District Court did not Abuse its Discretion in Approving Class Action Settlement in Securities Fraud Class Action Filed in United States because Class Members with Claims in Canadian Class Actions were Provided Adequate Notice of the Right to Opt Out of the U.S. Class Action Settlement Eleventh Circuit Holds
Plaintiffs filed a class action against CP Ships, a container shipping company, and others alleging violations federal securities laws; specifically, the class action complaint alleged that Belo – a media company that inter alia published the Dallas Morning News (DMN), which accounted for 30% of Belo’s revenue – “engaged in a fraudulent scheme designed to inflate DMN’s circulation artificially.” In re CP Ships Ltd. Securities Litig., 578 F.3d 1306 (11th Cir. 2009) [Slip Opn., at 1]. Defendant is organized under the laws of Canada, headquartered in England, and operates in several countries; 80% of the company’s stock is traded on the Toronto Stock Exchange (TSX), and 20% is traded on the New York Stock Exchange (NYSE). Id. Additionally, “crucial headquarters activities – including the relevant operations and personnel that were central to the fraud (i.e. the accounting department and executive offices) – were located in Tampa, Florida.” Id. According to the allegations underlying the class action complaint, CP Ships acquired 9 business during a 10-year period, each with its own accounting system: the company eventually transitioned to a single accounting system, but later “announced that the transition had caused it to understate its operational costs” causing the stock price to drop by more than 20% on both the TSX and NYSE. Id. This class action complaint followed, as did lawsuits filed in Canada, id. Defense attorneys successfully moved to dismiss the U.S. class action on the grounds that the complaint failed to adequately plead scienter under the heightened pleading requirements established by the Private Securities Litigation Reform Act (PSLRA), but while plaintiffs’ appeal from that order was pending, the parties negotiated a class action settlement. Id. The district court approved the settlement over various objections, including the objections of an individual who was also a class member in a Canadian class action that “the settlement would prevent some members of the Canadian class from pursuing their action in Canada.” Id., at 1-2. All class members were given notice and an opportunity to opt out of the U.S. class action settlement, id., at 1. One of the objectors appealed, and the Eleventh Circuit affirmed.
The objector leveled a multi-prong attack against the class action settlement: (1) the district court lacked subject-matter jurisdiction over the claims of class members who purchased foreign stock, or at the very least, as a matter of comity, should have declined to exercise jurisdiction over the dispute, (2) that the notice was inadequate, and (3) that the terms of the settlement were not fair, reasonable or adequate. In re CP Ships, at 1. The Circuit Court began by considering de novo whether subject matter jurisdiction was present over the dispute. Id., at 2. The Court found that the objector failed to raise a factual challenge to jurisdiction, see id., at 2-3, and concluded that the facial challenge to jurisdiction failed because jurisdiction exists under the “conduct test,” see id., at 3-6. The Eleventh Circuit then readily rejected the objector’s challenge to the adequacy of the notice, id., at 7, and turned to the adequacy of the class action settlement.
The Circuit Court summarized the well settled factors to be considered in evaluating whether a class action settlement is fair, reasonable and adequate: “(1) the likelihood of success at trial; (2) the range of possible recovery; (3) the point on or below the range of possible recovery at which a settlement is fair, adequate and reasonable; (4) the complexity, expense and duration of litigation; (5) the substance and amount of opposition to the settlement; and (6) the stage of proceedings at which the settlement was achieved.” In re CP Ships, at 7 (quoting Bennett v. Behring Corp., 737 F.2d 982, 986 (11th Cir. 1984)). The thrust of the objection was that “foreign class members have potential for a greater recovery” in the class actions pending in Canada. Id. The flaw with this argument, however, is that it requires a finding that the notice was inadequate…otherwise class members in the U.S. class action could simply opt out. Id. This meant that the Circuit Court’s analysis was “limited to this single factor,” and the Court already had concluded that the notice was adequate. Id. Accordingly, the Eleventh Circuit affirmed the trial court order approving the class action settlement, id., at 8.