United States District Court, D. Kansas
MEMORANDUM AND ORDER AND ORDER TO SHOW CAUSE
KATHRYN H. VRATIL, District Judge.
Stan Better and 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 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). Amended Class Action Complaint For Violations Of Federal Securities Laws (Doc. #38) filed October 21, 2011 at 83-86. They also allege that individual defendants violated Section 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78t(a) (Count II). Id. at 86-87. Plaintiffs assert that by disseminating materially false and misleading statements and/or concealing materially 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. This matter comes before the Court on plaintiffs' Second Amended Unopposed Motion For Preliminary Approval Of Class Action Settlement ("Third Motion For Preliminary Approval") (Doc. #85) filed February 18, 2014. For reasons stated below, the Court overrules the motion and orders plaintiffs to show cause in writing, on or before February 20, 2015, why plaintiffs' individual claims should not be set for trial beginning July 13, 2015.
On May 31, 2013, plaintiffs filed their first motion for preliminary approval of a proposed class settlement. See Unopposed Motion For Preliminary Approval Of Class Action Settlement ("First Motion For Preliminary Approval") (Doc. #76). The Court overruled the motion, finding that plaintiffs did not show 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) filed August 19, 2013. Specifically, the Court found that plaintiffs did not show that they could satisfy the typicality and adequacy of representation requirements of Rule 23(a)(3) and (4). See id. at 11-12. In particular, the Court found that plaintiffs did not show that the interests of named plaintiffs and absent class members were aligned or that the proposed settlement provided sufficient value or benefit to class. Id. at 11-17. The Court noted that the proposed plan of allocation provided no recovery for two sets of class members, and that plaintiffs did not explain why it was appropriate to release the claims of some class members in exchange for nothing in return. Id. at 11. Also, in evaluating whether common questions of law or fact predominated under Rule 23(b)(3), the Court found that plaintiffs did not meet their burden to invoke the rebuttable presumption under the fraud-on-the-market theory. See id. at 12-13. Finally, the Court found that the so-called cy pres provision - which proposed to give undistributed settlement funds to an unnamed non-profit organization - was inadequate. Id. at 17-18. Specifically, the Court found that because the parties did not identify the proposed cy pres recipient, they restricted the Court's ability to conduct the searching inquiry required to approve such a distribution and deprived class members of notice and the ability to object. Id. at 18.
Nine days later, on August 28, 2013, plaintiffs filed a second motion for preliminary approval of a corrected stipulation of settlement. See Amended Unopposed Motion For Preliminary Approval Of Class Action Settlement ("Second Motion For Preliminary Approval") (Doc. #81); Corrected Stipulation Of Settlement (Doc. #80). In the motion, plaintiffs asserted that they had amended the settlement to provide payment to more class members and to identify a proposed cy pres recipient. See id. at 7, 11.
The Court declined to approve the corrected stipulation of settlement because plaintiffs did not show that (1) the named representatives could adequately represent the interests of all class members; (2) the proposed settlement provided sufficient benefit or value to class members to justify releasing their class action claims against defendants; and (3) the proposed cy pres distribution was necessary and designated at arms-length. See Memorandum And Order (Doc. #82) filed November 18, 2013 at 3-12. The Court noted that the named representatives purported to serve generally as representatives for the entire settlement class, even though the settlement proposed to pay differing amounts to different groups of class members depending when they purchased and sold stock. Id. at 5-6. The named representatives did not hold claims in all groups, and the settlement proposed no relief to one such group and lower payments to another. Id. at 5. The Court found that plaintiffs did not show that the proposed settlement provided sufficient benefit or value to certain class members, i.e. those who would receive nothing or lower payments in return for releasing their claims. Id. at 9-10. Finally, with regard to the proposed cy pres recipient, the Court found that plaintiffs did not show that further distributions to individual class members were not viable or whether the parties or counsel had any pre-existing relationship or connection with the proposed cy pres beneficiary. Id. at 12.
Before the Court is plaintiffs' third motion for preliminary approval of class action settlement. See Second Amended Unopposed Motion For Preliminary Approval Of Class Action Settlement ("Third Motion For Preliminary Approval") (Doc. #85) filed February 18, 2014. Plaintiffs state that they "have amended their Motion and accompanying revised Plan of Allocation" in the following ways: (1) added two class representatives, John Henard and David Smolinski, who have claims which fall in previously unrepresented distribution groups; (2) revised the plan of allocation to provide a recognized loss for all transactions during the class period; and (3) revised the plan of allocation to provide redistribution of settlement proceeds to avoid the need for a cy pres beneficiary. Id. at 1-3. The bulk of the motion explains the rationale behind proposed distributions to different groups of class members based on when they purchased and sold stock. See id. at 5-18. Plaintiffs do not provide an amended agreement which adopts the changes or adds new class representatives as parties to the settlement.
To the extent that plaintiffs may be attempting to amend the plan of allocation under the Corrected Stipulation of Settlement (Doc. #80), it appears that they cannot do so without a signed agreement between the parties. The corrected settlement states that it "may be amended or modified only by a written instrument signed by or on behalf of all Settling Parties or their respective successors-in-interest." Id. at 38, ¶ 8.6. Further, it defines "Plan of Allocation" as the formula of allocation set forth in detail in the Amended Notice of Pendency, attached as Exhibit A-1 to the Corrected Stipulation of Settlement (Doc. #80). See id. at 5, ¶ 1.31. As noted, plaintiffs are asking the Court to approve the Second Amended Notice Of Pendency, attached as Exhibit A-1 to the Third Motion For Preliminary Approval (Doc. #85). On this record, plaintiffs have not shown that the parties have even executed a second amended settlement agreement - let alone one which the Court should approve.
Moreover, even if the parties have executed a new or amended agreement, plaintiffs have not provided sufficient details of a proposed notice plan. Rule 23(c)(2)(B) requires plaintiffs to provide the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort. See Fed.R.Civ.P. 23(c)(2)(B); DeJulius v. New Eng. Healthcare Emps. Pension Fund, 429 F.3d 935, 944 (10th Cir. 2005); In re Motor Fuel Temp. Sales Pract. Litg., No. 07-1840-KHV, 2013 WL 2368290, at *2 (D. Kan. May 29, 2013). Individual notice to identifiable class members is not a discretionary consideration that can be waived in a particular case; rather, it is "an unambiguous requirement of Rule 23." Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 176 (1974).
Plaintiffs' motion devotes less than two pages to proposed notice. See Third Motion For Preliminary Approval (Doc. #85) at 20-22. In that space, plaintiffs set forth legal standards regarding notice and assert that the content of the Second Amended Notice Of Pendency will fairly apprise class members of the terms of settlement. See Third Motion For Preliminary Approval (Doc. #85) at 20-22. Plaintiffs state that the notice will be mailed to each class member. Id. at 22. Plaintiffs provide no information regarding the total number of class members or how they will determine the name and mailing address for each class member. Attached to the motion is a proposed order which states that class counsel will mail the notice to all class members "who can be identified with reasonable effort." Third Amended [Proposed] Order Preliminarily Approving Settlement And Providing For Notice Of Pendency Of Class Action, attached to Third Motion For Preliminary Approval (Doc. #85) at 3-4, ¶¶ 8(a). Plaintiffs provide no information regarding what efforts counsel will employ to identify individual class members.
Although the third motion does not discuss it, the proposed order states that "nominees" who purchased or otherwise acquired stock for or on behalf of class members shall send the notice and claim form to said class members, or send a list of the names and addresses of said class members to the claims administrator, who will mail the notice and claim form to said class members. Id. at 4, ¶ 9. Plaintiffs provide no information regarding how they will identify so-called "nominees, " the approximate number of class members who purchased or acquired stock through said nominees, or on what basis the Court has authority to order said nominees to comply with the proposed notice procedure.
Also, although the third motion does not mention it, the proposed order states that counsel shall provide notice by publication. Specifically, the proposed order states, in part, as follows:
Not later than twenty-one (21) days after the Notice Date, Co-Lead Counsel shall cause the Second Amended Summary Notice to be published in the Investor's Business Daily and once online over the PR Newswire, and not later than twenty-one (21) days after the Notice Date, Co-Lead Counsel shall place a copy of the Amended Complaint and the Corrected Stipulation ...