UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA

Transcription

1 e 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 1 of 19 Page ID #: LINKS: 107, IN RE MANNKIND CORP. 12 SECURITIES LITIGATION UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA Case No. CV GAF (SSx) 13 MEMORANDUM & ORDER REGARDING MOTION FOR FINAL 14 APPROVAL OF CLASS ACTION SETTLEMENT, AWARD OF ATTORNEY 15 FEES, AND REIMBURSEMENT OF EXPENSES I. INTRODUCTION & BACKGROUND This securities class action is brought on behalf of all persons who purchased or otherwise acquired the common stock of MannKind Corporation ( MannKind ) between May 4, 2010 and February 11, 2011 (the Class Period ), against MannKind and certain of its officers and/or directors (collectively, Defendants ). (Docket No. 56 [Corrected Consolidated Class Action Compl. ( CC )] 1.) The complaint alleges that Defendants violated 10(b) and 20(a) of the Securities Exchange Act of 1934 by making various untrue statements of material facts and [by] omitt[ing] to state material facts necessary in order to make the statements made, with the intent to deceive the investing public, artificially inflate and maintain the market price of MannKind

2 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 2 of 19 Page ID #: securities, and cause class plaintiffs to purchase MannKind common stock and options 3 at artificially inflated prices. (Id. 121) 4 After extended motion practice and several days of mediation before a retired 5 district judge, the parties reached agreement on the terms of a settlement of the class 6 claims. The Settlement Agreement contemplates that, in exchange for the payment 7 described below, members of the Settlement Class will dismiss the pending lawsuit and 8 release all claims asserted by the Settlement Class, defined as all persons or entities who 9 purchased publicly traded shares of MannKind common stock during the Class Period. 10 (Docket No. 99 [Declaration of Coby M. Turner ( Turner Decl. )], Ex. 1 [Settlement 11 Agreement] at 9.) The proposed Settlement Class consists of potentially thousands of 12 members; there were over 130 million shares of outstanding common stock as of 13 February 18, 2011, and over 45,600 notice packets were sent to potential Settlement 14 Class Members. (Docket No. 98 [Mot. for Preliminary Settlement Approval ( Mem. 15 Prelim. )] at 19; Docket No. 108 [Mot. for Final Approval ( Mem. Final )] at 18.) 16 Under the terms of the Settlement Agreement, Defendants have agreed to pay 17 $16 million (plus interest which will accrue once the settlement fund is put into escrow) 18 and to deposit no less than 2,777,778 shares of MannKind common stock into a Gross 19 Settlement Fund ( GSF ) to be allocated to members of the Settlement Class. (Mem. 20 Final at 1; Settlement Agreement at ) If the closing price for MannKind common 21 stock is below $1.00 per share on the final judgment date, the settlement fund will 22 include an additional 1 million shares of MannKind common stock. (Settlement 23 Agreement at 11.) Each participating Class Member is eligible to receive a proportional 24 share of the Net Settlement Fund ( NSF ), 1 based on the number of valid claim forms 25 that Settlement Class members send in, the number of shares of MannKind common 26 stock purchased during the Class Period, and the timing of purchases and sales. (Turner The NSF is the balance of the GSF after: (1) attorneys fees and expenses, (2) taxes and tax expenses, (3) notice and administration expenses, and (4) reimbursement awards to the lead plaintiff. (Settlement Agreement at 10.) 2

3 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 3 of 19 Page ID #: Decl., Ex. 1.B. [Class Notice] at 5; Mem. Final at 24; Docket No [Affidavit of 3 Jason Zuena, ( Zuena Aff. )], Ex. 1-A [Class Notice Packet].) 4 This Court granted preliminary approval of the Settlement Agreement on 5 September 12, (Docket No. 105 [9/12/12 Order].) Notice Packets were 6 subsequently sent to more than 45,600 potential Class Members via first-class mail. 7 (Mem. Final at 25; Docket No. 111 [Declaration of Lionel Z. Glancy ( Glancy Decl. )] 8 52.). The Summary Notice was also published in Investor s Business Daily and 9 issued to PR Newswire. (Glancy Decl. 53.) The Notice included the following 10 information: (1) the amount and makeup of the Settlement Fund; (2) the plan of 11 allocation; (3) Plaintiffs counsel intention to apply for a fee award not to exceed 12 twenty-five (25) percent of the GSF, as well as reimbursable expenses not to exceed 13 $200,000; (4) Lead Plaintiff s intent to seek reasonable costs and expenses related to his 14 representation of the Class, in an amount no greater than $32,400; (5) the right of any 15 Class Member to object to the Settlement Agreement and/or fees and expenses, and the 16 deadline for objecting; (6) the right of any Class Member to seek exclusion from the 17 Class, and the deadline for requesting exclusion; (7) a detailed explanation of the 18 reasons for Settlement; (8) the date, time and location of the Final Approval hearing; 19 and (9) the deadline for filing proofs of claim. (Id. 48; Class Notice Packet ) 20 The Claims Administrator utilized by Plaintiff s counsel set up a toll-free 21 telephone number to receive inquiries regarding the Settlement from Class Members. 22 (Id. 54.) The Claims Administrator responded to several hundred calls. (Id.) As of 23 November 12, 2012, no Class Member had objected to the Settlement, the request for 24 attorneys fees, or the reimbursement of expenses. (Id. 55.) Only one Class Member 25 requested to be excluded from the Class, and that decision appears wholly unrelated to 26 the terms of the Settlement. (Id. 56; Id., Ex. 1-D.) 27 Plaintiff now moves for final approval of the Settlement Agreement, class 28 certification, and final approval of the Plan of Allocation. (Mem. Final at 1.) In addition, Plaintiff seeks approval of the payment of attorney fees, reimbursement of 3

4 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 4 of 19 Page ID #: counsel s expenses, and reimbursement of Lead Plaintiff s costs. (Docket No [Mot. for Attorneys Fees and Expenses ( Mem. Fees )].) Defendants do not oppose 4 Plaintiff s motion. 5 For the reasons explained in greater detail below, the Court GRANTS the 6 motion to finally approve the Settlement Agreement, certify the class, and approve the 7 Plan of Allocation and GRANTS the motion to approve the payment of attorney fees, 8 reimbursement of counsel s expenses, and reimbursement of Lead Plaintiff s expenses. 9 II. 10 DISCUSSION 11 A. MOTION FOR FINAL APPROVAL OF SETTLEMENT LEGAL STANDARD 13 Under FRCP Rule 23(e), claims, issues, or defenses of a certified class may be 14 settled, voluntarily dismissed, or compromised only with the court s approval. Fed. R. 15 Civ. P. 23(e). A court must engage in a two-step process to approve a proposed class 16 action settlement. First, the court must determine whether the proposed settlement 17 deserves preliminary approval. Nat l Rural Telecomms. Coop. v. DirecTV, Inc., F.R.D. 523, 525 (C.D. Cal. 2004). Second, after notice is given to class members, the 19 Court must determine whether final approval is warranted. Id. A court should approve 20 a settlement pursuant to Rule 23(e) only if the settlement is fundamentally fair, 21 adequate and reasonable. Torrisi v. Tucson Elec. Power Co., 8 F.3d 1370, 1375 (9th 22 Cir. 1993) (internal quotation marks omitted); accord In re Mego Fin. Corp. Sec. Litig., F.3d 454, 458 (9th Cir. 2000) (citing Hanlon v. Chrysler Corp., 150 F.3d 1011, (9th Cir. 1998)). 25 Circuit law teaches that the court must balance the following factors to 26 determine whether a class action settlement is fair, adequate, and reasonable: 27 (1) the strength of the plaintiff s case; 28 (2) the risk, expense, complexity, and likely duration of further litigation; (3) the risk of maintaining class action status throughout the trial; 4

5 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 5 of 19 Page ID #: (4) the amount offered in settlement; 3 (5) the extent of discovery completed and the stage of the proceedings; 4 (6) the experience and views of counsel; 5 (7) the presence of a governmental participant; and 6 (8) the reaction of the class members to the proposed settlement. 7 Torrisi, 8 F.3d at 1375; accord Linney v. Cellular Alaska P ship, 151 F.3d 1234, (9th Cir. 1998); Hanlon, 150 F.3d at In addition, the settlement may not be the 9 product of collusion among the negotiating parties. In re Mego Fin. Corp. Sec. Litig., F.3d at 458. These factors are not exclusive, and one factor may deserve more 11 weight than the others depending on the circumstances. Torrisi, 8 F.3d at In 12 some instances, one factor alone may prove determinative in finding sufficient grounds 13 for court approval. Nat l Rural Telecomms. Coop., 221 F.R.D. at (citing 14 Torrisi, 8 F.3d at 1376). In addition, [t]he involvement of experienced class action 15 counsel and the fact that the settlement agreement was reached in arm s length 16 negotiations, after relevant discovery had taken place create a presumption that the 17 agreement is fair. Linney v. Cellular Alaska P ship, Nos. C DLJ, C DLJ, C DLJ, C DLJ, 1997 WL , *5 (N.D. Cal. July 18, 1997), 19 aff d, 151 F.3d at APPLICATION OF TORRISI FACTORS 21 a. Strength of Plaintiff s Case 22 The class s likelihood of succeeding on the merits of its claims is uncertain. Not 23 only are the securities claims Plaintiff brings difficult to prove, but the class would be 24 difficult to certify and likely be subject to constant attack by Defendants. 25 Class counsel has conducted a thorough and detailed investigation of the claims 26 in this case, which has included a review of numerous complex documents and 27 consultation with experts in various fields. (Mem. Final at 7.) This investigation has 28 led Plaintiff to conclude that the case is strong, but he is cognizant of the substantial risk... that the Action might succumb at the summary judgment stage to attacks 5

6 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 6 of 19 Page ID #: regarding loss causation, scienter, liability, or damages. (Id.) In particular, Plaintiff 3 notes the numerous obstacles under the provisions of the PSLRA that stand in the way 4 of a successful outcome at trial. (Id.) A significant hurdle for Plaintiffs under sections 5 10(b) and 20(a) of the Securities Exchange Act is the mental state that must be 6 established to prevail on the merits. Lead Plaintiff would have to prove that 7 Defendants knowingly or recklessly issued materially false and misleading statements 8 and omissions of fact, that the members of the Settlement Class relied upon Defendants 9 misconduct.... (Id. at 8.) Moreover, Plaintiff would have to demonstrate that when 10 the truth was revealed, the Settlement Class members suffered damage as a result. (Id.) 11 In addition, as mentioned in the Court s 9/12/12 Order, and discussed in more detail 12 below, Defendants would likely oppose class certification, a factor that negatively 13 affects the strength of Plaintiff s case. (Id.; See 9/12/12 Order at 10.) Plaintiff also 14 recognizes that there are risks that Plaintiff would be unable to maintain class status 15 throughout trial. (Mem. Final at 12.) For all of these reasons and many not addressed 16 here, prosecution of this securities class action would undoubtedly be time consuming, 17 complex, and expensive both in attorney s fees and costs and the presentation of expert 18 testimony, with no guarantee of a successful outcome. (Id. at 10.) The negotiated 19 resolution of this case avoids this uncertainty and weighs in favor of granting final 20 approval of the settlement. 21 b. The Risk, Expense, Complexity, and Likely Duration of Further 22 Litigation 23 The Court has touched on this factor in discussing the strength of Plaintiff s 24 case above. The Court s assessment of the risk, expense, complexity, and likely 25 duration prong of the Torrisi analysis must be balanced against the anticipated expense 26 of litigation. Nat l Rural Telecomms. Coop., 221 F.R.D. at 526. In most situations, 27 unless the settlement is clearly inadequate, its acceptance and approval are preferable to 28 lengthy and expensive litigation with uncertain results. Id. (quoting 4 A. Conte & H. Newberg, Newberg on Class Actions, 11:50 at 155 (4th ed. 2002)). 6

7 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 7 of 19 Page ID #: This action has been litigated for nearly two years by competent counsel on both 3 sides. Without a settlement, the case would likely last far longer, and entail significant 4 risk and expense. A substantial amount of time and effort has already been put into this 5 case, and Plaintiff correctly observes that continued litigation would entail lengthy and 6 arduous discovery battles. (Final Mem. at 10, 15.) Discovery would also require the 7 retention of experts on the complex question of damages, the designation of appropriate 8 experts for trial, and the reciprocal discovery of expert witnesses by both Plaintiff and 9 Defendant. (Id.) Moreover, all of this assumes that a class can be certified and 10 maintained throughout trial, a task that has become more difficult after recent Supreme 11 Court decisions tightening the standards applicable under Rule 23, Fed. R. Civ. P. (Id. 12 at 12.) Finally, even if the class were maintained through trial and secured a favorable 13 outcome, it would face further risk and delay arising from likely appeals and the 14 prospect that Defendant could become judgment-proof. 15 The Settlement Agreement, in addition to minimizing delay, guarantees a 16 recovery to Class Members. Thus, the risks and potential expenses of further litigation 17 weigh in favor of final approval, consistent with the policy preferring settlement over 18 further time-consuming litigation. Nat l Rural, 221 F.R.D. at c. The Risk of Maintaining Class Action Status Through Trial 20 The Class here has been preliminarily certified for settlement purposes only. 21 (9/12/12 Order at 7.) The Court agrees with Plaintiff s argument that, [b]ut for this 22 Settlement, Defendants likely would have strongly contested any motion for class 23 certification and sought any opportunity to have a certified class de-certified. (Mem. 24 Final at 12 (citing In re Omnivision Techs., Inc., 559 F. Supp. 2d 1036, 1041 (N.D. Cal )).) While the Court takes no position as to Plaintiff s likely success in maintaining 26 Class status through trial, settlement avoids all possible risk. This factor therefore 27 weighs in favor of final approval of the settlement. 28 7

8 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 8 of 19 Page ID #: d. The Amount Offered in Settlement A settlement should stand or fall on the adequacy of its terms. In re Corrugated Container Antitrust Litig., 643 F.2d 195, 211 (5th Cir. 1981). The Court examines the complete package taken as a whole, rather than the individual component parts, to determine whether the proposal is fair. Officers for Justice v. Civil Svc. Comm n, 688 F.2d 615, 628 (9th Cir. 1982). Under the terms of the Settlement Agreement, Defendants have agreed to pay $16 million (plus interest which will accrue once the settlement fund is put into escrow) and to deposit no less than 2,777,778 shares of MannKind common stock into the GSF to be allocated to members of the Settlement Class. (Mem. Final at 1; Settlement Agreement at ) 2 Any approved attorneys fees, costs and expenses are to be paid out of the GSF. (Docket No. 110 [Mot. for Attorney Fees ( Mem. Fees )] at 2; Settlement Agreement at ) Each participating Class Member is eligible to receive a proportional share of the NSF, based on the number of valid claim forms that Settlement Class members send in, the number of shares of MannKind common stock purchased during the Class Period, and the timing of purchases and sales. (Class Notice at 5.) The Court concludes that, on the whole, the terms of the settlement are fair and weigh in favor of granting final approval. In particular, the Court recognizes that the settlement value of approximately $21.5 million 3 constitutes over thirteen (13) percent of Plaintiff s maximum estimated damages of $157.8 million. 4 (Mem. Final at 13.) As Plaintiff points out, this percentage compares favorably with typical settlement amounts 2 As of the time this order is being reviewed for signature, the value of the stock is nearly $6,000,000 based on the TD Ameritrade real-time quote of $2.16 per share. 3 The $21.5 million figure is comprised of the $16 million in cash, plus the 2,777,778 shares of common stock, which had a closing price of $1.98 on November 9, Plaintiff estimates the maximum damages based on the assumption that a jury would find investor losses from both the first and second drops in share price discussed in the Complaint to have been a result of Defendants conduct. (Glancy Decl. 12.) 8

9 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 9 of 19 Page ID #: in cases of this size. (See Mem. Final at 13-15; Mem. Fees at ) In addition, 3 because any accurate calculation of a future award would have to be discounted to 4 present value, and the $157 million figure is no doubt an optimistic estimate, the percent recovery here likely underestimates the true value of the Settlement. 6 e. The Extent of Discovery Completed and the Stage of the 7 Proceedings 8 The amount of discovery completed affects approval of a stipulated settlement 9 because it indicates whether the parties have had an adequate opportunity to assess the 10 pros and cons of settlement and further litigation. In re Cylink Sec. Litig., 274 F. 11 Supp. 2d 1109, 1112 (N.D. Cal. 2003). Nevertheless, [i]n the context of class action 12 settlements, formal discovery is not a necessary ticket to the bargaining table where 13 the parties have sufficient information to make an informed decision about settlement. 14 Linney, 151 F.3d at 1239 (quoting In re Chicken Antitrust Litig., 669 F.2d 228, 241 (5th 15 Cir. 1982)). 16 Here, the information gathered and discovery conducted over the nearly two- 17 year history of this case indicates that the parties have sufficient information to make an 18 informed decision about settlement. Plaintiff s counsel has conducted extensive 19 investigation into the claims, including reviewing volumious documents, public filings, 20 and analytical reports, consulting with experts, and researching FDA approval 21 processes. (Mem. Final at 15.) In addition to having made extensive initial disclosures 22 and document productions, the Parties have filed numerous motions and briefs before 23 this Court, engaged in meet and confer efforts concerning discovery disputes, and 24 participated in arm s length mediation. (Id.) 25 The Court is persuaded that the parties had sufficient information to make an 26 informed decision about settlement. This factor thus weighs in favor of final approval. 27 f. The Experience and Views of Counsel 28 Great weight is accorded to the recommendation of counsel, who are most closely acquainted with the facts of the underlying litigation. Nat l Rural, 221 F.R.D. 9

10 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 10 of 19 Page ID #: at 528 (quoting In re Painewebber Ltd. P ships Litig., 171 F.R.D. 104, 125 (S.D.N.Y )). Furthermore, a presumption of fairness applies when settlements are negotiated 4 at arm s length, because of the decreased chance of collusion between the negotiating 5 parties. In re First Capital Holdings Corp. Fin. Prods. Secs. Litig., MDL Docket No (JGD), 1992 U.S. Dist. LEXIS 14337, at *5 6 (C.D. Cal. June 10, 1992). 7 In the present case, all parties are represented by seasoned litigators, and class 8 counsel have litigated many other class actions. (Mem. Final at 17; Glancy Decl. 71.) 9 Class counsel supports the settlement as fair, reasonable, adequate, and in the best 10 interests of the Class. (Mem. Final at 17.) The Settlement Agreement was ultimately 11 the product of an all-day mediation session in front of the Honorable Layn R. Phillips 12 (Ret.). (Id.) Judge Phillips is an extremely able and experienced mediator who served 13 many years as a federal judge, as a United States Attorney and an Assistant United 14 States Attorney, and is currently an accomplished litigator in his own right. The Court 15 is completely confident that the negotiations and mediation were conducted at arm s 16 length, were the product of rational compromise on the part of all involved, and were in 17 no way collusive. Accordingly, this factor also weighs in favor of granting final 18 approval. 19 g. The Presence of a Governmental Participant 20 As noted in this Court s 9/12/12 Order, this factor is not at issue in this case 21 because there was no governmental participation in this case. Accordingly, to the extent 22 this factor impacts the Court s analysis, it weighs in favor of granting final approval. 23 h. The Reaction of Notified Class Members to the Proposed Settlement 24 i. Notice Procedures 25 The Notice Packet in this action contained an estimate of the GSF, and explained 26 the calculations, Settlement terms, and procedure for opting out of, objecting to, or 27 challenging the Settlement. As of November 12, 2012, Notice had been sent to over 28 45,600 Class Members via first-class mail. (Glancy Decl. 52.) The Summary Notice was also published in Investor s Business Daily and issued to PR Newswire. (Id. 53.) 10

11 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 11 of 19 Page ID #: The Claims Administrator employed by Plaintiff s counsel set up a toll-free telephone 3 help line to assist Class Members in understanding the settlement terms and to answer any 4 questions. (Id. 54.) The Claims Administrator promptly responded to several hundred 5 calls. (Id.) 6 ii. Conclusion Regarding Class Reaction 7 Of the 45,000-plus Notice recipients, as of the time of this motion, not a single 8 one objected to the Settlement, the request for attorneys fees, or the reimbursement of 9 expenses, (Id. 55), and only one Class Member requested to be excluded from the Class. 10 (Id. 56.) Thus, the Court concludes that the reaction of the Class weighs in favor of 11 granting final approval. It is established that the absence of a large number of objections 12 to a proposed class action settlement raises a strong presumption that the terms of [the] 13 proposed class settlement... are favorable to the class members. Nat l Rural, F.R.D. at CONCLUSION RE : MOTION FOR FINAL APPROVAL 16 Based on the above analysis, the Court concludes that, on balance, the Torrisi 17 factors weigh in favor of granting final approval of the Settlement Agreement, because it 18 is fundamentally fair, adequate, and reasonable FINAL CERTIFICATION 20 Plaintiff also requests final certification of the Settlement Class for purposes of 21 administering the settlement. (Mem. Final at 19.) In accordance with its September 12, Order, and for the reasons set forth in that Order, the Court confirms its prior 23 finding that the Settlement Class complies with the requirements of Rules 23(a) and 24 23(b)(3), and should therefore be certified for purposes of settlement. (See 9/12/12 Order 25 at 4-7.) FINAL APPROVAL OF PLAN OF ALLOCATION 27 The Plan of Allocation, like the class settlement as a whole, must be fair, 28 reasonable, and adequate. In re Omnivision Techs., Inc., 559 F. Supp. 2d at 1045 (N.D. Cal. 2008); see also Class Plaintiffs v. City of Seattle, 955 F.2d 1268, (9th Cir. 11

12 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 12 of 19 Page ID #: ). It is reasonable to allocate settlement funds to class members based on the extent 3 of their injuries. In re Omnivision Techs., 559 F. Supp. 2d at The Court finds that 4 the proposed Plan of Allocation is reasonable. 5 Under the Plan of Allocation, each participating Class Member is eligible to 6 receive a proportional share of the NSF, based on the number of valid claim forms that 7 Settlement Class members send in, the number of shares of MannKind common stock 8 purchased during the Class Period, and the timing of purchases and sales. (Class Notice at 9 5.). Plaintiff states that [t]he Plan was formulated by Co-Lead Counsel, in consultation 10 with damages experts, with the goal of reimbursing Settlement Class Members in a fair 11 and reasonable manner. (Mem. Final at 24.) Notice to the Settlement Class was 12 undertaken by providing individual notice by first-class mail to each member of the 13 Settlement Class whose address was reasonable ascertainable, by publishing the Notice in 14 Investor s Business Daily, and by causing the Notice to be transmitted over PR 15 Newswire. (Id. at 25.) This comports with due process. Notably, as discussed above, no 16 Settlement Class Members have objected to this allocation. The Court accordingly finds 17 it fair and reasonable CONCLUSION RE : MOTION FOR FINAL APPROVAL 19 For the foregoing reasons, Plaintiff s motion for final approval of the Settlement 20 Agreement, Class Certification, and Plan of Allocation is GRANTED. 21 B. MOTION FOR ATTORNEY FEES AND EXPENSES 22 Plaintiff additionally seeks this Court s approval of (1) an attorney fee payment of 23 the benchmark award, which is twenty-five (25) percent of the Settlement Fund; (2) 24 reimbursement of $150, in attorney expenses; and (3) reimbursement of expenses 25 to the Lead Plaintiff in the amount of $32,400. (Mem. Fees at 1.) This motion is 26 GRANTED in part and DENIED in part ATTORNEY FEES 28 a. Legal Standard Circuit law teaches that class action plaintiffs attorney fees may be based on a 12

13 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 13 of 19 Page ID #: percentage recovery from a common fund. See Vizcaino v. Microsoft Corp., 290 F.3d 1043 (9th Cir. 2002); Paul, Johnson, Alston & Hunt v. Graulty, 886 F.2d 268, 272 (9th Cir. 1989); see also Torrisi, 8 F.3d at If an attorney seeks a percentage recovery in a class action, twenty-five percent of the common fund has been established as the benchmark award in the Ninth Circuit. Torrisi, 8 F.3d at However, the benchmark percentage should be adjusted, or replaced by a lodestar calculation, when special circumstances indicate that the percentage recovery would be either too small or too large in light of the hours devoted to the case or other relevant factors. Six Mexican Workers v. Ariz. Citrus Growers, 904 F.2d 1301, 1311 (9th Cir. 1990). An assessment of the reasonableness of the fee request is to be determined by consideration of multiple factors. The trial court in Martin v. Ameripride Servs., Inc., noted: The Ninth Circuit has identified a number of factors that may be relevant in determining if the award is reasonable: (1) the results achieved; (2) the risks of litigation; (3) the skill required and the quality of work; (4) the contingent nature of the fee; (5) the burdens carried by class counsel; and (6) the awards made in similar cases U.S. Dist. LEXIS 61796, at *24 (S.D. Cal. June 9, 2011) (citing Vizcaino, 290 F.3d at ). Vizcaino reiterated that the choice of the benchmark or any other rate must be supported by findings that take into account all of the circumstances of the case. 290 F.3d at b. Application i. Results Achieved As explained above, the Court finds that counsel achieved a favorable result for the Class. Under the terms of the Settlement Agreement, Defendants have agreed to pay $16 million (plus interest which will accrue once the settlement fund is put into escrow) and no less than 2,777,778 shares of MannKind common stock into the GSF to be allocated to members of the Settlement Class. (Mem. Final at 1; Settlement Agreement at ) This yields a settlement value of approximately $21.5 million, which constitutes over thirteen (13) percent of Plaintiff s maximum estimated damages of $157.8 million. (Mem. Final at 13.) As Plaintiff points out, this percentage compares favorably with 13

14 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 14 of 19 Page ID #: typical settlement amounts in cases of this size. (See Mem. Final at 13-15; Mem. Fees at ) 4 Therefore, the Court finds that this factor weighs in favor of granting the 5 benchmark award to Class counsel. 6 ii. Contingent Nature of the Fee and Risks of Litigation 7 As the Ninth Circuit explains, [i]t is an established practice in the private legal 8 market to reward attorneys for taking the risk of non-payment by paying them a premium 9 over their normal hourly rates for winning contingency cases. In re Wash. Pub. Power 10 Supply Sys. Sec. Litig., 19 F.3d 1291, 1299 (9th Cir. 1994). Here, Plaintiff submits that 11 Class counsel has taken considerable risk in litigating this case. First, counsel received no 12 compensation during the entire period this case has been pending, with payment 13 completely contingent on the result achieved, and on this Court s exercise of its 14 discretion in making any award. (Mem. Fees at 15.) Second, as discussed above, the 15 Class faced several obstacles to recovery had litigation continued due to doubts about the 16 ability to show loss causation, scienter, liability, or damages. (Mem. Final at 7.) In 17 addition, counsel remains uncertain whether Class status could have been maintained 18 throughout litigation. (Mem. Fees at ) 19 Because counsel worked entirely on a contingent-fee basis and the Court agrees 20 that there were significant risks of litigation, these factors weigh in favor of awarding the 21 benchmark level of attorneys fees iii. Skill Required and the Quality of the Work Class counsel has significant experience in securities class action litigation. (Glancy Decl., Exs. 5-A, 8.) Counsel here has spent over 3500 hours working on the case and obtained a sizeable settlement. (Mem. Fees at 3; Glancy Decl. 72, 82, Exs. 5-B, 6.) The mediator in this case, Judge Layn Phillips, agrees that the case was exceedingly complex, the settlement was fair, the requested fee award is fair, and the settlement was the product of vigorous advocacy. (Docket No [Declaration of Layn R. Phillips 14

15 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 15 of 19 Page ID #: ( Phillips Decl. )] 8-13.) Accordingly, the Court is satisfied that the benchmark 3 figure, which is comfortably within this range, appropriately accounts for the skill 4 required and the quality of work performed by Class counsel in this case. 5 v. Burdens Carried by Counsel Class counsel has declined to argue that it faces unique circumstances compared to other attorneys who serve as plaintiffs class counsel. To be sure, in accepting this case, counsel took on significant if customary risks: there were numerous obstacles in continuing on with litigation, and Class counsel worked entirely on a contingent-fee basis. Accordingly, the Court sees no reason that this factor should weigh in favor of anything other than the benchmark award. vi. Awards Made in Similar Cases Plaintiff offers numerous examples of cases in which courts approved attorneys fees where the lodestar multiplier was in excess of the 2.3 multiplier counsel requests here. (Mem. Fees at ) Plaintiff further notes that the 2.3 multiplier does not include time counsel will spend in the future directing the claims administration process and final distribution. (Id. at 17, 17 n. 12.) Based on hourly rates submitted to the Court, the lodestar the total fees due, if calculated on an hourly basis would be just over $2,300,000. (Mem. Fees at 3 n. 4.) Counsel seeks the benchmark award of twentyfive percent. Twenty-five percent of $21.5 million would yield an award of $5,375,000. (Id.) Thus, a benchmark-level award would present a lodestar multiplier of roughly 2.3. (Id.) As the Ninth Circuit noted in Vizcaino, courts routinely enhance the lodestar to reflect the risk of non-payment in common fund cases. Vizcaino, 290 F.3d at Typically, a lodestar is multiplied up to four times to yield an enhanced award. Id. at 1051 n.6. In Wershba v. Apple Computer, Inc.,110 Cal. Rptr. 2d 145 (Ct. App. 2001), the California Court of Appeal observed that courts using the lodestar method to calculate attorney fees awards in civil class actions typically apply multipliers in the range of 2 to 4. Id. at 170. Thus, the multiplier here is within the range of reasonableness. Therefore, 15

16 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 16 of 19 Page ID #: this factor weighs in favor of awarding the benchmark level of attorneys fees. 3 vii. Conclusion The Court finds that Plaintiff s attorneys have competently performed their expected duties as Class counsel, and that the benchmark award is appropriate. Accordingly, the Court approves the award of attorney fees at the benchmark rate of 25 percent. The award will consist of, as requested, (Mem. Fees at 2), $4,000,000 in cash and 694,444 shares of MannKind common stock. 2. REIMBURSEMENT OF COUNSEL S EXPENSES Plaintiff also seeks approval for reimbursement of counsel s expenses for the prosecution of this action in the amount of $149, (Mem. Fees at 18 19; Docket No , [Supp. Declaration of Lionel Z. Glancy ( Glancy Supp. )] 10.) 5 Reimbursement of taxable costs is governed by 28 U.S.C and FRCP 54. The Court notes that it is generally not the practice of an attorney to bill a client for every expense incurred in connection with the litigation in question. In re Media Tech. Sec. Litig., 913 F. Supp. 1362, 1366 (N.D. Cal. 1996). Thus, any award of out-pocket expenses should be limited to those expenses customarily billed to a fee-paying client. Id. 20 Here, counsel seeks reimbursement for, among other things, transportation, 21 mediation fees, expert consulting fees, investigative services, transcript services, and 22 various filing fees and clerical costs. (See Glancy Decl., Exs. 5-C., 7.) The Court finds 23 that these expenses were a reasonable and necessary part of the litigation, and are of a 24 type customarily billed to a fee-paying client. Prior case law supports this determination. 25 See In re Immune Sec. Litig., 497 F. Supp. 2d 1166, 1177 (S.D. Cal. 2007) ( Filing fees 26 and photocopies are also a necessary expense of litigation, in particular complex 27 securities class action litigation ); Greenspan v. Auto. Club of Mich., 536 F. Supp. 411, 28 5 This takes into account the initial request for $150, and subsequent discovery of overpayment of $1, to expert Crowninshield Financial Research. 16

17 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 17 of 19 Page ID #: (E.D. Mich. 1982) (awarding costs for telephone, printing and postage expenses); 3 Robinson v. Ariyoshi, 703 F. Supp. 1412, (D. Haw. 1989), rev d on other 4 grounds, 933 F.2d 781 (9th Cir. 1991) (agreeing that online research is an essential tool 5 of a modern efficient law office and that such costs should be treated as expenses 6 normally billed to fee-paying clients ); Yong Soon Oh v. AT&T Corp., 225 F.R.D. 142, (D.N.J. 2004) (reimbursing mediation fees because they are incidental to 8 litigation ). Moreover, the Court notes that the Notice Packet alerted Class Members that 9 Class counsel would seek expenses not to exceed $200,000. (Notice Packet at 8.) No 10 Class Member has objected to this provision, and Counsel seeks reimbursement well 11 under that threshold. 12 Because the Court finds that Class counsel s expenses were both reasonable and 13 necessary to the litigation, the Court awards $149, in reimbursement expenses. 14 Reimbursement is to be paid out of the Fund only after attorneys fees are awarded REIMBURSEMENT OF PLAINTIFF S REQUESTED COSTS a. Legal Standard The Private Securities Litigation Reform Act ( PSLRA ) provides that a class representative s recovery in a class settlement shall be equal, on a per share basis, to the portion of the final judgment or settlement awarded to all other members of the class. 15 U.S.C. 78u-4(a)(4). That provision, however, also provides that [n]othing in this paragraph shall be construed to limit the award of reasonable costs and expenses (including lost wages) directly relating to the representation of the class to any representative party serving on behalf of a class. Id. 25 b. Application 26 Lead Plaintiff Ki Yong Choi seeks approval of an award of $32,400, which 27 represent Lead Plaintiff s lost wages for time spent directly related to his representation 28 of the Class. (Mem. Fees at ) Plaintiff spent time reviewing pleadings, motions, and other documents; searching for and producing documents; and communicating with 17

18 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 18 of 19 Page ID #: counsel concerning the status of the case, and staying apprised of all developments in the case, including discussions about the settlement. (Id. at 21.) Choi submits a declaration that he has spent a total of about thirty-six hours relating to his representation of the Class. (Docket No , [Declaration of Ki Yong Choi ( Choi Decl. )] 6.) Choi states that he is the founder and CEO of a company that owns and operates hotels, and while he is not compensated at an hourly rate, if he were it would be approximately $1,200 per hour. (Id. 4.) However, for purposes of this action, he ha[s] discounted [his] hourly rate to $900. (Id.) Despite Choi s generous hourly-rate deduction, Choi does not make an hourly wage and did not forgo any wages spending time on this case. The Court construes lost wages to be just that wages that were lost by a Plaintiff who was forced to spend time working with counsel to further the interests of the plaintiff class. As a salaried CEO, Choi is not paid an hourly wage and cannot be said to have lost any wages by virtue of his role as lead plaintiff in this case. Counsel argued that Choi feels he is entitled to compensation for time spent on this case, and the Court is aware that some district courts have awarded such compensation. See, e.g., In re OmniVision Technologies, Inc., 559 F. Supp. 2d 1036, 1049 ($29,000 award); In re Immune Response Securities Litigation, 497 F. Supp. 2d 1166, ($40,000 award). However, neither of these cases, nor any other case cited by Plaintiff, conducted a careful analysis of the statutory language. A recent case conducting such an analysis squarely rejected the contention that a lead plaintiff is entitled to compensation for time spent in furtherance of a securities fraud class action. In re ESS Tech., Inc. Sec. Litigation, 2007 U.S. Dist. LEXIS 84756, at *15 (N.D. Cal. Oct. 29, 2007). In that case, the lead plaintiff moved for compensation pursuant to 15 U.S.C. 78u-4(a)(4) in the sum of $196,000. The district court noted: Bardack contends that this amount represents 245 hours over the last five years "directing the prosecution of this case for the benefit of the Class" at an hourly rate of $ 800, which represents less than his usual hourly compensation of $ 1500 as a "corporate consultant and manager of a successful investment firm." 18

19 2:11-cv GAF -SS Document 117 Filed 12/21/12 Page 19 of 19 Page ID #: Id. at *6. The district court rejected that request noting that the PSLRA reflected a clear intention to remove financial incentive for becoming a lead plaintiff. Id. at *13. Thus, even though some district courts had ignored the text of the statute and assumed discretion to issue such awards, e.g., In re Heritage Bond Litigation, 2005 U.S. Dist. LEXIS (C.D. Cal. June 10, 2005), the In re ESS court resorted to the text and purpose of the statute in rejecting the demand. The decision concluded with these words: [I]n light of the text of 78u-4(a)(4), and the clear intention to eliminate financial incentives, bonuses and bounties for serving as lead plaintiff, this court concludes that incentive awards and compensatory awards falling outside the costs and expenses specified by the PSLRA are inconsistent with the express goals of 78u-4(a)(4). Therefore, the court declines to award lead plaintiffs the $ 196,000 compensation he seeks and denies his motion under 78u-4(a)(4). Id. at *15. Accordingly, Plaintiff s request to be paid for time spent on this lawsuit is DENIED. IV. CONCLUSION Based on the foregoing, Plaintiff s motion for final approval of the proposed settlement, class certification, and final approval of the plan of allocation is GRANTED. The motion for approval of attorneys fees and reimbursement of counsel s expenses is also GRANTED. However, the motion for approval of Lead Plaintiff s costs and expenses is DENIED. IT IS SO ORDERED. DATED: December 21, 2012 Judge Gary Allen Feess United States District Court 19