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In re Illumina, Inc. Securities Litigation

United States District Court, S.D. California

December 18, 2019



          Hon. M. James Lorenz, United States District Judge

         Pending before the Court is a motion for preliminary approval of class action settlement and directing dissemination of notice filed by Lead Plaintiff Natissisa Enterprises Ltd. (“Natissisa”) and Plaintiffs Anton Agoshkov, Braden Van Der Wall, and Steven Romanoff (hereinafter referred together as “Plaintiffs”). Doc. 95. This motion is unopposed. Notwithstanding, after reviewing the proposed settlement, the Court hereby conditionally GRANTS the instant motion.


         This is a securities class action brought on behalf of all persons who purchased or otherwise acquired Illumina, Inc. (“Illumina”) common stock during the period between July 26, 2016 and October 10, 2016. Plaintiffs' Amended Complaint claimed that Illumina and Defendants Francis A. deSouza and Marc A. Stapley (together, “individual defendants”) (all together “Defendants”) violated federal securities laws by providing investors misleading material information concerning Illumina's revenue and sales for the third quarter of the 2016 fiscal year. See Doc. 28. Specifically, it is alleged Defendants failed to disclose that Illumina lacked adequate internal controls over financial reporting; and, on October 10, 2016, Illumina revealed, in a press release, that its third quarter revenue ($607 million) was significantly lower than Defendants' previous forecast of $625 million to $630 million. Id. After the press release, Illumina's stock price fell from $184.85 per share on October 10, 2016 to $138.99 per share on October 11, 2016. Id.

         On December 16, 2016, plaintiffs Yi Fan Chen and Frontline Global Trading Pte. filed a class action complaint in this Court against Defendants, alleging violations of the Security Exchange Act of 1943 (“SEA”). See Doc. 1. On January 10, 2017, plaintiff James McLeod filed a second, substantially similar class action complaint against Defendants in this Court for the same violations. See McLeod v. Illumina Inc., et al., No. 3:17-cv-0053. Subsequently, the district court consolidated both class actions and appointed Natissisa as lead plaintiff and Levi & Korsinsky, LLP, as lead counsel pursuant to the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4. See Doc. 19. On May 30, 2017, Natissisa filed the Amended Complaint alleging Defendants committed fraud under Section 10(b) of the SEA and SEC Rule 10b-5 as: (1) Illumina failed to truthfully disclose that the demand for one of its premier products was decreasing, (2) Illumina's earning projections were misleading, and (3) control liability had attached. See Doc. 28.

         Defendant moved to dismiss the Amended Complaint, and the Court granted in part and denied in part the motion on certain allegations. See Docs. 32, 39. The parties began discovery after the Honorable Karen S. Crawford, United States Magistrate Judge, held a case management conference and issued a scheduled order. Docs. 54, 55. On September 12, 2018, Natissisa moved to amend the Amended Complaint to include Anton Agoshkov as an additional named plaintiff. See Doc. 62. On September 14, 2018, Natissisa and Anton Agoshkov moved for class certification. See Doc. 63. On October 4, 2018, plaintiffs, Braden Van Der Wall and Steven Romanoff filed a Complaint against the Defendants. See Van Der Wall et ano. v. Illumina, Inc., et al., No. 3:18-cv-2307. Upon joint motion of the parties, the Court granted a stay in the Van Der Wall action pending the resolution of the class certification motion. Id. at Doc. 26.

         On December 14, 2018, the parties filed a joint request to extend scheduling order deadlines in order to provide the parties more time to complete discovery and participate in private mediation. Doc. 83. The Court granted the joint motion on December 18, 2018. Doc. 84. On January 8, 2019, the Court denied Natissisa's motion to amend without prejudice. Doc. 85. Around January 30, 2019, the parties scheduled a mediation for April 18, 2019. Doc. 95-1 at 11. The parties participated in mediation on April 18, 2019 and tentatively agreed to a settlement after a full day of negotiations. Id. at 11-12. On April 25, 2019, the Court granted the parties' joint motion to stay resolution of the class certification motion due to the settlement. Doc. 93. On May 29, 2019, the Court granted the joint motion to hold the Court's ruling on class certification in abeyance in order to (1) allow the parties to finalize necessary settlement paperwork and (2) Plaintiff to file a motion for preliminary approval of the settlement. See Doc. 94. On June 11, 2019, filed the instant motion.

         Settlement Proposal

         a. Class Definition

         The parties define the Settlement Class as “[A]ll persons or entities who purchased or otherwise acquired a legal or beneficial ownership interest in Illumina's common stock between July 26, 2016 through October 10, 2016, inclusive.” Doc. 95-1 at 12. The parties exclude the following from the Settlement Class:

“(i) [A]ny putative Settlement Class Members who exclude themselves by filing a timely and valid request for exclusion in accordance with the requirements set forth in the Notice; (ii) Defendants and their family members; (iii) any entity in which Defendants have or had controlling interest; and (iv) the legal representatives, agents, executors, successors, or assigns of any of the foregoing excluded persons or entities, in their capacities as such.” Ibid.

         b. Settlement Amount

         The parties' Stipulation and Agreement of Settlement (the “Agreement”) requires Illumina to cause “Defendants' insurers to pay the Settlement Amount [$13, 850, 000.00] into the Escrow Account[.]” Doc. 95-2 at 14, 18. The Settlement Amount includes

“[A]ll Lead Counsel's attorneys' fees and Litigation Expenses that may be awarded by the Court, and all Notice and Administration Costs and Taxes, and is the total, full and final amount of all payments to be paid by, or on behalf of, Defendants . . . for the benefit of the Settlement Class in this Consolidated Action[.]” Id. at 18-19.

         Lead Counsel intends to apply for an attorneys' fees award in an amount not to exceed twenty-five (25%) of the total Settlement Fund amount (approximately $3, 462, 500), incentive awards payable to Plaintiffs, and for reimbursement of reasonable litigation expenses incurred during this case (not to exceed $180, 000). Doc. 95-1 at 14.

         The Agreement defines “Settlement Fund” as “the Settlement Amount plus any and all income and gains earned thereon less any losses incurred thereon, after it is deposited into the Escrow Account.” Doc. 95-1 at 14. Notably, the Agreement absolves Defendants and the Released Parties[1] of any responsibility for the Settlement Fund, including any loss of the principal, upon deposit of the Settlement Amount. Id. at 19.

         c. Release

         The parties stipulated that the Agreement would (1) fully and finally dispose of the Consolidated Action; (2) fully and finally release any and all Released Claims as against all Released Parties; and (3) release all of the Settled Defendants' Claims against the Plaintiff Released Parties. Doc. 95-2 at 19. Once Final Judgment is entered, Plaintiffs and the Settlement Class members will be deemed to have released all Released claims against the Released Parties and forever enjoined from commencing any of the Released Claims against any of the Released Parties, whether in the United States or elsewhere. Ibid. “ [T ]he parties acknowledge and agree that the releases granted herein are intended to release all claims that have been or could have been asserted by Natissisa in the Consolidated Action[.]” Id. at 20.

         d. Cy Pres Doctrine

         The Agreement makes clear that “no portion of the Settlement Fund will be returned to Illumina” even after all conditions of the Settlement are satisfied and the Effective Date has occurred. Doc. 95-2 at 24. The Agreement calls for any portion of the Net Settlement Fund remaining following distribution, granted the amount limits the effectiveness of a redistribution to the Settlement Class, to be donated to “a nonsectarian charitable organization(s) certified as tax-exempt under United States Internal Revenue Code Section 501(c)(3)[.]” Ibid.

         e. Notice

         Within ten (10) days of the filing of this order, Illumina must provide the Claims Administrator, JND Legal Administration, lists of record holders of Illumina common stock during the Class Period. Doc. 95-2 at 29. Illumina's provision of these lists comes at no cost to the Settlement Fund, Lead Counsel or the Claims Administrator. Ibid. However, Illumina limits its duty as it only must provide the lists “to the extent such lists are maintained by its stock transfer agent and reasonably available to Illumina upon request.” Id. at 29-30.

         Once the lists are provided, the Claims Administrator will mail notice [doc. 95-2 at Exh. A-2] to the Settlement Class members if their records have been maintained by or on behalf of Illumina. Doc. 95-2 at 30. The Claims Administrator will also publish Summary Notice [doc. 95-2 at Exh. A-3]. Ibid. A copy of the Agreement can be obtained at

         Defendants must serve notice of the Settlement as required under the Class Action Fairness Act (“CAFA”), 28 U.S.C. § 1715(b), within the time period statutorily set forth and certify that CAFA Notice has been served with Lead Counsel within three (3) business days after service. Doc. 95-2 at 21.

         f. Plan of Allocation

         A Recognized Loss will be assigned to each Settlement Class member that submits a valid claim (an “Authorized Claimant”). See Doc. 95-2 at 70. An Authorized Claimant's Recognized Loss will depend upon the number of Illumina shares purchased or acquired during the Class Period and held at the close of trading on October 10, 2016. Ibid. The Plan of Allocation as set forth in the long-form Notice of Proposed Settlement reads as follows:

         For each share of Common Stock purchased, an Authorized Claimant's Recognized Loss is equal to:

• If the share was purchased during the Class Period and held through January 9, 2017, then the Recognized Loss is equal to the price paid for the share minus $134.01 (which is the mean trading price of Illumina's Common Stock during the 90-day period following the Class Period);
• If the share was purchased during the Class Period and sold between October 11, 2016 and January 9, 2017, then the Recognized Loss is equal to the price paid for the share minus the greater of (i) $134.01 or (ii) the price at which you sold the share.
• If the share was purchased during the Class Period and sold on or before October 10, 2016, then the Recognized Loss is $0. This is because the share was not harmed in accordance with Plaintiffs' theory of liability and, therefore, there are no recoverable damages. See Doc. 95-2 at 70.

         This will not be the amount of your payment. See Do c . 9 5 -2 a t 71. Af ter the deadli n e for all Authorized Claimants to send in their Proof of Claim forms, the payment you get will be a proportion of the Net Settlement Fund equal to your Recognized Loss divided by the total of each Authorized Claimant's Recognized Losses. Ibid. Your payment will be made in cash. Ibid.

         The Plan of Allocation also includes the following provisions:

         1) An Authorized Claimant will have a Recognized Loss only in connection with damaged shares. Thus, any transaction that resulted in a profit or gain will not be included in an Authorized Claimant's overall Recognized Loss;

         2) There shall be no Recognized Loss attributed to any Illumina securities other than Common Stock or to any shares of ...

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