1

IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF ILLINOIS 

EASTERN DIVISION 

 

WARREN BEELER, Individually and On ) 

Behalf of All Others Similarly Situated, ) 

 ) 

 Lead Plaintiff, ) Case No. 04 C 3658 

 ) 

 v. ) Honorable Milton I. Shadur 

 ) 

SALTON, INC., LEONHARD DREIMANN, ) 

And DAVID M. MULDER, ) 

 ) 

 Defendants. ) 

LEAD PLAINTIFF’S MEMORANDUM 

IN SUPPORT OF MOTION FOR PRELIMINARY APPROVAL

 Lead Plaintiff, by and through his counsel, respectfully submits this Memorandum In 

Support of Motion For Preliminary Approval. 

FACTUAL BACKGROUND

I. NATURE OF THE LITIGATION. 

At all relevant times, Salton designed, sourced, marketed and distributed small home 

appliances. Complaint ¶ 23. In September 2002, several attorneys general from various states 

settled antitrust claims against Salton arising from allegations that Salton coerced stores into 

excluding competing products. Id. at ¶ 24. During the Class Period, Salton issued several 

materially misleading public statements by Dreimann and Mulder, who signed off on and 

prepared the statements. Id. at ¶¶ 25-39.1

 

 

1

 These materially misleading statements include without limitation the following November 12, 

2002 SEC Form 10-Q (Compl. ¶¶ 25-26); February 5, 2003 fiscal 2003 second quarter report 

(Compl. ¶ 27); February 12, 2003 SEC Form 10-Q (Compl. ¶ 28); May 13, 2003 fiscal 2003 

financial report (Compl. ¶ 29); May 13, 2003 SEC Form 10-Q (Compl. ¶ 31); September 4, 2003 

fiscal 2003 fourth quarter (Compl. ¶ 32); September 26, 2003 SEC Form 10-K (Compl. ¶ 33); 

November 6, 2003 fiscal 2004 first quarter report (Compl. ¶¶ 34-35); November 12, 2003 SEC 
2

After the close of trading on May 10, 2005, the materially false and misleading nature of 

the foregoing statements began to emerge. Compl. ¶ 41. Only then did it become clear that the 

foregoing statements were materially misleading because, in the context of the optimistic 

financial forecasts projected by Defendants, Salton's financial outlook was bleak. In particular, 

Lead Plaintiff alleges that Defendants omitted to disclose the following material facts: 

1. The market for the Foreman Grill was thoroughly saturated, a fact that 

would materially and adversely impact growth and profit. Compl. ¶¶ 40-

41. 

2. Salton's antitrust settlement with 44 states' attorneys general, through 

which it agreed to refrain from price fixing among retailers, punishing 

“disobedient” retailers, and other anticompetitive conduct, materially and 

adversely impacted Salton's ability to meet earnings forecasts it endorsed 

or sponsored. Compl. ¶¶ 40-41. 

3. The expenses Salton incurred to maintain its dwindling market share and 

to promote replacements for the George Foreman Grill were significantly 

higher than planned and were not “one-time” costs as Defendants' 

represented, but rather were recurring costs that would materially and 

adversely impact Salton's financial well-being. Compl. ¶¶ 40-41. 

4. Salton, which was highly leveraged ($374 million indebtedness), was 

either in violation of certain debt agreements or would violate other debt 

agreements in the foreseeable future. Compl. ¶¶ 40-41. 

 

On May 11, 2005, immediately after this information became public, the price of Salton shares 

fell nearly 50%, from $6.69 per share to $3.35 per share. Compl. ¶ 42. 

Lead Plaintiff brings two counts on behalf of himself and the Class under the federal 

securities laws. Count I, against all Defendants, seeks relief for Defendants' alleged violations 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, 

promulgated thereunder. Count II, against Dreimann and Mulder, seeks relief for these 

individuals' alleged violations of Section 20(a) of the Exchange Act, 15 U.S.C. 78t(a). 

 

Form 10-Q (Compl. ¶ 36); February 10, 2004 fiscal 2004 second quarter report (Compl. ¶¶ 37-

38); February 10, 2004 SEC Form 10-Q (Compl. ¶ 39). 
3

Defendants intend to raise several defenses to the Class’ securities claims. They have 

vigorously denied all factual allegations of wrongdoing. Defendants contend that they engaged in 

no material misrepresentations or omissions, that they did not act with scienter, and that the 

Class cannot establish damages, proximate causation or artificial inflation of the price of Salton 

securities. 

II. PROCEEDINGS TO DATE. 

The operative complaint in this litigation was filed on May 26, 2004. On December 10, 

2004, the Court appointed Lead Plaintiff. The Court also appointed Miller Faucher and Cafferty 

LLP and Lerach Coughlin Stoia Geller Rudman and Robbins LLP as Lead Counsel. Thereafter, 

the parties engaged in substantial, formal discovery that included interrogatories and answers 

thereto, document requests and production, and third parties discovery and document production. 

On October 17, 2005, the Court entered the parties’ Agreed Order for Class Certification and 

certified a class consisting of persons who purchased Salton securities between November 11, 

2002 and May 11, 2004. Thereafter, the parties engaged in additional discovery and follow up. 

 On November 15, 2005, the parties engaged in a mediation conference before the Court 

and reached an agreement in principle to settle the litigation on the terms set forth in the 

Stipulation of Settlement (the “Settlement”). 

III. THE SETTLEMENT. 

The Settlement provides that Defendants will pay a total of $3 million to the Class. $2.5 

million will be paid by Defendants on January 15, 2006. See Settlement at p. 10, ¶2.6. The 

remaining $500,000 will be paid by Salton 18 months after this Court enters its final judgment 

approving the Settlement. See Settlement at p. 9, ¶2.1. In exchange, Class members will release 
4

Defendants and their Related Parties for all claims that were or could have been asserted in 

connection with the facts and events alleged in this litigation. See Settlement at p. 13, ¶¶ 4.1-4.3. 

As set forth above, Defendant has agreed to pay $2.5 million on January 15, 2006. A 

portion of this amount will be used to pay the cost of notice to the Class. See Settlement at p. 10, 

¶2.6. At the appropriate time, Lead Counsel will request the Court to approve reimbursement 

from the Settlement fund for all other reasonable expenses that Lead Counsel has advanced on 

behalf of the Class in this litigation. See Settlement at p. 16, ¶6.1. In addition, at the appropriate 

time, Lead Counsel will request the Court to approve a reasonable attorneys’ fee to be paid from 

the Settlement fund. See Settlement at p. 16, ¶¶6.1-6.3. 

STANDARDS

“The parties seeking approval of a settlement, voluntary dismissal or compromise under 

Rule 23(e)(1) must file a statement identifying any agreement made in connection with the 

proposed settlement, voluntary dismissal, or compromise.” Fed. R. Civ. Proc. 23(e)(1)(C)(2). 

“Federal courts naturally favor the settlement of class action litigation.” Isby v. Bayh, 75 F.3d 

1191, 1196 (7th Cir. 1996); Hispanics United of DuPage County v. Village of Addison, 988 F. 

Supp. 1130, 11489 (N.D. Ill. 1997). When determining approval in the class action context, the 

courts typically engage in a two-step process involving preliminary approval and, after notice has 

been provided to class members, final approval. See Manual for Complex Litigation, Third § 

39,41 at 237 (1995). 

ARGUMENT

I. THE PROPOSED SETTLEMENT IS FAIR AND REASONABLE. 

At the preliminary approval stage, the Court determines whether the proposed settlement 

is “within the range of possible approval.” Armstrong v. Board of School Directors of the City of 
5

Milwaukee, 616 F.2d 305, 314 (7th Cir. 1980). If so, “there is [a] reason to notify the class 

members of the proposed settlement and to proceed with a fairness hearing.” Id. See also 

Ledford v. City of Highland Park, No. 00 C 4212, 2000 WL 1053967, *2 (N.D. Ill. Jul. 31, 

2000). 

“Final approval” after notice is sent to the class is not presently before the Court. 

However, its requirements provide guidance on whether preliminary approval should be granted. 

Rule 23(e)(1)(C) states, “The court may approve a settlement, voluntary dismissal, or 

compromise that will bind class members only after a hearing and on finding that the settlement, 

voluntary dismissal, or compromise is fair, reasonable, and adequate.” Fed. R. Civ. Proc. 

23(e)(1)(C). “[T]he Court determines whether to grant final approval in light of the following 

eight factors: (1) the strength of the case for plaintiffs on the merits, balanced against the amount 

offered in settlement; (2) the defendant's ability to pay; (3) the complexity, length and expense of 

further litigation; (4) the amount of opposition to the settlement; (5) the presence of collusion in 

reaching a settlement; (6) the reaction of members of the class to the settlement; (7) the opinion 

of competent counsel; and (8) the stage of the proceedings and the amount of discovery 

completed. Id. at 314 (quoting 3B Moore's Federal Practice ¶ 23.80[4] at 23-521 (2d ed. 1978)); 

see also In re Mexico Money Transfer Litig., 164 F. Supp. 2d 1002, 1014 (N.D. Ill. Dec. 27, 

2000). 

In this case, Plaintiff and his counsel believe that the claims asserted are meritorious and 

that they will previal at trial. Lead Plaintiff estimated potential damages for Salton common 

stock to be in teh ragne of $25 to $30 million. Defendants maintained that the Class suffered no 

damages under the securities laws. As this Court was advised during the recent mediation, the 

major obstacle to class recovery is Defendants’ ability to pay a large judgment. As a result, the 
6

settlement amount represents a fair recovery for the class. No matter how strong the Class’ 

claims, there are significant impediments and risks involved in attempting to establish liability in 

a securities class action such as this. Moreover, there are significant risks with respect to 

Defendants’ ability to pay any judgment at some future time. As the Court is aware, the 

Settlement is the product of an arms’ length mediation that took place in large part before the 

Court and there was no collusion whatsoever. Lead Plaintiff is optimistic that the reaction of the 

Class to this settlement will be favorable. Finally, this Settlement has been reached only after 

significant effort by Lead Counsel in evaluating the pertinent documents and information 

obtained from discovery, third party subpoenas and otherwise. Lead Counsel is qualified and, in 

their opinion, they believe the proposed Settlement is fair and reasonable. Finally, Lead 

Counsel’s anticipated request for a reasonable award of attorneys’ fees from the settlement fund 

and for reimbursement for all costs reasonably incurred in representing the Class is fair, 

reasonable and consistent with the practice in the Northern District of Illinois and elsewhere. 

See, e.g., In re Continental Ill. Sec. Litig., 962 F.2d 566, 572 (7th Cir. 1992). 

II. THE PROPOSED NOTICE IS FAIR AND REASONABLE. 

Rule 23 states, “The court must direct notice in a reasonable manner to all class members 

who would be bound by a proposed settlement, voluntary dismissal, or compromise.” Fed. R. 

Civ. Proc. 23(e). Rule 23 also provides substantive requirements as to the manner and content of 

class notice: 

For any class certified under Rule 23(b)(3), the court must direct to class members 

the best notice practicable under the circumstances, including individual notice to 

all members who can be identified through reasonable effort. The notice must 

concisely and clearly state in plain, easily understood language: 

• the nature of the action, 

• the definition of the class certified, 
7

• the class claims, issues, or defenses, 

• that a class member may enter an appearance through counsel if the 

member so desires, 

• that the court will exclude from the class any member who requests 

exclusion, stating when and how members may elect to be excluded, and 

• the binding effect of a class judgment on class members under Rule 

23(c)(3). 

Fed. R. Civ. Proc. 23(c)(1)(B). “Class notice is sufficient if it ‘may be understood by the average 

class member.’” In re VMS Sec. Litig., No. 89 C 9448, 1992 WL 203832, *3 (N.D. Ill. Aug. 11, 

1992). 

 In this case, Lead Counsel intend to send individual notice to all Class members who may 

be identified through reasonable effort. The proposed individual notice and claim forms are 

attached as Exhibit A-1 and Exhibit A-2 (respectively) to the Settlement. Lead Counsel also 

intends to publish a summary notice, and the proposed summary notice is attached as Exhibit A3 to the Settlement. These communications clearly identify the nature of the action, the 

definition of the Class, and the Class’ claims. The notices also clearly explain that the proposed 

Settlement would be binding, that Class members may enter an appearance through counsel, and 

Class members may exclude themselves from the Class and the Settlement. Moreover, the 

notices inform Class members that Lead Counsel will request the Court to award them a 

reasonable attorneys’ fee and reimbursement of expenses reasonably incurred, and that these 

amounts, if any, will be paid from the Settlement fund. Finally, the communications to the Class 

are written in a manner that may be understood by the average Class member. Accordingly, 

these forms of Notice should be approved by the Court. 
8

CONCLUSION

 For the foregoing reasons, Lead Plaintiff respectfully requests that the Court enter an 

Order: (1) granting preliminary approval to the Class Action Settlement; (2) scheduling a 

fairness hearing for purposes of determining whether to grant final approval of the Class Action 

Settlement pursuant to Rule 23(e) of the Federal Rules of Civil Procedure; (3) approving the 

form and content of the Notice of Pendency of Proposed Settlement of Class Action as well as 

Publication Notice of Pendency of Proposed Proposed Settlement of Class Action; and (4) 

directing that notice be provided to the Class. 

Dated: December 19, 2005 By: s/ Marvin A. Miller 

 Marvin A. Miller 

 Jennifer W. Sprengel 

 Anthony F. Fata 

 MILLER FAUCHER AND CAFFERTY LLP 

 30 North LaSalle Street, Suite 3200 

 Chicago, Illinois 60602 

 Tel: (312) 782-4880 

 

 Samuel H. Rudman 

 Evan Kauffman 

 LERACH COUGHLIN STOIA GELLER 

RUDMAN & ROBBINS LLP 

 200 Broadhollow Road , Suite 406 

 Melville, New York 11747 

 Tel: (631) 367-7100