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McPhail v. First Command Financial Planning

March 30, 2009

MICHAEL MCPHAIL; ROBERT BARR KIMNACH, III; SCOTT WAGNER; KRYSTIN WAGNER; CANDACE HURLEY; AND NEIL HURLEY; ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED PLAINTIFFS,
v.
FIRST COMMAND FINANCIAL PLANNING, INC.; FIRST COMMAND FINANCIAL SERVICES, INC.; LAMAR C. SMITH; AND HOWARD M. CRUMP, DEFENDANTS.



The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court

ORDER: (1) GRANTING FINAL APPROVAL OF CLASS SETTLEMENT (2) AWARDING ATTORNEYS' FEES (3) AWARDING COSTS TO CLASS REPRESENTATIVES (4) GRANTING PLAINTIFFS' REQUEST TO ALLOW UNTIMELY CLAIMS AND OPT-OUTS (5) AWARDING ADDITIONAL COSTS TO CLAIMS ADMINISTRATOR (6) DIRECTING CLERK TO ENTER JUDGMENT

Presently, plaintiffs request the Court (1) grant final approval of class settlement, (2) award attorneys' fees and costs, and (3) award reimbursement of costs incurred by class representatives. In a supplemental memorandum, plaintiffs request the Court (4) allow 197 untimely claims and one untimely request for exclusion from the Class and (5) award additional costs to the Claims Administrator. Defendants filed two statements of non-opposition and five class members objected. After reviewing the parties' submissions, the class members' objections, and for the reasons set forth below, the Court GRANTS plaintiffs' motions.

BACKGROUND

The facts of this case are known to the Court and the parties and need not be repeated herein.

I. Procedural Background

On January 31, 2005, Michael McPhail, Robert Barr Kimnach III, and Leonardo Giovannelli filed a class-action complaint ("Initial Complaint") alleging defendants violated various federal securities laws. Kevin Morrison, Jennifer Morrison, Scott Wagner, Krystin Wagner, Candace Hurley, and Neil Hurley filed a separate lawsuit against defendants in the Western District of Kentucky, but voluntarily dismissed the case to join this action. (Doc. No. 29.) On June 9, 2005, the Court appointed these named plaintiffs as lead plaintiffs and approved their choice of lead counsel.*fn1

Defendants moved to transfer the consolidated action to the Northern District of Texas, but the Court denied defendants' motion. On July 22, 2005, plaintiffs filed a Consolidated Amended Complaint ("CAC"), which defendants moved to dismiss.

On December 5, 2005, defendants withdrew their motion to dismiss to allow the parties to seek private mediation. (Doc. No. 83.) On January 17, 2006, the parties engaged in an unsuccessful mediation before the Hon. Daniel Weinstein (Ret.). The parties engaged in a second unsuccessful mediation before the Hon. Daniel Weinstein (Ret.) on February 23, 2006. (Decl. Blumenthal at ¶8.)

On February 27, 2006, defendants re-filed their motion to dismiss the CAC, which plaintiffs opposed. (Doc. No. 95, 99.) On April 10, 2006, the Court dismissed plaintiffs' 10b-5 and Investment Advisor Act claims without prejudice, denied defendants' motion to dismiss the section 12(a)(2) claim, and granted plaintiffs leave to amend their complaint. (Doc. No. 108.)

On May 1, 2006, plaintiffs filed their Consolidated Second Amended Complaint ("SAC"), which defendants moved to dismiss. The Court dismissed plaintiffs' section 12(a)(2) claim with prejudice and denied defendants' motion to dismiss plaintiffs' amended 10b-5 claim. (Doc. No. 121.) On August 10, 2006, defendants answered the SAC. (Doc. No. 122.)

On July 30, 2007, the Court granted, in part, plaintiffs' motion for class certification. (Doc. No. 175.) The Court's Order appointed plaintiffs as Class Representatives, granted plaintiffs leave to amend the complaint, and certified a class consisting of:

All persons who, during the period from January 31, 2000 through December 31, 2004, made a SIP payment so as to be charged a 50% sales charge on the money placed at that time into the SIP through Defendants and still owned the SIP on December 15, 2004, and who did not terminate within forty-five (45) days of purchasing the SIP so as to receive a full refund of the sales charge. (Doc. No. 175.) On August 13, 2007, plaintiffs filed their Consolidated Third Amended Complaint ("TAC"), which defendants answered. (Doc. Nos. 176, 181.)

On September 19, 2007, the Court issued a formal Class Certification Order, permitting the action to proceed as a class action. (Doc. No. 184.) On January 3, 2008, the Court set the contents of the Class Notice. (Doc. No. 205.) Defendants moved for reconsideration and a stay of proceedings, which the Court denied. (Doc. No. 209.) On January 22, 2008, plaintiffs filed the final Class Notice, which allowed class members to opt out of the lawsuit before March 21, 2008.

After the Court certified the class, defendants petitioned the Ninth Circuit for permission to appeal. Ultimately, the Court of Appeals denied the petition. Defendants then petitioned the Supreme Court of the United States for a writ of certiorari, which plaintiffs opposed. The Supreme Court denied the petition on January 7, 2008. In addition, throughout the litigation, the parties engaged in extensive discovery disputes including issues involving interrogatories to absent class members, production of the class list, and production of electronic discovery. These disputes required meet and confers, conferences with Magistrate Judge Adler, and resolutions by formal motion.

On July 25, 2008, the parties completed all non-expert discovery. On August 5, 2008, the parties engaged in a third unsuccessful mediation before the Hon. Daniel Weinstein (Ret.). On August 27, 2008, the parties attended a settlement conference with Magistrate Judge Adler, which resulted in a proposal the parties accepted on August 29, 2008. The accepted proposal is the settlement now presented to this Court for final approval.

On November 10, 2008, the Court preliminarily approved the class settlement and ordered plaintiffs disseminate notice of the settlement to class members. On January 9, 2009, notice of settlement was mailed to the 207,412 investors who comprise the class. In additional, the court approved summary notice was published in Military Times on January 26, 2009. Class members submitted a total of 60,515 timely claims, a claims rate of 29.18%. Class members submitted 74 timely requests for exclusion from the class and five objections. In addition, class members submitted 197 untimely claims and 1 untimely request for exclusion.

On March 10, 2009, plaintiffs filed motions requesting final approval of the class settlement, an award of attorneys' fees and costs, and a reimbursement of costs incurred by class representatives. On March 20, 2009, plaintiffs filed a supplemental memorandum in support of their motions, detailing the final claims information, the expenses of the claims administrator, and requesting inclusion of late claims and late opt-out requests. Defendants filed two statements of non-opposition and five class members filed objections. The Court conducted a fairness hearing on March 30, 2009.

II. The Proposed Settlement

In consideration for settlement of this action and a release of claims, defendants paid $12,000,000 (Gross Settlement Fund) into an interest-bearing account with the Escrow Agent within 15 days after the Court preliminarily approved the settlement. Prior to distribution to class members, the Gross Settlement Fund will be used to pay: (i) Class Notices, Settlement Notice, Summary Notice, and claims administration costs, (ii) attorneys' fees and expenses, (iii) any service award to Class Representatives for their reasonable costs and expenses directly relating to class ...


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