United States District Court, N.D. California
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 ...