United States District Court, S.D. California
IN RE REGULUS THERAPEUTICS INC. SECURITIES LITIGATION
ORDER DENYING WITHOUT PREJUDICE PRELIMINARY APPROVAL
OF SETTLEMENT [ECF NO. 38]
Honorable Barry Ted Moskowitz, United States District Judge.
Before
the Court is Plaintiffs' unopposed Motion for an Order
Granting Preliminary Approval of Class Action Settlement and
Directing Dissemination of Notice to the Class. (ECF No. 38.)
Therein, Plaintiffs represent that they have, on behalf of
themselves and other potential class members, reached a
tentative settlement with Defendants, as set forth in their
Stipulation of Settlement dated December 11, 2019 (the
“Stipulation”). (Id.; see also
ECF No. 38-2 (the Stipulation).) By way of their instant
motion, Plaintiffs seek an order: (1) granting preliminary
approval of the parties' proposed settlement; (2)
provisionally certifying the settlement class; and (3)
directing dissemination of notice to such settlement class.
(ECF No. 38.)
Federal
Rule of Civil Procedure 23(e) provides that “[t]he
claims, issues, or defenses of . . . a class proposed to be
certified for purposes of settlement . . . may be settled,
voluntarily dismissed, or compromised only with the
court's approval.” Fed.R.Civ.P. 23(e). “[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
[class] certification and the fairness of the
settlement.” Staton v. Boeing Co., 327 F.3d
938, 952-53 (9th Cir. 2003). Having thoroughly reviewed
Plaintiffs' instant motion, the Stipulation, and the
exhibits thereto, the Court denies without prejudice
Plaintiffs' request for preliminary approval of the
parties' settlement as it presently exists based upon the
unfairness of the release of claims provision contained
within the Stipulation and deficiencies within the proposed
notice to potential settlement class members.
Here,
the parties' proposed settlement includes, inter
alia, a release of claims held by Plaintiffs and the
other settlement class members against Defendants. (ECF No.
38-2, at 6, 10-15, 20-21.) The phrasing of the relevant
release provision, Section 4.2 of the Stipulation, which
spans approximately 16 lines and incorporates multiple
defined terms (which themselves each span multiple lines and
incorporate additional defined terms), is convoluted and its
breadth is ambiguous. (Id.) As a result, it is
difficult for this Court, let alone potential settlement
class members, to determine what claims would in fact be
released by that provision's operation. As presently
drafted, the release provision could be reasonably
interpreted to release claims outside of those that were - or
reasonably could have been - brought in the instant
securities regulation litigation. Further, Plaintiff's
briefing and proposed notice to potential class members are
of no assistance in dispelling these ambiguities, as they
contain no meaningful attempts to distill or delineate the
breadth or effect of such release provision. Rather, the
Plaintiffs' briefing and the proposed notice simply
regurgitates the defined terms set forth in the parties'
agreement without elaboration or clarification. (See
ECF No. 38-1, at 13-14; ECF No. 38-2, at 55, 57-59, 77-78.)
The Court will not approve a settlement that contains such a
conspicuous ambiguity, particularly where it pertains to a
settlement term as predominant as a release of claims, nor
will it approve a settlement that purports to release claims
outside of those that were brought and could have been
brought in the instant action. Moreover, the Court will
require that any notice to the proposed settlement class
members clearly state the breadth and effect of any relevant
release provisions in clear and concise language that would
be easily comprehensible to a layperson.
In
addition, the Court has identified several other deficiencies
with regards to the proposed notice to the members of the
proposed settlement class. (See ECF No. 38-2, at
50-63, 77-80.) Because this is a securities action, the
proposed notice must satisfy the requirements of both Federal
Rule of Civil Procedure 23(c)(2)(B) and 15 U.S.C §
78u-4(a)(7). Here, the parties propose that, in addition to
giving notice directly to the members of the potential
settlement class via U.S. mail (the “Direct
Notice”), they intend to publish a “summary
notice” in a “national business newswire”
and on a website operated by the proposed claims
administrator (the “Summary Notice”). (ECF No.
38-2 at 27-28; see also id. at 50-63 (the Direct
Notice); id. at 77-80 (the Summary Notice).)
The
Direct Notice is deficient in that it fails to “clearly
and concisely state in plain, easily understood language . .
. that a class member may enter an appearance [in this
action] through an attorney if the member so
desires[.]” See Fed. R. Civ. P.
23(c)(2)(B)(iv). The Direct Notice is also deficient in that
it fails to include, in both its body text and upon its cover
page: (i) “a statement concerning the average amount of
damages per share that would be recoverable if the plaintiff
prevailed on each claim alleged” under the Securities
Exchange Act of 1934 (the “Act”); (ii) a
good-faith estimate of the costs and expenses (including lost
wages) directly relating to the representation of the class
for which the class representatives intend to apply to the
Court for an award from the settlement funds (including the
amount of such costs and expenses determined on an average
per share basis), along with a brief explanation supporting
the costs and expenses sought; and (iii) the telephone number
of one or more representatives of Lead Counsel for the
plaintiffs.[1] See 15 U.S.C. §
78u-4(a)(7)(B) - (D).
The
Summary Notice is deficient in that it fails to state: (i)
“the class claims, issues, or defenses”; (ii)
“that a class member may enter an appearance [in this
action] through an attorney if the member so desires”;
and (iii) the “manner for requesting exclusion”
from the class. See Fed. R. Civ. P.
23(c)(2)(B)(iii), (iv), & (vi). The Summary Notice is
also deficient in that it fails to include: (i) “[t]he
amount of the settlement proposed to be distributed to the
parties to the action . . . on an average per share
basis”; (ii) “the average amount of damages per
share that would be recoverable if the plaintiff prevailed on
each claim alleged” under the Act, including
Defendants' disagreement with such amount and reasoning
therefore; (iii) a good-faith estimate of the attorney's
fees and costs for which Lead Counsel intend to apply to the
Court for an award from the settlement funds (including the
amount of such fees and costs determined on an average per
share basis), along with a brief explanation supporting the
fees and costs sought; (iv) a good-faith estimate of the
costs and expenses (including lost wages) directly relating
to the representation of the class for which the class
representatives intend to apply to the Court for an award
from the settlement funds (including the amount of such costs
and expenses determined on an average per share basis), along
with a brief explanation supporting the costs and expenses
sought; and (v) the telephone number of one or more
representatives of Lead Counsel for the
plaintiffs.[2] See 15 U.S.C. §
78u-4(a)(7)(A) - (E). Further, the Court will require that
the Summary Notice (and any other notice to the proposed
settlement class members) contain the claims
administrator's toll-free telephone number and website
address to facilitate efficient communication between class
members and the claims administrator. See 15 U.S.C.
§ 78u-4(a)(7)(F).
Based
upon the foregoing, Plaintiffs' Motion for an Order
Granting Preliminary Approval of Class Action Settlement and
Directing Dissemination of Notice to the Class (ECF No. 38)
is DENIED WITHOUT PREJUDICE.[3]
IT
IS SO ORDERED.
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Notes:
[1] The Court does not consider a claims
administrator to be a representative of Lead Counsel that is
“reasonably available to answer questions from class
members concerning any matter contained in any
notice of settlement published or otherwise disseminated to
the class.” 15 U.S.C. § 78u-4(a)(7)(D) (emphasis
added).
[2] The Summary Notice also contains an
incorrect case number in its case caption. (See ECF
No. 38-2, at 77.)
[3] The Court reminds the parties of their
obligations to provide notice to the appropriate federal and
state officials under 28 U.S.C. ยง 1715, upon which this
Court's authority to grant final approval is ...