Thomas v. Magnachip Semiconductor Corp.

          ORDER GRANTING PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT AND GRANTING MOTION TO SEAL RE: ECF NO. 221, 220

          JON S. TIGAR United States District Judge

         Before the Court is Plaintiffs’ unopposed motion renewing the parties’ request for preliminary approval of a class action settlement. ECF No. 221. In connection with this motion, the parties have also filed a motion to file under seal a confidential supplemental agreement. ECF No. 220. The Court will grant both motions.

         I. BACKGROUND

         A. The Parties and Claims

         Plaintiffs bring this federal securities class action against MagnaChip Semiconductor, Inc. (“MagnaChip”), “several of its current and former senior executive officers and audit committee directors, underwriters, and Avenue Capital [Management II, L.P.], which was MagnaChip’s majority and controlling shareholder, ” for violations of sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 and sections 11, 12(a)(2), and 15 of the Securities Act of 1933. ECF Nos. 185, 114.

         Lead Plaintiff Keith Thomas (“Thomas”) brings these claims on behalf of “all persons other than defendants who purchased or otherwise acquired MagnaChip securities between February 1, 2012 and February 12, 2014 (the “Class Period”), including purchasers of MagnaChip common stock pursuant to and/or traceable to the Registration Statement and Prospectus issued in connection with MagnaChip’s February 6, 2013 follow-on public stock offering . . .” ECF No. 114 ¶ 1.

         Plaintiffs allege that “Defendants violated the federal securities laws by (a) issuing materially false and misleading statements regarding [MagnaChip]’s business, prospects, operations and financial results; (b) failing to disclose the inadequacy of its internal controls and procedures over financial reporting; and (c) engaging in a wide-ranging scheme to materially inflate [MagnaChip]’s reported results.” ECF No. 114 ¶ 2.

         B. Procedural History

         Plaintiff Richard Hayes filed the initial complaint in this action. ECF No. 1. The Court later entered an order appointing plaintiff Keith Thomas as Lead Plaintiff, Pomerantz LLP as Lead Plaintiff’s Counsel, and Glancy Prongay & Murray LLP as Liason Counsel. ECF No. 32.

         On June 26, 2015, Plaintiffs filed the operative Third Amended Complaint (“TAC”). ECF No. 114. Five sets of Defendants filed a motion to dismiss Plaintiffs’ TAC. ECF Nos. 121, 123, 126, 130, 155. On December 11, 2015, the parties informed the Court that they had reached a settlement with respect to all claims raised against all Defendants except for Avenue Capital, ECF No. 174, and confirmed this in a telephonic case management conference on January 22, 2016, ECF No. 182. The Court issued an order granting in part and denying in part the five Motions to Dismiss on March 7, 2016. ECF No. 196.

         On February 5, 2016, Plaintiffs filed a Motion for Preliminary Approval of Partial Class Action Settlement, which involved a proposed settlement between all plaintiffs and all defendants with the exception of Avenue Capital. ECF No. 185. The Court denied that motion without prejudice in an April 7, 2016 order, identifying four deficiencies in the proposed settlement. ECF No. 212. The parties have now filed a second Motion for Preliminary Approval of Partial Class Action Settlement, which identifies the changes the parties have made to account for these four deficiencies. ECF No. 221. In addition, they have filed a Motion to File Under Seal a confidential supplemental agreement to the proposed settlement. The substantive aspects of the settlement remain unchanged, and are summarized below as laid out in Plaintiffs’ previous motion for preliminary approval.

         C. Settlement Agreement

         Following Defendants’ motions to dismiss, Plaintiffs and Defendants who are parties to the proposed settlement participated in two full-day mediations on September 23, 2015 and November 7, 2015. ECF No. 185 at 11. Though the parties failed to reach an agreement, the discussions prompted Lead Plaintiff to consider the risks that, “even if Lead Plaintiff were to prevail at trial, any recovery could be rendered ‘judgment proof.’” Id. at 12.

         The settlement discussed herein involves all Plaintiffs and Defendants MagnaChip, Sang Park (“Park”), Tae Young Hwang (“Hwang”), Margaret Sakai (“Sakai”), R. Douglas Norby (“Norby”), Ilbok Lee (“Lee”), Nader Tavakoli (“Tavakoli”), Randal Klein (“Klein”), and Michael Elkins (“Elkins”) (collectively “Settling Defendants”). Id. at 13. In addition, the settlement will also release all claims against Defendants Barclays Capital Inc., Deutsche Bank Securities Inc., Citigroup Global Markets Inc., UBS Securities LLC, and Needham & Company, LLC (“Underwriter Defendants”), although no value was assigned to those claims and those Defendants have not contributed to the agreement. Id. at 12.

         As part of the settlement agreement, MagnaChip has agreed to pay $23, 500, 000.00 (“Settlement Amount”) into a Qualified Settlement Fund on the date on which the settlement is finally approved. Id. at 13. This Settlement Amount represents 15 percent of Thomas’s likely recovery at trial if he was to prevail. Id.

         The following amounts will be subtracted from the Settlement Amount: (1) the costs of settlement and notice administration, which are estimated to total $300, 000.00; (2) class counsel’s attorney’s fees, which will not exceed 25 percent of the Settlement Amount; (3) attorney’s expenses, which will not exceed $235, 000.00 (4) a payment to Thomas of $1, 500.00; (5) other unspecified fees and expenses authorized by the Court; and (6) taxes and tax expenses. ECF No. 185, 184-2.

         After subtracting these amounts, any remaining funds (the “Settlement Class Settlement Proceeds”) will be distributed to the class, which Thomas defines as follows:

“all Persons who purchased or otherwise acquired MagnaChip Securities between February 1, 2012 and February 12, 2015 (the ‘Settlement Class Period’), including purchasers of MagnaChip common stock pursuant and/or traceable to the Registration Statement and Prospectus issued in connection with MagnaChip’s February 6, 2013 follow-on public stock offering. Excluded from the Settlement Class are Defendants, MagnaChip’s officers and directors during the Settlement Class Period, and all such excluded Persons’ immediate families, legal representatives, heirs, parents, wholly-owned subsidiaries, successors, and assigns. Also excluded from the Settlement Class are those Persons who file valid and timely requests for exclusion in accordance with the Court’s Order Preliminarily approving Partial Settlement and Providing for Notice . . .”

ECF No. 184 at 12.

         Class members who submit timely claims will receive payments on a pro rata basis based on the date(s) class members purchased and sold MagnaChip shares as well as the total number and amount of claims filed. ECF No. 184 at 21-24. To calculate the amount that will be paid to each class member, the Claims Administrator will determine each claim’s share of the Settlement Class Settlement Proceeds based upon the claim’s recognized loss. Id.

         Recognized loss will be determined for each MagnaChip share purchased or otherwise acquired during the Settlement Class Period. The calculation of recognized loss will depend upon several factors: (1) when the MagnaChip shares were purchased or otherwise acquired during the Settlement Class Period; (2) the number of shares; (3) whether the shares were sold; and (4) if sold, when they were sold and for what amounts. ECF No. 184-2 at 8. The recognized loss calculation is not an estimate of individual settlement awards, but the basis upon which the Settlement Class Settlement Fund will be proportionately allocated to the claimants. Id. at 9. The settlement represents an amount of $0.59^[1] per share after deductions of attorneys’ fees and other expenses, and $0.81 per share without deductions, calculated based on all 28, 918, 000 shares outstanding as of the end of the Settlement Class Period. Id. at 3. The actual individual settlement payments will depend on how many claims are filed. Id. No distribution will be made to claimants who would otherwise receive a distribution of less than $10.00. Id. at 15.

         Within fourteen calendar days of preliminary approval, the Claims Administrator will begin distributing notice of the settlement by mail, publication, and the Internet. ECF No. 185 at 28. The proposed Notice of Pendency and Proposed Partial Settlement of Class Action and the Proof of Claim and Release (collectively “Notice Packet”) will be sent by mail to “all record holders of MagnaChip common stock who fall within the definition of the Settlement Class and whose names and last known addresses or similar contact information can be identified through MagnaChip’s stock transfer records to the extent available.” Id. at 25. The Claims Administrator will also mail copies of the Notice Packet to “entities which commonly hold securities in ‘street name’ as nominees for the benefit of their customers who are the beneficial purchasers of the securities.” Id. at 25-26. Within 21 days of preliminary approval, the parties will publish the Summary Notice of Pendency and Proposed Settlement of Class Action (“Summary Notice”) in Investor’s Business Daily and once on GlobeNewswire. Id. at 26, 28. Thomas’s Counsel will also make copies of the Notice Packet available for download on the website created for the Settlement, www.strategicclaims.net/MagnaChip. Id. at 26.

         The proposed Notice explains the terms of the settlement, and how to receive a Settlement Payment, object, or opt out. ECF No. 184-2 at 4. The Notice also explains how a class member can challenge any decision made by the Claims Administrator regarding their Proof of Claim. ECF No. 184-2. Class members will be able to cash their check within six months, during which time the Claims Administrator will make reasonable and diligent efforts to have Settlement Class Members cash their distribution checks. ECF No. 184 at 26. If any funds remain in the Qualified Settlement Fund six months after the initial distribution of such funds, the Claims Administrator will re-distribute the remaining Proceeds to Settlement Class Members who have cashed their checks and who would receive at least $10.00 from such re-distribution. Id. at 26.

         In addition to a cash settlement, MagnaChip has agreed to “produce to Lead Plaintiff’s Counsel copies of the documents MagnaChip has produced to the SEC along with English translations of those documents in MagnaChip’s possession. MagnaChip will also use its best efforts to obtain from the Settling Defendants, to the extent necessary, consents to the disclosure to Lead Plaintiff’s Counsel of any documents that are produced to the SEC in the future by the Settling Defendants, or that are responsive to reasonable document demands served by Lead Plaintiff’s Counsel in the future, to the extent that disclosure of such documents would not comply with the Korean Personal Information Protection Act . . . absent such consent.” ECF No. 184 at 16. MagnaChip’s ...