STAN BETTER and YRC INVESTORS GROUP, Individually and on behalf of all others similarly situated, Plaintiffs,
YRC WORLDWIDE INC., WILLIAM D. ZOLLARS, MICHAEL SMID, TIMOTHY A. WICKS and STEPHEN L. BRUFFET, Defendants.
MEMORANDUM AND ORDER
Kathryn H. Vratil United States District Judge
Stan Better and the YRC Investors Group bring this securities class action on behalf of all who purchased common stock of YRC Worldwide Inc. (“YRC”) between April 24, 2008 and November 2, 2009. They bring suit against YRC and four former YRC executives – William D. Zollars, Michael Smid, Timothy A. Wicks and Stephen L. Bruffet. Plaintiffs allege that all defendants violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5 (Count I). They also allege that the individual defendants violated Section 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78t(a) (Count II). Plaintiffs assert that by disseminating materially false and misleading statements and/or concealing material adverse facts, defendants participated in a fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of YRC common stock. On August 19, 2013, the Court overruled plaintiffs’ motion for preliminary class certification and preliminary approval of a proposed settlement, finding that plaintiffs had not shown that the proposed class satisfied Rule 23, Fed. R. Civ. P., or that the proposed settlement was fair and reasonable. See Memorandum And Order (Doc. #79). This matter comes before the Court on plaintiffs’ Amended Unopposed Motion For Preliminary Approval Of Class Action Settlement (“Amended Motion For Preliminary Approval”) (Doc. #81) filed August 28, 2013. For reasons stated below, the Court overrules the amended motion.
In its previous ruling, the Court declined to approve the proposed settlement because plaintiffs did not show that (1) they satisfied the typicality and adequacy of representation requirements of Rule 23(a)(3) and (4), Fed. R. Civ. P., see Memorandum And Order (Doc. #79) at 10-12; (2) common questions of law or fact predominate over individual ones under Rule 23(b)(3), Fed. R. Civ. P., see id. at 12-13; and (3) the proposed settlement provides sufficient value or benefit to class members to justify releasing their class action claims against defendants, see id. at 16-18.Plaintiffs respond with an amended proposed settlement and additional information to address the Court’s concerns.
I. Typicality and Adequacy of Representation Under Rule 23(a)(3) and (4)
In its previous ruling, the Court found that plaintiffs did not show that they can satisfy the typicality and adequacy of representation requirements of Rule 23(a)(3) and (4), Fed.R.Civ.P. See Memorandum And Order (Doc. #79) at 11-12. Specifically, the Court found that the proposed plan of allocation provided nothing for the following two sets of class members: (1) those who purchased shares between April 24, 2008 and April 22, 2009 and sold the shares before April 23, 2009; and (2) class members whose amount of distribution (after taxes, costs and attorney fees) would be less than ten dollars. See id. at 11. Regarding the second category of class members, i.e. those whose pro rata share would be less than $10.00, plaintiffs respond that they have amended the settlement to provide payment to those class members. See Amended Motion For Preliminary Approval (Doc. #81) at 7. The amendment alleviates the Court’s previous concerns in this regard.
As noted, regarding the first category of class members, i.e. those who purchased shares between April 24, 2008 and April 22, 2009 and sold those shares before April 23, 2009, the Court found that named plaintiffs did not explain why it is appropriate for them to negotiate a settlement which requires some absent class members to surrender their claims for nothing in return. See Id . The proposed amended agreement remains the same, i.e. it requires those class members to surrender their claims for nothing in return. Plaintiffs assert that Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005), mandates this result. See Amended Motion For Preliminary Approval (Doc. #81) at 5-7.
In Dura Pharms., the Supreme Court found that to state a claim for securities fraud, plaintiff must allege more than an artificially inflated purchase price due to misrepresentation; she must identify a causal connection between the loss and the misrepresentation. 544 U.S. at 347. Plaintiffs assert that under Dura Pharms., class members cannot show loss causation if they sold the stock before the truth became known to the market. See Amended Motion For Preliminary Approval (Doc. #81) at 5-6. Plaintiffs assert that because the amended complaint alleges that the truth began to be revealed on April 23, 2009, any class member who sold shares before that date cannot show that the alleged misrepresentation caused her loss. Id. This assertion may or may not be true. See, e.g., McGuire v. Dendreon Corp., 267 F.R.D. 690, 699 (W.D. Wash. 2010) (under Dura Pharms. in-and-out traders could prove loss by showing they purchased stock solely due to misrepresentation). Regardless, it does not show that the named plaintiffs can adequately represent the interests of all class members in this case.
The amended settlement proposes to pay differing amounts to different groups of class members, depending when they purchased and sold their stock. Specifically, the amended settlement proposes to allocate the settlement proceeds as follows:
Group A: For shares purchased between April 24, 2008 and April 22, 2009, inclusive, and sold before April 23, 2009, recognized loss per share is $0.00.
Group B: For shares purchased between April 24, 2008 and April 23, 2009, inclusive, and held on January 30, 2010, recognized loss per share is the lesser of:
B. The price paid less $1.29.
Group C: For shares purchased between April 24, 2008 and April 23, 2009, inclusive, and sold between November 2, 2009 and January 30, 2010, inclusive, recognized loss per share is the lesser of:
B. The price paid less ...