IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NORTH DAKOTA SOUTHWESTERN DIVISION ABDUL ALEEM, et al., Plaintiffs, Case No. 1:15-cv-00085 vs. PEARCE & DURICK and JONATHAN P. SANSTEAD, Defendants. DOMINIC WRIGHT, et al., vs. PEARCE & DURICK, Plaintiffs, Defendant. Case No. 1:15-cv-00098 NOTICE OF PENDENCY OF CLASS ACTION, PROPOSED CLASS ACTION DETERMINATION, PROPOSED SETTLEMENT OF CONSOLIDATED CLASS ACTION, FINAL FAIRNESS HEARING AND RIGHT TO APPEAR TO: ALL PERSONS WHO HAVE PURCHASED AND/OR INVESTED IN NORTH DAKOTA DEVELOPMENTS, LLC-ISSUED SECURITIES DURING THE TIME PERIOD BEGINGING ON MAY 1, 2012, AND ENDING ON JUNE 30, 2015 (INCLUDING WITHOUT LIMITATION INVESTORS IN THE DEVELOPMENTS KNOWN AS GREAT AMERICAN LODGE- WATFORD CITY WEST, GREAT AMERICAN LODGE- CULBERTSON, MONTANA, TRANSHUDSON-PARSHALL, AND/OR GREAT AMERICAN LODGE WATFORD CITY EAST) PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS MAY BE AFFECTED BY THE LEGAL PROCEEDINGS IN THIS ACTION. IF THE COURT APPROVES THE PROPOSED SETTLEMENT, YOU
WILL BE FOREVER BARRED FROM CONTESTING THE FAIRNESS, REASONABLENESS OR ADEQUACY OF THE PROPOSED SETTLEMENT OR PURSUING THE RELEASED CLAIMS AND UNKNOWN CLAIMS (AS DEFINED HEREIN). I. THE PURPOSE OF THIS NOTICE The purpose of this Notice is to inform you of the existence of the above-captioned consolidated action (the "Consolidated Action") brought by Plaintiffs Abdul Aleem and Dominic Wright et al. ("Plaintiffs") against Pearce & Durick and Jonathan P. Sanstead ( Defendants ) and its proposed settlement (the "Settlement"). This Notice also informs you of the Court s preliminary certification of a non-opt-out Class (as defined below in this Section) for purposes of the Settlement, and of your right to participate in a hearing to be held on August 15, 2016 at 9:00 a.m. before the Honorable Ralph R. Erickson of the U.S. District Court for the District of North Dakota, 655 1st Avenue North, Suite 410 Fargo, ND 58102-4952 (the Final Fairness Hearing ) to: (a) determine whether the Settlement should be finally approved by the Court as fair, reasonable and adequate and in the best interests of Plaintiffs the Class (as defined below); (b) determine whether a Final Order and Judgment should be entered dismissing the Consolidated Action with prejudice as against the Plaintiffs and the Class (as defined below) and effectuating the releases described below; (c) consider any request by Plaintiffs counsel for an award of attorneys fees and out-of-pocket expenses; (d) hear and determine any objections to the Settlement or to any request by Plaintiffs counsel for an award of attorneys fees and reimbursement of out-of-pocket expenses; and (e) rule on such other matters as the Court may deem appropriate. The Court has determined that the Consolidated Action shall be preliminarily certified as a class action under Rule 23 of the Federal Rules of Civil Procedure, for settlement purposes only, on behalf of all persons who have purchased and /or invested in North Dakota Developments, LLC ("NDD")- issued securities during the time period beginning on May 1, 2012 and ending on June 30, 2015. This Notice describes the rights you may have under the Settlement and what steps you may, but are not required to, take in relation to the Settlement. If the Court approves the Settlement, Plaintiffs and the Defendants in the Consolidated Action (the Parties ) will ask the Court to enter a Final Order and Judgment dismissing the Consolidated Action with prejudice on the merits. THE FOLLOWING RECITATION DOES NOT CONSTITUTE FINDINGS OF THE COURT. IT IS BASED ON STATEMENTS OF THE PARTIES AND SHOULD NOT BE UNDERSTOOD AS AN EXPRESSION OF ANY OPINION OF THE COURT AS TO THE MERITS OF ANY OF THE CLAIMS OR DEFENSES RAISED BY ANY OF THE PARTIES. 2
II. BACKGROUND OF THE ACTION The Class Action arises out of the failure of a purported real estate development company known as NDD, which victimized approximately 1000 investors worldwide and unlawfully sold about $62 million of unregistered securities in the form of investment contracts. In the Consolidated Complaint, Lead Plaintiffs assert claims against Defendants, who acted as NDD s attorneys, for legal malpractice, negligence, unjust enrichment and third-party beneficiary of attorney-client relationship. The Consolidated Complaint also alleges that Defendant Pearce & Durick actively assisted NDD in unlawfully offering unregistered securities to the public. The investments sold by NDD with Pearce & Durick s assistance were in the form of Land Lease and Management Agreements and membership units in four commercial housing developments for workers in the Bakken oil field region of western North Dakota and eastern Montana- socalled man camps intended to house workers. The four developments include Great American Lodge - Watford City West, Great American Lodge - Culbertson, Montana, Transhudson - Parshall, and Great American Lodge - Watford City East. Plaintiffs allege that these investments constituted unregistered securities under applicable law. The offering materials for the NDD offering allegedly contained misrepresentations and failed to disclose material facts necessary to make the statements made in the offering documents, in light of the circumstances under which they were made, not misleading, in violation of N.D.C.C. 10-04-04 and N.D.C.C. 10-04-10. Defendants allegedly provided legal services to members of the Class in connection with, inter alia, the review of documents provided to members of the Class in connection with their investments in NDD real estate developments, and allegedly committed legal malpractice in connection with such professional services. III. SUMMARY OF SETTLEMENT TERMS Defendants will pay $5,100,000.00 in cash to resolve the claims of Plaintiffs and the Class. The Settlement Class and each member of the Class is limited solely to the Settlement Fund for the satisfaction of all Released Claims against all Released Parties (as provided more fully in the Agreement), including Pearce & Durick, and its employees, owners and insurers. Under the proposed Plan of Allocation (the Plan ), the proposed Settlement Administrator will calculate each Authorized Claimant s Allowed Payment Amount by multiplying the Net Settlement Fund by a fraction, (a) the numerator of which is the Class Member s Allowed Loss Amount and (b) the denominator of which is the sum of each and every claiming Class Member s Allowed Loss Amount. The Plan is not a part of or a condition of approval of the Settlement. Under the Agreement, the Net Settlement Fund may be distributed in accordance with the proposed Plan or such other plan as the Court may approve. 3
IV. REASONS FOR THE SETTLEMENT Plaintiffs counsel have conducted a thorough investigation of the claims and allegations asserted in the Consolidated Action, as well as the underlying events relevant to the Actions. Plaintiffs counsel have: (a) conducted an extensive investigation into the Settlement Class s claims; (b) drafted two detailed complaints and one consolidated complaint; (c) successfully intervened in ALPS Property & Casualty Ins. Co. v. Pearce & Durick, Dkt. No. 1:15-cv-00090, an action seeking a declaratory judgment concerning insurance coverage for Defendants; (d) prepared a mediation statement and memoranda of law in connection with a mediation before Lewis A. Remele, Esq.; (e) engaged in in-person and telephonic meetings with defense counsel over the course of several months before reaching an agreement in principle to resolve the case; and (f) engaged in confirmatory discovery concerning Plaintiffs claims and Defendants assets. In evaluating the Settlement, Plaintiffs and their counsel have considered: (a) the substantial benefits to the members of the Class from the Settlement; (b) the facts developed during Plaintiffs investigation and discovery; (c) the attendant risks of continued litigation and the uncertainty of the outcome of the Actions; (d) the probability of success on the merits; and (e) the conclusion of Plaintiffs counsel that the terms and conditions of the Settlement are fair, reasonable, adequate and in the best interests of Plaintiffs and the Class. Each of the Defendants has denied, and continues to deny, that he, she or it committed, or aided and abetted the commission of, any breach of fiduciary duty, securities law or any other law, or engaged in any of the wrongful acts alleged in the Actions, and expressly maintains that the Actions are without merit and that he, she or it is entering into the Settlement solely to eliminate the burden, expense, distraction and uncertainties inherent in further litigation. Plaintiffs have stated, and continue to state, that they brought their claims in good faith, that they believe that their claims had substantial merit at all relevant times, and that they are agreeing to the terms of the Settlement only because they believe that the Settlement provides a substantial benefit to the Class and have concluded that the terms of the Settlement are fair, reasonable and adequate and in the best interests of the Class. The $5,100,000.00 in consideration payable by Defendants under the Settlement provides a substantial and immediate benefit to the Class. Although Lead Counsel is able to prove merit to the claims asserted in the case, there is a substantial risk that Class members would not be able to recover anything at all if the case were not settled. NDD and all of its limited assets have been placed in receivership by the SEC, making any substantial recovery directly from NDD and/or its principals extremely unlikely. In addition, Defendants have an insurance policy that covers claims up to $5,000,000.00 for a single claim- so even if Plaintiffs went through the lengthy process of fully litigating the claims in the Consolidated Action through trial, there is no guarantee they would be awarded the full single claim amount of $5,000,000.00 (which is less than the total consideration Plaintiffs are receiving in this Settlement). Finally, if the case were to continue to be litigated, the Class would still need to overcome various legal defenses in order to survive any dispositive summary judgment motions or recover at trial. 4
V. RELEASES Under the terms of the Settlement, Plaintiffs and the Class agree to the complete discharge, dismissal with prejudice, settlement and release of the Released Persons. The Released Persons include Defendants, together with ALPS Property & Casualty Insurance Company, Jennifer Chillemi, Patrick W. Durick, D. Timothy Durick, Larry L. Boschee, Zachary E. Pelham, Charles M. Carvell, Rachel Bruner-Kaufman, Benjamin W. Keup, Meredith L. Vukelic, Quinn P. Fylling and Jack E. Zugar. If the Settlement is finally approved, Plaintiffs and each Class member: VI. releases and forever discharges, to the fullest extent permitted by law, the Released Parties from and against any and all manner of claims, demands, actions, suits, causes of action, damages whenever incurred, liabilities of any nature and kind whatsoever, including without limitation costs, expenses, penalties and attorneys fees, known or unknown, suspected or unsuspected, in law or equity, that each and every Class Member (including any of their past, present or future parents, subsidiaries, divisions, affiliates, stockholders, and each and any of their respective stockholders, officers, directors, insurers, general or limited partners, agents, attorneys, employees, legal representatives, trustees, associates, heirs, executors, administrators, purchasers, predecessors, successors and assigns, acting in their capacity as such), whether or not they object to the Settlement and whether or not they make a claim upon or participate in the Settlement Fund (the Releasing Parties ), ever had, now has, or hereafter can, shall or may have, directly, representatively, derivatively or in any other capacity (collectively, the Released Claims ). CLASS ACTION DETERMINATION The Court has ordered that the Consolidated Action shall be preliminarily certified as a non-optout class action for purposes of the Settlement only, pursuant to Rule 23 of the Federal Rules of Civil Procedure. At the Final Fairness Hearing, the Court will consider, among other things, whether the Class should be certified permanently. VII. THE SETTLEMENT HEARING The Court has scheduled the Final Fairness Hearing to be held on August 15, 2016 at the time identified in Section I above to determine: (a) whether the Court should finally approve the Settlement as fair, reasonable and adequate to the Class; (b) whether to enter judgment dismissing the Consolidated Action with prejudice and extinguishing and releasing the Released Claims; (c) whether the Class should be permanently certified pursuant to Rule 23 or the Federal Rules of Civil Procedure; (d) whether the Court should permanently certify Plaintiffs as the Class Representatives in the Consolidated Action and Lead Counsel as Class Counsel in the Consolidated Action; (e) if the Court approves the Settlement, whether the Court should grant 5
Plaintiffs application for payment of attorneys fees and reimbursement of expenses; and (f) to consider such other matters as may properly come before the Court. The Court may postpone, reschedule or adjourn the Final Fairness Hearing without further notice to the Class other than by filing a notice on the docket in the Consolidated Action in advance of the Final Fairness Hearing, or by making an announcement at the Final Fairness Hearing or any adjournment thereof. The Court also has reserved the right to approve the Settlement at or after the Final Fairness Hearing with such modification(s) as may be consented to by the Parties and without further notice to the Class. VIII. YOUR RIGHT TO APPEAR AND OBJECT Any member of the Class who objects to any aspect of the Settlement, certification of the Class, entry of the Final Order and Judgment, and/or Plaintiffs counsel s application for payment of attorneys fees and expenses, or who otherwise wishes to be heard, may appear in person by his, her or its attorney at the Final Fairness Hearing and present evidence or argument that may be proper and relevant; provided, however, that, except for good cause shown, no person shall be heard or entitled to contest the approval of the terms and conditions of the Settlement, or, if approved, the judgment to be entered thereon, and no papers or briefs submitted by any member of the Class or any other person shall be received and considered by the Court, unless, not later than August 5, 2016 such person files with the Court and serves upon all of the counsel listed below, at the addresses listed below, the following: (a) proof of ownership of NDD-issued securities and/or ownership in any NDD real estate developments (including, without limitation, Great American Lodge - Watford City West, Great American Lodge - Culbertson, Montana, Transhudson - Parshall, and Great American Lodge - Watford City East) at any time beginning May 1, 2012 through and including March 31, 2015; (b) written notice of the person s intention to appear; (c) a detailed statement of the objections and the reasons for desiring to appear and to be heard; and (d) a detailed statement of all of the grounds for such objections, as well as all documents or writings which the person desires the Court to consider. The foregoing information concerning any objections should be served upon: Alan Rosca PEIFFER, ROSCA, WOLF ABDULLAH, CARR & KANE A PROFESSIONAL LAW CORPORATION 1422 Euclid Avenue, Suite 1610 Cleveland, Ohio 44115 Telephone: (216) 570-0097 Facsimile: (888) 411-0038 E-Mail: arosca@prwlegal.com 6
J. Barton Goplerud, HUDSON, MALLANEY, SHINDLER & ANDERSON, P.C. 5015 Grand Ridge Drive, Suite 100 West Des Moines, Iowa 50265 Telephone: (515) 223-4567 Facsimile: (515) 2223-8887 E-Mail: jbgoplerud@hudsonlaw.net Christopher J. Gray LAW OFFICE OF CHRISTOPHER J. GRAY, P.C. 360 Lexington Avenue, 14th Floor New York, New York 10017 Telephone: (212) 838-3221 Facsimile: (212) 937-3139 E-mail:chris@investorlawyers.net Any person or entity who fails to object in the manner provided above shall be deemed to have waived such objection (including the right to appeal), and absent good cause found by the Court shall forever be barred from making any such objection in the Consolidated Action or any other action or proceeding or otherwise contesting any aspect of the Settlement, but shall otherwise be bound by the Final Order and Judgment to be entered and the releases to be given. IX. FINAL ORDER AND JUDGMENT OF THE COURT If the Settlement is approved by the Court following the Final Fairness Hearing as fair, reasonable and adequate, the Parties will jointly request that the Court enter a Final Order and Judgment which will, among other things: (a) certify the Consolidated Action as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure on behalf of the Class; (b) determine that the requirements of the Federal Rules of Civil Procedure and due process have been satisfied in connection with the Notice provided to the Class; (c) certify Plaintiffs as Class Representatives and Lead Counsel as Class Counsel in the Consolidated Action; (d) approve the Settlement as fair, reasonable and adequate to the Class; and (e) dismiss the Consolidated Action with prejudice on the merits, as against any and all Defendants, without costs except as herein provided, and release Defendants and any other of the Released Persons from the Released Claims. X. THE APPLICATION FOR ATTORNEYS FEES AND EXPENSES Plaintiffs intend to petition the Court at the Final Fairness Hearing for an award of attorneys fees in an amount not to exceed 28-33% of the Settlement Fund, and for reimbursement of costs and expenses advanced by Plaintiffs counsel in the sum of approximately $35,000.00. Final resolution by the Court of the fee application shall not be a precondition to the dismissal of the Consolidated Action in connection with any final approval of the Settlement, and the fee application may be considered separately from the terms of the proposed Settlement of the Consolidated Action. 7
XI. SCOPE OF THIS NOTICE This Notice is not all-inclusive. The references in this Notice to the pleadings in the Consolidated Action, the Stipulation of Settlement and all other papers or proceedings herein are only summaries and do not purport to be comprehensive. For the full details of the Consolidated Action, the claims that have been asserted in the Consolidated Action and the terms and conditions of the Settlement, including a complete copy of the Stipulation of Settlement and related Orders and proposed forms of Orders, you are referred to the Court file for the Consolidated Action (accessible at www.nddclassaction.com). XII. GENERAL INQUIRIES General inquiries about the Settlement should be directed to the attention of Lead Counsel as follows: Alan Rosca PEIFFER, ROSCA, WOLF ABDULLAH, CARR & KANE A PROFESSIONAL LAW CORPORATION 1422 Euclid Avenue, Suite 1610 Cleveland, Ohio 44115 Telephone: (216) 570-0097 Facsimile: (888) 411-0038 E-Mail: arosca@prwlegal.com J. Barton Goplerud, Brian O. Marty HUDSON, MALLANEY, SHINDLER & ANDERSON, P.C. 5015 Grand Ridge Drive, Suite 100 West Des Moines, Iowa 50265 Telephone: (515) 223-4567 Facsimile: (515) 2223-8887 E-Mail: jbgoplerud@hudsonlaw.net Christopher J. Gray LAW OFFICE OF CHRISTOPHER J. GRAY, P.C. 360 Lexington Avenue, 14th Floor New York, New York 10017 Telephone: (212) 838-3221 Facsimile: (212) 937-3139 E-mail:chris@investorlawyers.net PLEASE DO NOT CALL OR WRITE THE COURT WITH GENERAL INQUIRIES. 8