UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY

Transcription

1 Case 3:07-cv FLW-LHG Document 111 Filed 09/01/2009 Page 1 of 15 KEEFE BARTELS & CLARK, LLC John E. Keefe, Jr. 170 Monmouth Street Red Bank, NJ Phone: (732) Facsimile: (732) jkeefe@keefebartels.com ZWERLING, SCHACHTER & ZWERLING, LLP Jeffrey C. Zwerling Robin F. Zwerling 41 Madison Avenue New York, NY Phone: (212) Facsimile: (212) jzwerling@zsz.com rzwerling@zsz.com UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY IN RE VONAGE INITIAL PUBLIC Docket No. 07-CV-177 (FLW/LHG) OFFERING (IPO) SECURITIES ALL CASES LITIGATION District Judge Freda L. Wolfson Magistrate Judge Lois H. Goodman MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFFS UNOPPOSED APPLICATION FOR PRELIMINARY APPROVAL OF SETTLEMENT

2 Case 3:07-cv FLW-LHG Document 111 Filed 09/01/2009 Page 2 of 15 TABLE OF CONTENTS PRELIMINARY STATEMENT 1 I. FACTUAL AND PROCEDURAL BACKGROUND 2 II. THE PROPOSED SETTLEMENT WARRANTS PRELIMINARY APPROVAL 3 III. THE PROPOSED CLASS SHOULD BE CERTIFIED FOR SETTLEMENT PURPOSES 5 IV. THE PROPOSED NOTICE TO THE CLASS MEETS ALL APPLICABLE REQUIREMENTS 7 CONCLUSION 10 i

3 Case 3:07-cv FLW-LHG Document 111 Filed 09/01/2009 Page 3 of 15 Cases TABLE OF AUTHORITIES In re Auto. Refinishing Paint Antitrust Litig., MDL No. 1426, 2004 WL (E.D. Pa. May 11, 2004) 4, 5 In re Cendant Corp. Litig., 264 F.3d 201 n. 18 (3d Cir. 2001) 4, 6 In re Computron Software, Inc., Sec. Litig., 6 F. Supp. 2d 313 (D.N.J. 1998) 4 Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974) 10 In re Ikon Office Solutions, Inc. Sec. Litig., 194 F.R.D. 166 (E.D. Pa. 2000) 3, 7 Jones v. Commerce Bancorp Inc., No , 2007 WL (D.N.J. July 16, 2006) 4, 5 In re Lucent Tech. Sec. Litig., 307 F. Supp. 2d 633 (D.N.J. 2004) 7 Mehling v. N.Y. Life Ins. Co., 246 F.R.D. 467 (E.D. Pa. 2007) 4 Smith v. Prof'l Billing & M gm't Servs., Inc., No , 2007 WL (D.N.J. Nov. 21, 2007) 4, 5 In re Tlonage Initial Public Offering (IPO) Sec. Litig., Civ. Action No , 2007 WL (D.N.J. Sept. 7, 2007) 5, 7 In re Warfarin SodiumAntitrust Litig., 391 F.3d 516 (3d Cir. 2004) 3, 4, 6 Statutes 15 U.S.C. 77u-1(a) (7) 8 15 U.S.C. 77(e), 77(k), 77(l)(a)(1), 77(l)(a)(2) and 77(o) 3 ii

4 Case 3:07-cv FLW-LHG Document 111 Filed 09/01/2009 Page 4 of 15 Rules FED. R. CIV. P. 23 6, 7, 8 Other Authorities Manual for Complex Litigation (Fourth) (2006) 4, 8 iii

5 Case 3:07-cv FLW-LHG Document 111 Filed 09/01/2009 Page 5 of 15 Lead Plaintiff The Zyssman Group 1 and the DSP Plaintiffs2 (collectively, the Plaintiffs ) hereby request preliminary approval of the settlement (the Preliminary Order ). The application, which Defendants 3 do not oppose, is based upon the Stipulation of Settlement, dated August 17, 2009 (the Settlement Agreement ), 4 this memorandum and all other pleadings and matters of record. 5 PRELIMINARY STATEMENT Lead Counsel and Defendants counsel engaged in arm s-length negotiations of the Settlement of Plaintiffs claims at the beginning of June As a result of those negotiations, the Settling Parties reached an agreement-in-principle regarding the terms of a settlement of Plaintiffs claims, as alleged in the Complaint (docket number 61). As set forth in the Settlement Agreement, Vonage has agreed to pay three million, six hundred thousand ($3,600,000) dollars to settle Plaintiffs claims. Plaintiffs request the entry of the Preliminary Order finding that the Settlement is in the range of reasonableness warranting preliminary approval. The Preliminary Order also certifies the following class for settlement purposes: All persons and entities who purchased shares of common stock of Vonage pursuant and/or traceable to Vonage s IPO whether through the Directed Share Program or 1 Lead Plaintiff The Zyssman Group includes Oded Zyssman, Aileen Zyssman, The Northside Company and Sabra Company. 2 DSP Plaintiffs are: Schlomo Fuhrer, Chana Leser and Menashe Leser. 3 Defendants are: Vonage Holdings Corp., Jeffrey A. Citron, Michael Snyder, John S. Rego, Peter Barris, Morton David, J. Sanford (Sandy) Miller, Thomas J. Ridge, John J. Roberts, Betsy S. Atkins, Orit Gadiesh, Hugh Panero, Harry Weller, Bear, Stearns & Co., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Piper Jaffray & Co., Thomas Weisel Partners LLC, and UBS Securities LLC. 4 A copy of the Settlement Agreement is attached as Exhibit 1 to the Declaration of Robin F. Zwerling in Support of Plaintiffs Unopposed Application for Preliminary Approval of Settlement ( Zwerling Decl. ). 5 All capitalized terms have the same meaning as in the Settlement Agreement.

6 Case 3:07-cv FLW-LHG Document 111 Filed 09/01/2009 Page 6 of 15 otherwise and who suffered damages. Excluded from the Class are: (1) Defendants, members of their immediate families, any entity in which any of the Defendants has a controlling interest or of which they are a parent or subsidiary or that is controlled by any of the Defendants, and the officers, directors, employees, affiliates (as defined in SEC Rule 12b-2), legal representatives, heirs, predecessors, successors and assigns of the Defendants; (2) Persons who timely and validly request exclusion from the Class pursuant to the Preliminary Order; and (3) All Persons who indicated they would purchase one or more shares of Vonage s common stock pursuant and/or traceable to Vonage s IPO and did not pay for such shares. The Preliminary Order also authorizes dissemination of the Notice of Pendency and Proposed Settlement of Class Action (the Notice') and Summary Notice (Zwerling Decl. Ex. 1.B and 1.F), which will inform Class members of the proposed Settlement and the Plan of Allocation, and provide information to Class members regarding the Fairness Hearing and the requirements for filing objections to the proposed Settlement. Finally, the Preliminary Order schedules the Fairness Hearing, at which the Court will: determine whether the Settlement should be finally approved as fair, reasonable, adequate and in the best interests of the Class; determine whether to finally certify the Class for settlement purposes; determine whether a Judgment should be entered dismissing and releasing certain claims with prejudice; rule upon the Plan of Allocation of the Net Settlement Fund; rule upon the Fee and Expense Award for Class Counsel; and rule upon the Award to Settling Plaintiffs. I. FACTUAL AND PROCEDURAL BACKGROUND Beginning on June 2, 2006, the first of fourteen related actions was commenced in this jurisdiction. By Order dated July 26, 2007, the Court consolidated all existing and subsequent similar actions under the caption the In re Nonage Initial Public Offering (IPO) Securities Litigation, No. 07-CV-177. On September 7, 2007, pursuant to the Private Securities Litigation Reform Act of 1995 (the PSLRA'), the Court appointed Lead Plaintiff and appointed its counsel as Lead Counsel. On November 19, 2007, Lead Plaintiff filed the Complaint. The Complaint alleges that 2

7 Case 3:07-cv FLW-LHG Document 111 Filed 09/01/2009 Page 7 of 15 Defendants violated Sections 5, 11, 12(a)(1), 12(a)(2) and 15 of the Securities Act of 1933 ( Securities Act ), 15 U.S.C. 77(e), 77(k), 77(l)(a)(1), 77(l)(a)(2) and 77(o) in connection with Vonage s IPO. Specifically, the Complaint alleges that the Registration Statement and Prospectus contained material misrepresentations and omissions regarding Vonage s business growth, services reliability and intellectual property. The Complaint also alleges that the IPO was conducted in a defective manner because, among other things, the website for the DSP did not work properly and failed to provide investors with the required information. On January 18, 2008, Defendants moved to dismiss the Complaint. The parties completely briefed the motions to dismiss, and the Court heard oral argument on October 10, On April 6, 2009, the Court entered an Order dismissing all claims other than those asserted under Section 12 on behalf of the DSP Plaintiffs. The Court noted possible additional motion practice with regard to these remaining claims and permitted repleading of certain of the dismissed claims. Thereafter, Lead Plaintiff moved for reconsideration and/or clarification of the Court s Order. On June 3, 2009, the Court entered an Order granting in part Lead Plaintiff s motion for reconsideration. By that Order, the Court provided Lead Plaintiff with an opportunity to replead certain dismissed allegations of the Complaint as non-fraud claims on or before June 18, The Settling Parties engaged in discussions regarding the resolution of this Litigation in June 2009, and on the eve of Lead Plaintiff s filing of a second amended consolidated complaint, reached an agreement-in-principle to settle with prejudice the Litigation. II. THE PROPOSED SETTLEMENT WARRANTS PRELIMINARY APPROVAL As a matter of public policy, courts favor the settlement of disputed claims, particularly in complex class actions, so as to encourage compromise and conserve judicial and private resources. See, e.g., In re Warfarin SodiumAntitrust Litig., 391 F.3d 516, 535 (3d Cir. 2004) ( there is an overriding public interest in settling class action litigation, and it should therefore be encouraged); In re Ikon 3

8 Case 3:07-cv FLW-LHG Document 111 Filed 09/01/2009 Page 8 of 15 Office Solutions, Inc. Sec. Litig., 194 F.R.D. 166, 174 (E.D. Pa. 2000) ( the law favors settlement, particularly in class actions and other complex cases where substantial judicial resources can be conserved by avoiding formal litigation ); In re Computron Software, Inc., Sec. Litig., 6 F.Supp.2d 313, 317 (D.N.J. 1998) ( settlements of disputed claims, especially of complex class actions litigations, are favored by the courts ). The procedure for approval of class action settlement is well established and involves a two step process: (1) preliminary approval of the settlement; and (2) final approval of the settlement after notice of the settlement is provided to the class and a hearing to consider the fairness of the proposed settlement has been held. See Jones v. Commerce Bancorp Inc., No , 2007 WL , at *2 (D.N.J. July 16, 2006). See also Manual for Complex Litigation (Fourth) (2006). The purpose of the preliminary approval process is not to determine ultimately whether the settlement is fair, reasonable and adequate. Mehling v. N.Y. Life Ins. Co., 246 F.R.D. 467, 472 (E.D. Pa. 2007). Rather, a court should grant preliminary approval of a settlement where, as here, the proposed settlement is the result of the parties good faith negotiations, there are no obvious deficiencies and the settlement falls within the range of reason. Smith v. Prof l Billing & Mgm t Servs., Inc., No , 2007 WL , at *1 (D.N.J. Nov. 21, 2007)(citation omitted); Jones, 2007 WL , at *2 (preliminary approval is granted unless a proposed settlement is obviously deficient); In re Auto. Refinishing Paint Antitrust Litig., MDL No. 1426, 2004 WL , at *2 (E.D. Pa. May 11, 2004) (preliminary approval granted if it falls within the range of possible approval. ). Indeed, the Third Circuit affords an initial presumption of fairness to a class action settlement under preliminary review when the court finds that: (1) the negotiations occurred at arm s-length; (2) there was sufficient discovery; (3) the proponents of the settlement are experienced in similar litigation; and (4) [in the context of final approval of a settlement] only a small fraction of the class objected. In re Cendant Corp. Litig., 264 F.3d 201, 232 n. 18 (3d Cir. 2001); In re Warfarin 4

9 Case 3:07-cv FLW-LHG Document 111 Filed 09/01/2009 Page 9 of 15 Sodium Antitrust Litig., 391 F.3d at 535; Smith, 2007 WL , at *1. Plaintiffs respectfully submit that an analysis of the factors described above will lead to the conclusion that preliminary approval of the Settlement is warranted. First, the Settlement was the product of arm s-length negotiations between Lead Counsel and Defendants counsel. The negotiations were conducted over a month and produced a result that the Settling Parties believe are in their respective best interests. See e.g., Jones, 2007 WL , at *2 (preliminary approval granted where the settlement was the result of serious negotiation between plaintiff s and defendant s counsel); In re Auto. Refinishing Paint Antitrust Litig., 2004 WL , at *2 (preliminary approval granted where the settlement was reached after extensive arms-length negotiation between very experienced and competent counsel ). Also, prior to the filing of the Complaint, Lead Counsel conducted an investigation of the claims asserted in the Complaint. Furthermore, counsel for all parties are experienced and capable litigators familiar with all aspects of securities class action litigation and are thoroughly familiar with the factual and legal issues of this action. See In re Vonage Initial Public Offering (IPO) Sec. Litig., Civ. Action No , 2007 WL , at *11 (D.N.J. Sept. 7, 2007) (indicating that Zwerling, Schachter & Zwerling, LLP ( ZS&Z ) has experience is prosecuting complex securities class actions). Therefore, as the terms of the proposed settlement fall within the range of reasonable, the Court should preliminary approve the Settlement. Smith, 2007 WL , at *2 (preliminary approving settlement as it falls within the range of reason and not obviously deficient ). III. THE PROPOSED CLASS SHOULD BE CERTIFIED FOR SETTLEMENT PURPOSES In connection with granting preliminary approval of the Settlement, the Court should also certify a Class in this action, defined as follows: All persons and entities who purchased shares of common stock of Vonage pursuant and/or traceable to Vonage s IPO whether through the Directed Share Program or otherwise and who suffered damages. Excluded from the Class are: (1) Defendants, 5

10 Case 3:07-cv FLW-LHG Document 111 Filed 09/01/2009 Page 10 of 15 members of their immediate families, any entity in which any of the Defendants has a controlling interest or of which they are a parent or subsidiary or that is controlled by any of the Defendants, and the officers, directors, employees, affiliates (as defined in SEC Rule 12b-2), legal representatives, heirs, predecessors, successors and assigns of the Defendants; (2) Persons who timely and validly request exclusion from the Class pursuant to the Preliminary Order; and (3) All Persons who indicated they would purchase one or more shares of Vonage s common stock pursuant and/or traceable to Vonage s IPO and did not pay for such shares. The courts routinely certify settlement classes in complex class actions arising under FED. R. CIV. P 23. In re Cendant Corp. Litig., 264 F.3d 201 (3d Cir. 2001); In re Warfarin Sodium Antitrust Litig., 391 F.3d 516. Here the proposed Class satisfies all the criteria for a class certification under FED. R. CIV. P. 23(a) and (b), i.e., numerosity, commonality, typicality adequacy of representation, predominance and superiority. First, Vonage sold million shares pursuant to the IPO. ( 1. 6) Based on the amount of shares sold pursuant to the IPO, the Class members are so numerous that joinder of all Class Members would be impracticable. Thus, the numerosity requirement is met. Second, the Complaint alleges that Defendants engaged in a common course of conduct pertaining to the IPO and arising out of the Registration Statement and Prospectus that violated the securities laws. Thus, virtually all of the questions of fact and law in this action are common to Lead Plaintiff and all other purchasers of Vonage common stock pursuant to the IPO. ( 72.) Third, the requirement of typicality is met. Plaintiffs allege that Defendants violated the federal securities laws by making material misrepresentations and omissions in the Registration Statement and Prospectus regarding Vonage s business growth, services reliability and intellectual property. ( 3-4, 73.) Plaintiffs stand in precisely the same position as other Class members and will offer the same evidence as other Class members to establish Defendants liability. Therefore, their claims are typical. 6 All citations are to the Complaint. 6

11 Case 3:07-cv FLW-LHG Document 111 Filed 09/01/2009 Page 11 of 15 Fourth, Lead Plaintiff and DSP Plaintiffs will fairly and adequately protect the interests of the Class, because there appear to be no conflicts between and among Lead Plaintiff, DSP Plaintiffs and other Class members. Furthermore, Lead Plaintiff and DSP Plaintiffs are represented by qualified, capable counsel who are experienced in prosecuting complex class actions, including class action based upon violations of federal securities law. Lead Plaintiff has retained ZS&Z, a firm with extensive experience in successfully prosecuting complex securities class actions on behalf of investors. See In re Nonage Initial Public Offering (IPO) Sec. Litig., 2007 WL , at *11 (D.N.J. Sept. 7, 2007). DSP Plaintiffs have separately retained Pomerantz Haudek Block Grossman & Gross LLP, a firm with experience in prosecuting securities class actions. Accordingly, Plaintiffs satisfy all of the requirements set forth in F ED. R. CIV. P. 23(a). In addition, the Class meets the requirements of FED. R. CIV. P. 23(b)(3) that common questions of law or fact predominate over questions affecting individual class members and that a class action is superior to other methods for efficient adjudication of the claims. Finally, well-settled precedent recognizes that the class action mechanism is the superior method for fairly and efficiently adjudicating cases alleging federal securities violations. See, In re Ikon Office Solutions, Inc. Sec. Litig., 194 F.R.D. at 178 (citing Eisenberg v. Gagnon, 766 F.2d 770, 785 (3d Cir. 1985)); In re Lucent Tech. Sec. Litig., 307 F. Supp.2d 633, 641 (D.N.J. 2004). IV. THE PROPOSED NOTICE TO THE CLASS MEETS ALL APPLICABLE REQUIREMENTS Pursuant to FED. R. CIV. P. 23(e)(1), which addresses notices of class action settlements: The court must direct notice in a reasonable manner to all class members who would be bound by the proposal. In connection with certification of the Class: For any class certified under Rule 23(b)(3), the court must direct to class members the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort. The notice must clearly and concisely state in plain, easily understood language: 7

12 Case 3:07-cv FLW-LHG Document 111 Filed 09/01/2009 Page 12 of 15 (i)the nature of the action; (ii)the definition of the class certified; (iii)the class claims, issues, or defenses; (iv)that a class member may enter an appearance through an attorney if the member so desires; (v)that the court will exclude from the class any member who requests exclusion; (vi)the time and manner for requesting exclusion; and (vii)the binding effect of a class judgment on members under Rule 23(c)(3). FED. R. CIV. P. 23(c)(2)(B). The Notice, upon which Plaintiffs and Defendants have agreed, complies with all of these requirements. (See Zwerling Decl. Ex. 1.B) It also contain[s] a clear, accurate description of the key terms of the settlement and inform[s] class members where they can examine or obtain a copy [of the relevant documents], such as from the Internet, the clerk s office, class counsel, or another readily accessible source. Manual for Complex Litigation (Fourth) (2004). Additionally, the Notice includes a number for Class Members to call with any inquiries, as well as a website address. Finally, the Notice instructs individuals to direct any questions to Lead Counsel or the Claims Administrator. The Notice also meets the requirements of the PSLRA, which requires that any proposed settlement agreement that is published or otherwise disseminated to the Class must include: A statement of the plaintiffs recovery; A statement of the potential outcome of the case, including whether there is agreement or disagreement on the amount of damages; A statement of attorneys fees or costs sought; Identification of the attorneys for the class; and Reasons for the settlement. 15 U.S.C. 77u-1(a)(7). In addition, the PSLRA requires that all of the above information must be 8

13 Case 3:07-cv FLW-LHG Document 111 Filed 09/01/2009 Page 13 of 15 summarized on the cover page of the notice, which must also include a statement indicating which parties plan to make a fee and expense application, the amount of fees and costs sought, and a brief explanation supporting the fees and costs sought. Id. The Notice clearly meets all of these requirements and should be approved. Lead Plaintiff proposes the following schedule for distribution of the Notice, publication of the Summary Notice, and filing of related documents: The Notice will be distributed by mailing a copy of the notice to the names and addresses contained in a list provided by Vonage and/or Underwriter Defendants to the Claims Administrator. The Summary Notice will be published in Investors Business Daily within fifteen (15) days after completion of the mailing of the Notice. Any requests for exclusion from the Class in response to the Notice must be submitted no later than twenty one (21) days before the Fairness Hearing. Any objections to the proposed Settlement must be filed with the Court no later than twenty one (21) days before the Fairness Hearing. Any request to be heard at the Fairness Hearing, including the filing of notices of appearance, must be submitted no later than twenty one (21) days before the Fairness Hearing. Motions and memoranda in support of the Final Approval of the Settlement, Plan of Allocation, any attorneys fee and expense application, or any application for an Award to Settling Plaintiffs must be filed with the Court no later than twenty one (21) days before the Fairness Hearing. Responses to any objections to the Settlement, Fee Petition and/or any application for Award to Settling Plaintiffs shall be filed and served three (3) days before the Fairness Hearing. The final date for submitting Proof of Claim and Release forms 7 will be no later than 120 days after mailing of the Notice is completed. This notice program represents the best notice practicable under the circumstances, as it includes individual notice to all members of the Class who can be identified through reasonable 7 See Zwerling Decl. Ex. 1.E. 9

14 Case 3:07-cv FLW-LHG Document 111 Filed 09/01/2009 Page 14 of 15 effort. See Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 173 (1974). As a further part of the notice program, the Summary Notice will be published in Investor s Business Daily. The Notice and Proof of Claim and Release Form will also be made available on the Claims Administrator s website. At the conclusion of the notice process, Lead Counsel will file affidavits with the Court demonstrating compliance with the notice program. CONCLUSION For the reasons stated above, Plaintiffs request that the Court enter the Preliminary Order. Dated: August 18, 2009 By: s/ John E. Keefe, Jr. KEEFE BARTELS & CLARK, LLC John E. Keefe, Jr. 170 Monmouth Street Red Bank, NJ Phone: (732) Facsimile: (732) jkeefe@keefebartels.com Liaison Counsel for Lead Plaintiff the Zyssman Group and the Class ZWERLING, SCHACHTER & ZWERLING, LLP Jeffrey C. Zwerling Robin F. Zwerling 41 Madison Avenue New York, NY Phone: (212) Facsimile: (212) jzwerling@zsz.com rzwerling@zsz.com Counsel for Lead Plaintiff the Zyssman Group and the Class and 10

15 Case 3:07-cv FLW-LHG Document 111 Filed 09/01/2009 Page 15 of 15 POMERANTZ HAUDEK BLOCK GROSSMAN & GROSS LLP Marc I. Gross 100 Park Avenue, 26th Fl. New York, NY Telephone: (212) Facsimile: (212) Attorneys for DSP Plaintiffs 11