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In Re Skilled Healthcare Group

January 26, 2011

IN RE SKILLED HEALTHCARE GROUP, INC. SECURITIES LITIGATION,


The opinion of the court was delivered by: David O. Carter United States District Judge

ORDER GRANTING FINAL APPROVAL OF CLASS ACTION SETTLEMENT, PLAN OF ALLOCATION, AND REQUEST FOR ATTORNEYS FEES AND COSTS

Before the Court is a Motion for Final Approval of Class Action Settlement, including approval of the Plan of Allocation (Docket 82) as well as a Motion for Attorneys Fees and Costs (Docket 84) filed by Lead Plaintiffs, the City of Livonia Employees' Retirement System and Jerry Pelke Jr. ("Plaintiffs") in the above-captioned case.

I. BACKGROUND

Plaintiffs represent a class of people who purchased Skilled Healthcare securities between May 14, 2007 and June 9, 2009, inclusive. According to Plaintiffs, throughout the class period, Skilled Healthcare materially misrepresented the company's income and earnings, resulting in an artificially inflated stock price for Skilled Healthcare securities. Plaintiffs contend that Skilled Healthcare engaged in the above-described misrepresentations either knowing their statements to be false or with reckless disregard for the possibility that they were false. The class members purportedly suffered injury as a result of the artificial inflation and later deflation of Skilled Healthcare's stock prices. Defendants deny each of Plaintiffs' allegations.

Following full briefing on Defendants' motion to dismiss and the filing of a Joint Rule 26(f) Report, both parties agreed to submit to mediation by professional mediator Hon. Edward

A. Infante (Ret.). On August 4, 2010, after a full day of arms-length negotiations, the parties agreed to seek Court approval to settle this case.

The Court granted preliminary settlement approval and authorized the mailing of class notice on September 13, 2010 ("Preliminary Approval Order") (Docket 79). After the mailing of 9,222 claims packets and publication of the settlement in Investors Business Daily and through PR Newswire,one class objected to the settlement and two attempted to exclude themselves from it.

III. LEGAL STANDARD

Federal Rule of Civil Procedure 23(e) requires the Court to approve a class action settlement. "[I]n the context of a case in which the parties reach a settlement agreement prior to class certification, courts must peruse the proposed compromise to ratify both the propriety of the certification and the fairness of the settlement." Staton v. Boeing Co., 327 F.3d 938, 952 (9th Cir. 2003). The first step is to assess whether a class exists. Id. (citing Amchem Prods. Inc. v. Windsor, 521 U.S. 591, 620, 117 S. Ct. 2231 (1997)). A party seeking class certification must demonstrate the following prerequisites: "(1) numerosity of plaintiffs; (2) common questions of law or fact predominate; (3) the named plaintiff's claims and defenses are typical; and (4) the named plaintiff can adequately protect the interests of the class." Hanlon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992) (citing Fed. R. Civ. P. 23(a)). Under Federal Rule of Civil Procedure 23(b)(3), the Court also must consider whether common questions of law and fact predominate, as well as whether the class action offers a superior method of adjudicating the controversy. Fed. R. Civ. P. 23(b)(3).

Once the court certifies a settlement class, approval of the settlement terms rests in the sound discretion of the district court. Class Plaintiffs v. Seattle, 955 F.2d 1268, 1291 (9th Cir. 1992). Under Federal Rule of Civil Procedure 23(e), the settlement, taken as a whole, must be (1) fundamentally fair, (2) adequate, and (3) reasonable to the Class. See Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998). To determine whether a settlement is fair, courts look to the following factors for guidance: (1) the strength of the plaintiffs' case; (2) the risk, expense, complexity, and duration of further litigation; (3) the risk of maintaining class certification; (4) the amount of settlement; (5) investigation and discovery; (6) the experience and views of counsel; and (7) the reaction of class members to the proposed settlement. Staton v. Boeing Co. , 327 F.3d 938, 959 (9th Cir. 2003). The Court must also bear in mind that judicial policy favors settlement in class actions and other complex litigation where substantial resources can be conserved by avoiding the time, cost, and rigors of formal litigation. In re Pacific Enterprises Securities Litigation , 720 F. Supp. 1379, 1387 (D. Ariz. 1989).

VI. DISCUSSION

Class Certification On September 13, 2010, the Court provisionally certified the settlement class for the purpose of mailing class notice. Plaintiffs now request that the Court grant class certification for the purpose of implementing the settlement. The parties define the proposed class as "all persons other than Defendants who purchased Class A common stock of Skilled Healthcare pursuant to and/or traceable to the Company's Registration Statement and Prospectus issued in connection with the Company's Initial Public Offering on May 14, 2007, seeking to pursue remedies under the Securities Act; and (2) all persons other than Defendants who purchased the class A common stock of Skilled Healthcare between May 14, 2007 and June 9, 2009, inclusive, seeking to pursue remedies under the Exchanges Act." Pl.'s Mot. at 19. Excluded from the settlement class are "the Defendants; members of Defendants' immediate families; all individuals who are either current officers and/or directors, or who served as officers and directors at any time during the Settlement Class Period of any of the Defendants; Defendants' subsidiaries; any person, firm, trust, corporation, officer, director or other individual or entity in which any Defendant had a controlling interest or any entity which is related to or affiliated with any Defendant." Id.

As set forth above, the factors bearing on the propriety of class certification include (1) the numerosity of the purported class (2) the commonality of the class members' allegations (3) the typicality of the class representative's claims (4) the adequacy of the class representative's representation (5) whether common questions of law and fact predominate in the action and (6) whether a class action offers a superior method of resolving the litigation. Hanlon, 976 F.2d at 508; Fed. R. Civ. P. 23. The Court will address each of these issues in turn.

Numerosity

Plaintiffs submit that, during the class period, over 37 million shares of Skilled Healthcare common stock were purchased. This high number, which suggests a high number of ...


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