery at that level. While

the court does not discount that concern, it warrants mention that

the Haas study data reflect a range of litigation results. Any

individual case may differ and differ significantly from the

average or median results. In any event, the obstacles to a

greater recovery in this case were substantial. Given those

difficulties, a recovery within the average range may well

represent an achievement that is greater than average. 

Finally, the absence of any objections or requests for

exclusion among a class of this size demonstrates the overall

reasonableness of this settlement. 

The risk and cost of further litigation, the settlement

amount and the silence of class members provide powerful evidence

that the settlement is fair, reasonable and adequate. Accordingly,

plaintiffs’ motion for final approval of the class action

settlement is GRANTED.

//

//

Case 3:01-cv-00932-VRW Document 13 Filed 12/05/06 Page 6 of 10
United States District Court

For the Northern District of California

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III

Plaintiffs also seek final approval of the plan of

allocation of the settlement fund. Doc #274. The plan of

allocation operates as follows: 

To the extent there are sufficient funds in the Net

Settlement Fund, each Authorized Claimant will receive an

amount equal to the Authorized Claimant’s claim. If,

however, the amount in the Net Settlement Fund is not

sufficient to permit payment of the total claim of each

Authorized Claimant, then each Authorized Claimant shall

be paid the percentage that each Authorized Claimant’s

claim bears to the total of the claims of all Authorized

Claimants. A claim will be computed as follows: the

claim shall be equal to the amount paid for shares of

Quintus common stock purchased or acquired by Settlement

Class members during the Settlement Class Period, less:

(a) the amount realized from the sale of any such shares

during the Settlement Class Period or through February

22, 2001, or $0.14 per share, whichever is greater; or

(b) the number of any such shares held at the close of

business on February 22, 2001, multiplied by $0.14 (the

closing price of Quintus stock on February 22, 2001).

Doc #277 Ex A at 10. The plan of allocation was fully described in

notice letters to potential class members and no objections were

submitted to the court or raised at the hearing.

The court has discretion to approve a plan of allocation

that is fair and reasonable. In re Heritage Bond Litigation, 2005

US Dist LEXIS 13555 at *38 (CD Cal 2005). “A plan of allocation

that reimburses class members based on the extent of their injuries

is generally reasonable.” Id (quoting In re Oracle Securities

Litigation, 1994 US Dist LEXIS 21593 at *1 (ND Cal 1994)). 

Because this plan provides proportional reimbursement and

no class member objected, the court concludes the plan of

allocation is fair and reasonable. Accordingly, the motion for

final approval of the plan of allocation is GRANTED.

Case 3:01-cv-00932-VRW Document 13 Filed 12/05/06 Page 7 of 10
United States District Court

For the Northern District of California

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IV

Lead plaintiff and his counsel seek an award of attorney

fees and expenses totaling $1,141,978.40. Doc #275 at 16. This

amount includes attorney fees of $817,500, expenses of $150,000,

reimbursement of fees and expenses of bankruptcy counsel of

$162,478.40 and reimbursement of $12,000 to the lead plaintiff. 

Id. The fees and expenses sought amount to 11.3% of the total

settlement amount.

The court preliminarily approved an award of attorney

fees and expenses in its July 7, 2006, order. Doc #269 at 21. 

This request differs by including $15,096.40 of additional fees and

expenses of bankruptcy counsel and $12,000 in reimbursement to lead

plaintiff. The court anticipated such an increase in the amount

sought for bankruptcy counsel. Id. Lead plaintiff, however, seeks

reimbursement for 80 hours of his time at a rate of $150/hour for

the first time. Doc #276 Ex 5 at ¶¶2-3. The court is authorized

to reimburse lead plaintiff for reasonable costs and expenses

related to the representation of the class, including lost wages. 

15 USC §78u-4(a)(4). As a registered securities principal and the

principal of RAMA Financial, lead plaintiff’s request for

compensation is reasonable. Doc #276 Ex 5 at ¶3.

These minor increases in the amount requested do not

disturb the court’s prior conclusion that “the amount of attorney

fees (including those incurred by bankruptcy counsel) is relatively

modest in relation to the total class recovery.” Doc #269 at 21. 

This court, however, “rejects reliance solely on a comparison of

the percentage fee requested here with other percentage awards or

with a so-called benchmark percentage.” In re HPL Technologies,

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Inc Sec Litig, 366 F Supp 2d 912, 914 (ND Cal 2005). Instead, the

court employs a lodestar cross-check to determine the

reasonableness of the requested attorney fees.

“Three figures are salient in a lodestar calculation: (1)

counsel’s reasonable hours, (2) counsel’s reasonable hourly rate

and (3) a multiplier thought to compensate for various factors.” 

Id at 919. In performing a cross-check, the court calculates the

implied multiplier to determine its reasonableness. Lead counsel

has spent more than 5,000 attorney hours in this matter, most of

them by senior attorneys. Doc #275 Ex 1. Applying the Laffey

matrix hourly rates, as adjusted for Los Angeles and cost of living

increases, lead counsel calculates its lodestar as $1,976,262.50. 

Id at 12 and Ex 1. The requested attorney fees of $817,500, less

than half the lodestar, provide an implied lodestar multiplier of

0.414. Id at 13. This multiplier is indeed reasonable, indicating

class members obtained a significant discount on market attorney

rates. Notably, competitive selection of class counsel produced

this low loadstar ratio or negative multiplier. Quintus, 148 F

Supp 2d 967. Despite any statutory limitation on use of

competitive selection, see In re Cavanaugh, 306 F3d 726 (9th Cir

2002), this provides further evidence that courts may look to the

competitive selection cases in determining a reasonable level of

fees and costs. See In re Cabletron, Inc Securities Litigation,

2006 US Dist LEXIS 75188 (D NH 2006).

The requested attorney fees and expenses are reasonable

compensation for the value provided to the class. This is further

evidenced by the lack of class member objections to the

preliminarily approved attorney fees and expenses included in the

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class notice.

Accordingly, the application for award of attorney fees

and reimbursement of expenses is GRANTED.

IT IS SO ORDERED.

 

VAUGHN R WALKER

United States District Chief Judge

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