Court Opinion

ID: 4568805
Source: CourtListenerOpinion
Date Created: 2020-09-23 15:00:28.681741+00
Date Added: 2024-06-11T08:46:43.735518
License: Public Domain

18-3845
    In re Facebook, Inc., IPO Sec. & Derivative Litig.

                             UNITED STATES COURT OF APPEALS
                                 FOR THE SECOND CIRCUIT

                                            SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY
ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF
APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER
IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION ASUMMARY ORDER@). A PARTY CITING TO A SUMMARY
ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

                  At a stated term of the United States Court of Appeals for the Second Circuit,
    held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of
    New York, on the 23rd day of September, two thousand twenty.

    PRESENT:
                      DENNIS JACOBS,
                      GERARD E. LYNCH,
                      RICHARD J. SULLIVAN,
                            Circuit Judges.
    _____________________________________

             In re: Facebook, Inc., IPO Class Action Settlement*

    _____________________________________

    FOR PLAINTIFFS-APPELLEES:                                                      JOHN JAMES RIZIO-
                                                                                   HAMILTON (Salvatore J.
                                                                                   Graziano, on the brief),
                                                                                   Bernstein Litowitz Berger &
                                                                                   Grossmann LLP, New York,
                                                                                   NY; Thomas A. Dubbs,
                                                                                   James W. Johnson, Thomas
                                                                                   G. Hoffman, Jr., Labaton
                                                                                   Sucharow LLP, New York,
                                                                                   NY; Frank R. Schirripa, Hach
                                                                                   Rose Schirripa & Cheverie
                                                                                   LLP, New York, NY;
                                                                                   Nicholas Diamand, Lieff,

    * For the purposes of this summary order, the above caption has been shortened. The full caption is attached as
    Addendum A.
                                                                     Cabraser, Heimann &
                                                                     Bernstein, LLP, New York,
                                                                     NY.

FOR DEFENDANTS-APPELLEES:                                            CHARLES S. DUGGAN
                                                                     (James P. Rouhandeh,
                                                                     Andrew Ditchfield, on the
                                                                     brief), Davis Polk &
                                                                     Wardwell LLP, New York,
                                                                     NY; Andrew B. Clubok,
                                                                     Susan E. Engel, Samir Deger-
                                                                     Sen, Latham & Watkins LLP,
                                                                     Washington, DC.

FOR OBJECTOR-APPELLANT:                                              James J. Hayes, pro se,
                                                                     Annandale, VA.

       Appeal from a judgment of the United States District Court for the Southern District of

New York (Sweet, J.).

       UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the judgment of the district court is AFFIRMED.

       Objector-Appellant James J. Hayes, proceeding pro se, appeals the district court’s decision

approving the settlement of a multi-district securities class action. Several institutional and

individual plaintiffs, on behalf of similarly situated investors, sued Facebook, Inc., several of its

directors and officers, and the underwriters of Facebook’s 2012 initial public offering (“IPO”),

claiming that they misled investors about Facebook’s revenue prior to the IPO in violation of the

Securities Act of 1933 (the “Securities Act”). The district court appointed certain institutional

investors as Lead Plaintiffs pursuant to the Private Securities Litigation Reform Act, 15 U.S.C.

§ 77z-1(a)(3)(B).   The district court later certified two subclasses: an institutional investor

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subclass and an individual retail investor subclass, and appointed certain individual plaintiffs as

Class Representatives of the retail investor subclass. After years of litigation, the parties settled

the action for $35 million. In August and September 2018, Hayes filed pro se objections to the

settlement, primarily arguing that the Lead Plaintiffs erred in failing to raise fraud claims under

the Securities Exchange Act of 1934 (the “Exchange Act”) against one of the underwriter

defendants, Morgan Stanley & Co. LLC. Hayes had previously contacted the Lead Plaintiffs and

Class Counsel, in 2015, protesting their failure to raise Exchange Act claims in the action; counsel

responded that they had declined to bring such claims for strategic reasons. The district court

rejected Hayes’s objections and approved the settlement in November 2018. We assume the

parties’ familiarity with the underlying facts, the procedural history of the case, and the issues on

appeal.

          A class action settlement must be “fair, reasonable, and adequate.” Fed. R. Civ. P.

23(e)(2). We review a district court’s “determination that a settlement in a class action lawsuit is

fair, reasonable, and adequate” for abuse of discretion. McReynolds v. Richards-Cantave, 588
F.3d 790, 800 (2d Cir. 2009) (internal quotation marks omitted). In determining the procedural

fairness of a settlement, a court considers whether “the settlement resulted from arm’s-length

negotiations,” and whether class counsel “possessed the experience and ability, and ha[d] engaged

in the discovery, necessary to effective representation of the class’s interests.” D’Amato v.

Deutsche Bank, 236 F.3d 78, 85 (2d Cir. 2001) (internal quotation marks omitted). A district

court must also consider a host of other factors to assess the settlement’s substantive fairness. See

McReynolds, 588 F.3d at 804.

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       Here, the district court considered all the relevant factors in its thorough November 26,

2018 opinion approving the settlement. On appeal, Hayes does not challenge the court’s holding

that the settlement was procedurally and substantively fair. Instead, he primarily reiterates his

argument that the Lead Plaintiffs and Class Counsel should have raised fraud claims against

Morgan Stanley pursuant to the Exchange Act. But, as the district court correctly held, Lead

Plaintiffs and Class Counsel acted well within their discretion in choosing not to raise such claims.

See Maywalt v. Parker & Parsley Petroleum Co., 67 F.3d 1072, 1080 (2d Cir. 1995) (holding that

the district court did not abuse its discretion in rejecting objector’s “mere proffer of the prospect

of a claim” that the lead plaintiffs had not raised); cf. Hevesi v. Citigroup Inc., 366 F.3d 70, 82

n.13 (2d Cir. 2004) (noting that lead plaintiffs in securities class actions “exercise control over the

litigation as a whole”). Further, Hayes knew since at least October 2015 that Lead Plaintiffs were

not raising Exchange Act claims, and he could have brought an individual action raising such a

claim if he so wished.

       Hayes also argues that there was a conflict of interest between the Lead Plaintiffs and the

retail investor subclass because only the retail investor subclass could raise his proposed Exchange

Act claims. As an initial matter, Hayes failed to timely raise this argument in district court, raising

it for the first time in a letter filed after the settlement hearing and over a month after objections

were due. Further, the Class Representatives included class members from both the institutional

investor subclass and the individual retail subclass. In any event, our Court has previously held

that the presence of potential claims under both Exchange Act and Securities Act claims in the

same action does not create a “fundamental conflict.” See In re Flag Telecom Holdings, Ltd. Sec.

Litig., 574 F.3d 29, 35 (2d Cir. 2009); see also Hevesi, 366 F.3d at 82, 82 n.13 (holding that district

                                                  4
courts are not required to choose lead plaintiffs that have standing to sue “on every available cause

of action” because requiring “a different lead plaintiff [to] be appointed to bring every single

available claim would contravene the main purpose of having a lead plaintiff—namely, to

empower one or several investors with a major stake in the litigation to exercise control over the

litigation as a whole”).

       Finally, Hayes argues, for the first time on appeal, that the Lead Plaintiffs lacked standing

to raise their Securities Act claims. But the argument is meritless because the Lead Plaintiffs

sufficiently alleged that they had purchased Facebook stock, the defendants’ misleading statements

resulted in a decline of that stock’s value, and that injury was redressable through damages under

the Securities Act. See NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d
145, 158, 164–65 (2d Cir. 2012) (finding that such a showing satisfied standing requirements).

       We have considered all of Hayes’s remaining arguments and find them to be without merit.

Accordingly, we AFFIRM the judgment of the district court.

                                              FOR THE COURT:
                                              Catherine O=Hagan Wolfe, Clerk of Court

                                                 5
                                  A: Full Case Caption

John Gregory, on behalf of himself and all other
similarly situated,

                     Plaintiff,

Institutional Investor Group, Banyan Capital
Master Fund Ltd., Arkansas Teacher
Retirement System, Fresno County Employees’
Retirement Association, Avatar Securities, LLC,
Meredith Bailey, on behalf of themselves and all
others similarly situated, Dmitri Bougakov, on
behalf of themselves and all others similarly
situated, Ryan Cefalu, on behalf of themselves
and all others similarly situated, Lorrain Chin,
on behalf of themselves and all others similarly
situated, First New York Securities L.L.C., Atish
Gandhi, on behalf of themselves and all others
similarly situated, Phillip Goldberg, on behalf of
themselves and all others similarly situated, Eric
Hamrick, on behalf of themselves and all others
similarly situated, Steve Jarvis, Joe Johnson, on
behalf of themselves and all others similarly
situated, Nuhket Kayahan, David Kenton, on
behalf of themselves and all others similarly
situated, Dennis Kuhn, on behalf of themselves
and all others similarly situated, Benjamin
Levine, on behalf of themselves and all others
similarly situated, Katerhine Loiacono, on behalf
of themselves and all others similarly situated,
Crystal McMahon, on behalf of themselves and
all others similarly situated, George
Michalitsianos, on behalf of themselves and all
others similarly situated, Randy Teresa Mielke,
on behalf of themselves and all others similarly
situated, Jacinto Rivera, on behalf of themselves
and all others similarly situated, Faisal Sami, on
behalf of themselves and all others similarly
situated, Sanjeev Sharma, Colin Suzman, on
behalf of themselves and all others similarly
situated, T3 Trading Group, LLC, Vijay
Akkaraju, Alexis Alexander, as custodian for
Chloe Sophie Alexander, Brian Roffe Profit
Sharing Plan, Individually and on behalf of all
others similarly situated, Jose Galvan, Mary
Galvan, Robert Herpst, Individually, on behalf
of all others similarly situated, Sanjay Israni, on
behalf of themselves and all others similarly
situated, KBC Asset Management NV, and the
Employees' Retirement System of the
Government of the Virgin Islands (Collectively,
the Institutional Investors), Douglas M.
Lightman, Individually and on behalf of all
others similarly situated, Dennis Palkon,
Individually and on behalf of all others similarly
situated, Rick Pond, Jacob Salzmann,
Individually and on behalf of all others similarly
situated, Michael Spatz, Maren Twining,
Individually and on behalf of all others similarly
situated, Goldrich Cousins P.C. 401(k) Profit
Sharing Plan &Trust, Irving S. Braun,
Individually on behalf of all others similarly
situated, Edward Childs, Derivately on Behalf of
Himself and All Others Similarly Situated,
Kathy Reichenbaum, Individually and on behalf
of all others similarly situated, Jun Yan, on
behalf of herself and all others similarly situated,
Elbita Alfonso, Steve Griffis, Vicky Jones,
Phyllis Peterson, Jerry Rayborn, on behalf of
themselves and all others similarly situated,
Edward Vernoff, Justin F. Lazard, on behalf of
himself and all others similarly situated, Sylvia
Gregorcyzk, on behalf of herself and all others
similarly situated, Peter Brinckerhoff, Lidia
Levy, on behalf of herself and all others similarly
situated, Garrett Garrison, David Goldberg,
individually and on behalf of all others similarly
situated, Kevin Hyms, individually and on behalf
of all others similarly situated, Richard P.
Eannarino, Individually and on behalf of all
others similarly situated, Peter Mamula,
Individually and on behalf of all others similarly
situated, Khodayar Amin, on behalf of himself
and all others similarly situated, Elliot Leitner,
individually and on behalf of all others similarly
situated, Barbara Steinman, on behalf of herself
and all others similarly situated, Howard Savitt,
on behalf of himself and all others similarly

                                               2
situated, Chad Roderick, Eugene Stricker,
individually and on behalf of all others similarly
situated, Steve Sexton, Individually and on
behalf of all others similarly situated, Keith
Wise, Individually and on behalf of all others
similarly situated, Jonathan R. Simon, James
Chang, individually and on behalf of all others
similarly situated, Sameer Ansari, individually
and on behalf of all others similarly situated,
Darryl Lazar, individually and on behalf of all
others similarly situated, Michael Lieber,
individually and on behalf of other members of
the general public similarly situated, Thoma J.
Ahrendtsen, Aaron M. Levine, Individually, and
on behalf of all others similarly situated, Karen
Cuker, individually and on behalf of all others
similarly situated, Brian Gralnick, individually
and on behalf of all others similarly situated,
Jennifer Stokes, individually and on behalf of all
others similarly situated, William Cole,
Derivatively on Behalf of Facebook, Inc., Vernon
R. DeMois, Jr., Individually and On Behalf of
All Others Similarly Situated, Hal Hubuschman,
Edward Shierry, Individually and On Behalf of
All Others Similary Situated, North Carolina
Department of State Treasurer, Thomas E.
Nelson, individually and behalf of all others
similarly situated, Janis Fleming, Gaye Jones,
Holly McConnaughey, Robert Lowinger, Mark
Eshehata, Stewart D. Pollack, as executor of the
state of Lawrence Corneck, Rock Southward,
Derivatively on Behalf of Himself & All Others
Similarly Situated, Sharon Morley, Eric Rand,
Paul Melton, Lynn Melton,

                     Plaintiffs-Appellees,

              v.                                     18-3845

The Nasdaq Stock Market, LLC, a Foreign
Limited Liability Company, Marc L.
Andreessen, Barclays Capital Inc., Erskine B.
Bowles, James W. Breyer, David A. Ebersman,

                                              3
Facebook, Inc., a Delaware corporation,
Goldman Sachs & Co., Donald E. Graham, Reed
Hastings, J.P.Morgan Securities LLC, Merrill
Lynch, Pierce, Fenner & Smith Incorporated,
Morgan Stanley & Co. Incorporated, David M.
Spillane, Peter A. Thiel, Mark Zuckerberg, Allen
& Company LLC, BMO Capital Markets Corp.,
Blaylock Robert Van LLC, C.L. King &
Associates, Inc., Cabrera Capital Markets, LLC,
CastleOak Securities, L.P., Citigroup Global
Markets Inc., Cowen & Company LLC, Credit
Suisse Securities (USA) LLC, Deutsche Bank
Securities Inc., E*TRADE Securities LLC, Itau
BBA USA Securities, Inc., Lazard Capital
Markets LLC, Lebenthal & Co., LLC, Loop
Capital Markets LLC, M.R. Beal & Company,
Macquarie Capital (USA) Inc., Morgan Stanley
& Co. LLC, Muriel Siebert & Co., Inc.,
Oppenheimer & Co. Inc., Pacific Crest Securities
LLC, Piper Jaffray & Co., RBC Capital Markets
LLC, Raymond James & Associates, Inc.,
Samuel A. Ramirez & Co. Inc., Sheryl K.
Sandberg, Stifel, Nicolaus & Company,
Incorporated, The Williams Capital Group, L.P.,
Wells Fargo Securities, LLC, William Blair &
Company, L.L.C., Goldman Sachs & Co.,
Nasdaqomx Group, Inc., Jill D. Simon, Citigroup
Global Markets Inc., Kevin Hicks, individually
and on behalf of all others similarly situated,
Linh Luu, individually and on behalf of all
others similarly situated, Harvey Lapin,
Individually and On Behalf of All Others
Similarly Situated, Nick E. Tran, Nasdaq Stock
Market, Incorporated, Uma M. Swaminathan,
Cipora Herman,

                     Defendants-Appellees,

NASDAQ OMX Group, Inc., Lawrence
Corneck, Individually and on behalf of all others
similarly situated, Robert Greifeld, Anna M.
Ewing,

                                             4
                  Defendants,

James J. Hayes,

                  Objector-Appellant.

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