Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_00-md-01300/USCOURTS-cand-3_00-md-01300-1/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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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 PATRIOT AMERICAN

HOSPITALITY INC SECURITIES

LITIGATION

This Document Relates To:

THE OPEN MARKET ACTION

00-0875 VRW 00-0948 VRW

00-0949 VRW 00-1478 VRW

 /

MDL No C-00-1300 VRW

ORDER

As described in this court’s preliminary approval order

of July 14, 2005, Doc #207 (the “7/14/05 order”), the lead

plaintiff in this securities class action, Deborah Szekely, has

reached a settlement with the defendants. In that order, the court

preliminarily approved the proposed settlement, certified a

settlement class pursuant to FRCP 23, preliminarily approved the

proposed plan of allocation, approved (subject to certain

modifications) a form of notice to be sent to class members and

preliminarily approved the lead plaintiff’s application for an

award of attorneys’ fees and expenses. Notice having been
United States District Court

For the Northern District of California

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disseminated to the class under the terms of the court’s order, see

Doc #217 (Hansman Decl), plaintiff now moves for final approval of

the proposed settlement, final approval of the plan of allocation

and an award of attorneys’ fees and expenses. Doc #216.

The court held a final settlement approval hearing on

October 18, 2005. For the reasons that follow, the court GRANTS

final approval of the proposed settlement, GRANTS final approval of

the plan of allocation and GRANTS an award of attorneys’ fees and

expenses. Because the court’s previous order addressed many of the

issues presented here for final approval, the court assumes

familiarity with the 7/14/05 order and the definition of terms

therein; the court will confine its discussion in this order to

recent developments and further analysis.

I

The court first takes up the issue of the fairness of the

settlement, which, in the aggregate, consists of $5 million in

cash. In assessing whether a settlement is “fair, reasonable and

adequate” under FRCP 23(e)(1)(C), this court is to consider several

factors:

(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

[presumably in comparison to comparable cases];

(5) the extent of discovery completed and the

stage of the proceedings; (6) the experience

and views of counsel; (7) the presence of a

governmental participant; and (8) the reaction

of class members to the proposed settlement.

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

2004) (citing Hanlon v Chrysler Corp, 150 F3d 1011, 1026 (9th Cir
United States District Court

For the Northern District of California

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1998)). To these factors, the court adds (9) the procedure by

which the settlements were arrived at, see Manual for Complex

Litigation (Second) § 30.44 (1985), and (10) the role taken by the

lead plaintiff in that process, a factor somewhat unique to the

Private Securities Litigation Reform Act (PSLRA).

Factor (1) favors settlement. In securities litigation

to which the PSLRA’s heightened pleading requirements applies,

survival of the pleading stage is a good (albeit imperfect)

indicator of the strength of a case. In this case, two complaints

have been dismissed by the court. 

Even if the class were to survive the pleading stage, the

class claims, which are premised upon sections 10(b) and 20(a) of

the Securities Exchange Act of 1934, would be subject the “bespeaks

caution” doctrine and the safe harbor provision for forward-looking

statements under the PSLRA. Frankly, the case is not that strong. 

Continued litigation of this matter is a risky proposition for the

class. At the very least, there is substantial risk that a motion

to dismiss the second amended complaint will result in dismissal

with prejudice. Class counsel also point to a risk of non-recovery

or diminished recovery if the litigation were to continue, given

the precarious financial position of both Patriot and its primary

directors and officers insurance carrier at the time of settlement. 

Doc #216 at 13-14; see also Torrisi v Tucson Elec Power Co, 8 F3d

1370, 1376 (9th Cir 1993) (characterizing defendant’s financial

position as a “predomina[nt]” factor favoring settlement approval). 

The court is reluctant to accord too much weight to these

unsubstantiated statements. Factor (2) nonetheless weighs in favor

of settlement given that the court has twice dismissed complaints
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For the Northern District of California

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in this case.

Factor (3) generally does not weigh heavily in favor of

settlement in securities fraud class actions, because class

treatment is generally appropriate in such litigation.

In the 7/14/05 order, the court expressed skepticism at

the amount of the settlement, which appeared to be “somewhat low

when compared to settlements in similar cases.” 7/14/05 order at

4. Although factor (4) cuts against the settlement, this alone

will not defeat the settlement in light of the significant risks

that would accompany continued litigation.

Because this litigation has not proceeded beyond the

pleading stage, no formal discovery has taken place. According to

class counsel, however, defendants produced over 67,000 documents

relating to the class claims after an agreement-in-principal had

been reached between the class and defendants. Doc #195 (Downs

Decl) at 12, ¶43. The court is satisfied that class counsel

availed the class of all available opportunities to develop a

factual basis upon which to evaluate the claims and the risks of

going forward. Thus, factor (5) tends to support the settlement. 

The views of counsel, factor (6), support settlement. 

While some courts have indicated that such views are entitled to

deference, see, e g, Williams v Vukovich, 720 F2d 909, 922-23 (6th

Cir 1983), the court is reluctant to put much stock in lead

counsel’s pronouncements, given their obvious pecuniary interest in

seeing the settlement approved.

Factor (7) does not support settlement, inasmuch as there

is no government participant present.

Factor (8) strongly supports settlement. The response to
United States District Court

For the Northern District of California

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the notice mailed to individual class members and published in The

San Francisco Chronicle and Investor’s Business Daily has been

positive. No objector has come forward. Three class members have

requested exclusion from the settlements (i e, opted out), but in

the main class members have elected to remain in the class. Doc

#220.

As discussed in the 7/14/05 order, the settlement was

reached in a procedurally acceptable manner. Specifically, the

court found that the settlement negotiations were “vigorously

adversarial” and conducted at arm’s-length by experienced counsel. 

Factor (9) thus militates in favor of the settlement. 7/14/05

order at 4.

The court accepts as true class counsel’s representation

that lead plaintiff “was a participant in th[e] assessment [of the

settlement] and was consulted with and kept apprised concerning the

settlement negotiations.” Downs Decl at 12, ¶40. Accordingly,

factor (10) supports the settlement insofar as lead plaintiff was

involved in the settlement negotiations, something Congress sought

to foster by the PSLRA’s lead plaintiff provisions.

For the reasons discussed above and in the 7/14/05 order,

the court finds that, on balance, the settlement is fair,

reasonable and adequate to the class within the meaning of FRCP

23(e)(1)(C). Accordingly, the court GRANTS plaintiff’s motion for

final approval of the settlement.

II

As suggested by the court’s extended discussion of the

plan of allocation in the 7/14/05 order, the court has harbored
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For the Northern District of California

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significant doubts about the plan of allocation inasmuch as it

extinguishes the claims of a large number of class members in

exchange for zero recovery. Specifically, class members who

purchased Patriot paired-shares on or after January 5, 1998, and

sold on or before November 8, 1998, (the “in-and-out” class

members) will recover nothing under the proposed plan of

allocation. 

Recognizing that the best course was to allow in-and-out

class members to decide for themselves, the court preliminarily

approved the plan of allocation, subject to modifications in the

form of notice that would explicitly and with emphasis warn in-andout class members that they were giving up their right to recover

in exchange for no consideration. Specifically, the court ordered:

The following language shall be inserted before the

last paragraph of part VI: “The exact recovery

received by each Settlement Class Member is

determined by the Plan of Allocation, which is

described in Part IX. Under the Plan of Allocation,

some Settlement Class Members will receive nothing,

but will nonetheless give up their right to pursue

the Released Claims against the Released Persons. 

Specifically, Settlement Class Members who purchased

paired-shares of Patriot on or between January 15,

1998, and November 8, 1998, and sole the pairedshares of Patriot on or before November 8, 1998,

will receive nothing under the Plan of Allocation. 

Also, Settlement Class Members who purchased pairedshares of Patriot on or between November 9, 1998,

and December 15, 1998, and sold the paired-shares of

Patriot on December 16, 1998, will receive nothing

under the plan of allocation. If you are a

Settlement Class Member who falls within the group

described above, you may wish to exercise your

rights described in part VIII of this notice, or to

use the procedures described in part IX of this

notice.”

7/14/05 order at 11-12. 

The court concludes that, with the inclusion of this language, the

notice directed to class members adequately advised them of the
United States District Court

For the Northern District of California

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proposed plan of allocation and their rights with respect thereto.

No class member came forward to object to this plan of

allocation. Nor does it appear that any of the three class members

who elected to opt out were in-and-out class members. The court is

therefore constrained to find that the class does not object to the

proposed plan of allocation.

As discussed in the 7/14/05 order, the plan of allocation

is based on an event study performed by Dr Scott Hakala, who

identified three statistically significant events that produced

fluctuations in Patriot share prices reasonably attributable to the

misrepresentations alleged in the second amended complaint: (1)

the November 9, 1998, disclosure of the amount of proceeds from the

sale of Patriot properties, which was less than the amount of

Patriot’s existing forward equity contract obligations; (2) the

December 16, 1998, announcement of an equity infusion in the amount

of $1 billion and (3) the market’s negative reaction on December

17, 1998, to the December 16, 1998, announcement. The court finds

the methodologies employed by Dr Hakala to be sound. The court

further concludes that the plan of allocation adequately

incorporates Dr Hakala’s findings and that the compensation of

individual class members is fair in relation to the varying levels

of allegedly fraud-induced inflation that existed at different

points during the class period. 

Because the plan of allocation is reasonably supported by

expert analysis and has met with the apparent approval of the

class, the court GRANTS plaintiff’s motion for final approval of

the plan of allocation. Settlement proceeds shall be disbursed

among class members as follows:
United States District Court

For the Northern District of California

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(1) For shares purchased on or between January 5, 1998, and

November 8, 1998, the following claims for damages shall

be allowed:

(a) For shares sold on or before November 8,

1998, no damages shall be allowed;

(b) For shares sold on or after November 9, 1998, and on

or before December 15, 1998, damages shall be 11.1%

of the purchase price less 4.7% of the selling

price;

(c) For shares sold on December 16, 1998, damages shall

be 11.1% of the purchase price less 10.9% of the

selling price;

(d) For shares sold on or after December 17, 1998,

damages shall be 11.1% of the purchase price.

(2) For shares purchased on or between November 9, 1998, and 

December 15, 1998, the following claims for damages shall 

be allowed:

(a) For shares sold on or after November 10, 1998, and

on or before December 15, 1998, damages shall be

4.7% of the purchase price less 4.7% of the selling

price;

(b) For shares sold on December 16, 1998, damages shall

be zero;

(c) For shares sold on or after December 17, 1998,

damages shall be 4.7% of the purchase price.

(3) For shares purchased on December 16, 1998, the following 

claims for damages shall be allowed:

(a) For shares sold on or before December 16, 1998, no
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For the Northern District of California

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damages shall be allowed;

(b) For shares sold on or after December 17, 1998,

damages shall be 14.1% of the purchase price.

III

Plaintiff moves for an award of attorneys’ fees in the

amount of $875,000 (17.5% of the $5 million settlement fund) and

reimbursement for expenses in the amount of $134,939.28. The total

requested fees and expenses amounts to $1,009,939.28, which

represents 20.2% of the common fund. As discussed in the 7/14/05

order, a percentage of 20.2% is at the low end of the range and

below the mean for the percentage of common funds devoted to

attorneys’ fees and costs. See 7/14/05 order at 13 (reciting data

from Stuart J Loan, Jack Moshman & Beverly C Moore, Attorney Fee

Awards in Common Fund Class Actions, 24 Class Action Rep 167

(2003)). Further, plaintiff’s counsel performed a lodestar crosscheck consistent with the analysis set forth in In re HPL

Technologies, Inc Securities Litig, 366 F Supp 2d 912 (ND Cal 2005)

(Walker, J). The lodestar cross-check produced a lodestar amount

of $639,142.25, resulting in an implied multiplier of approximately

1.37. The court adheres to its initial opinion that a multiplier

of 1.37 “is far from exceeding the multipliers the court has, in

its experience, encountered and observed in other common fund

securities class actions.” 7/14/05 order at 14.

Accordingly, the court GRANTS plaintiff’s motion for an

award of attorneys’ fees and expenses in the amount of

$1,009,939.28, to be paid from the common fund.

//
United States District Court

For the Northern District of California

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IV

In sum, the court GRANTS plaintiff’s motion for final

settlement approval, GRANTS plaintiff’s motion for final approval

of the plan of allocation and GRANTS plaintiff’s motion for an

award of attorneys’ fees and expenses.

IT IS SO ORDERED.

 

VAUGHN R WALKER

United States District Chief Judge