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In re Genworth Financial Securities Litigation

United States District Court, E.D. Virginia, Richmond Division

September 26, 2016



          John A. Gibney, Jr. United States District Judge

         The Court now considers whether to approve the terms and conditions of the proposed Settlement of this class action and the plaintiffs' request for attorneys' fees.[1] The Court has already certified a Settlement Class, for settlement purposes only, pursuant to Rule 23 of the Federal Rules of Civil Procedure (Dk. No. 201.); the Court reaffirms that ruling.

         Pursuant to Federal Rule of Civil Procedure 23(e)(2), the Court APPROVES the Settlement and Plan of Allocation as fair, adequate and reasonable. The Court awards reasonable attorneys' fees in the amount of $61, 320, 000 (28% of the Settlement Fund) and awards reasonable costs in the amount of $3, 835, 741.96 pursuant to Federal Rule of Civil Procedure 23(h). Finally, in accordance with 15 U.S.C. § 78u-4(a)(4), the Court awards co-Lead Plaintiff Her Majesty the Queen in Right of Alberta $16, 405.00, and co-Lead Plaintiff Fresno County Employees' Retirement Association $6, 723.73, to reimburse them for fair and reasonable expenses and costs directly related to their representation of the Settlement Class.

         I. Background

         This class action arises from allegations that the officers and directors of Genworth Financial, Inc. ("Genworth") obfuscated problems related to the company's long-term care insurance ("LTC") unit between October 30, 2013, and November 5, 2014. Specifically, the plaintiffs allege that the defendants repeatedly misrepresented the sufficiency of Genworth's LTC insurance reserves. The Amended Complaint contends that Genworth announced a four-month, "very intensive, broad and deep review of all aspects" of these reserves and found them adequate to pay benefits due on its LTC policies. (Dk. No. 51 ("Am. Compl."), ¶¶ 36; 46-47; 52; 121; 128; 138.) The plaintiffs say that this review never occurred and that Genworth's analysis instead relied upon old data that the defendants knew did not show the then-current financial landscape. Once the market became aware of this information, Genworth's stock price plummeted. (Am. Compl., ¶¶ 71; 104-05; 167-75.) The plaintiffs say that Genworth then conducted an actual review that revealed Genworth needed to increase its reserves by over a half-billion dollars, causing a total stock-price drop of 54%. (Am. Compl., ¶¶ 111; 166-75.)

         II. Discussion A. The Settlement

         Under Federal Rule of Civil Procedure 23(e), a district court should approve a class action settlement it finds to be "fair, reasonable, and adequate." See In re Micro Strategy, Inc. Sec. Litig., 150 F.Supp.2d 896, 903-04 (E.D. Va. 2001). First, the Court considers the fairness of the settlement, and then turns to its adequacy. See Jiffy Lube Sec. Litig, 927 F.2d 155, 158-59 (4th Cir. 1991). The proposed Settlement in this case satisfies both prongs.

         1. Fairness

         The fairness analysis asks whether the parties settled the case through good-faith, arm's length bargaining and considers (1) the posture of the case at the time settlement was proposed; (2) the extent of discovery conducted; (3) the circumstances surrounding settlement negotiations; and (4) the experience of counsel in the area of law. See In re: NeuStar, Inc. Sec. Litig, No. 1:14-cv-885, 2015 WL 5674798, at *10 (E.D. Va. Sept. 23, 2015) (citing Jiffy Lube, 927 F.2d at 159).

         a. The posture of the case at settlement

         At the time settlement in this case arose, the parties had conducted all parts of the litigation other than final trial preparations. Specifically, the parties had fully briefed the defendants' motion to dismiss, completed discovery, moved and argued for class certification, hired experts on complex factual issues, fully briefed partial summary judgment motions, briefed motions in limine, and completed trial deposition and exhibit designations. This extensive and hard-fought process demonstrates an adversarial process far exceeding "arm's length" and demonstrates that each side entered negotiations with a strong understanding of the issues in the case.

         b. The extent of discovery conducted

         The parties in this case have undertaken enormous discovery burdens. The plaintiffs pushed for discovery covering 50 distinct topic areas and served 32 subpoenas on third parties. (Dk. No. 208 ("Joint Decl."), ¶¶ 43-49; 55-57; 63-64; 72-74.) Further, the parties analyzed 3.2 million pages of documents produced in response to discovery requests. They also engaged in class-related discovery. (Joint Decl. ¶¶ 95-98; 201.) During document production, the defendants created a privilege log containing nearly 40, 000 entries, many of which the plaintiffs challenged. (Joint Decl. ¶¶ 71-73.) Additionally, the parties took 30 depositions. (Joint Decl. ¶¶ 50-54; 59; 67.) These efforts allowed the parties to enter into negotiations fully informed.

         c. The circumstances surrounding the negotiations

         The third Jiffy Lube fairness factor seeks to "ensure that counsel entered into settlement negotiations on behalf of their clients after becoming fully informed of all pertinent factual and legal issues in the case." In re Mills Corp Sec. Litig., 265 F.R.D. 246, 255 (E.D. Va. 2009) (citation omitted). Courts look to the number of meetings between the parties to discuss settlement, the quality of those negotiations, and the duration of time over which negotiations took place. See In re Micro Strategy, Inc. Sec. Litig., 148 F.Supp.2d 654, 665 (E.D. Va. 2001) ("Counsel for both sides of this lawsuit participated in numerous meetings and extensive and intensive discussions extending months, with plaintiffs' lead counsel pressing their belief in the strength of their case on the merits.").

         In preparation for mediation, the parties here submitted "complex and highly adversarial" mediation statements and responses to former Judge Layn R. Phillips, who has extensive experience in mediating securities fraud settlement negotiations. (Joint Decl., Ex. 3, ¶¶ 6, 10-11.) On November 9, 2015 the parties met with Judge Phillips and engaged in several rounds of settlement demands and offers but did not come to a settlement. (Joint Decl., Ex. 3, ¶¶ 6, 10-11.) Four months later (and only two months before trial), after the parties had the opportunity to engage in more discovery, exchange expert reports, and brief partial summary judgment, the parties submitted supplemental mediation statements and met again with Judge Phillips on March 2, 2016. (Joint Decl., Ex. 3, ¶¶ 14-19.) The parties again engaged in extensive negotiations for a full day but yet again could not resolve their differences. (Joint Decl., Ex. 3, ¶ 20.) Following the session, Judge Phillips continued to negotiate with the parties and submitted a mediator's recommendation for 219 million dollars, which the parties accepted on March 11, 2016. (Joint Decl., Ex. 3, ¶¶ 21-24.) Judge Phillips stated "I can attest that the negotiations were extremely vigorous, completely at arm's length, and fully conducted in good faith." (Joint Decl., Ex. 3, ¶ 24.) These continuing efforts before an experienced mediator left the parties and their counsel "fully informed of all pertinent factual and legal issues" and demonstrate that the Settlement is fair and reasonable.

         d. The experience of counsel in this field of law

         "The final Jiffy Lube 'fairness' factor looks to the experience of class counsel in this particular field of law." In re Mills Corp Sec. Litig, 265 F.R.D. 246, 255 (E.D. Va. 2009). Class counsel in this case have many years of experience in complex securities class actions and have secured large cash recoveries for clients in the past. The defendants' law firms are also national firms with deep experience in securities litigation, further demonstrating the fairness of the Settlement currently before the Court.

         2. Adequacy

         The second Jiffy Lube factor, adequacy, requires the court to "weigh the likelihood of the plaintiffs recovery on the merits against the amount offered in the settlement." In re: NeuStar,Inc. Sec. Litig., No. 1:14-cv-885, 2015 WL 5674798, at *11 (E.D. Va. Sept. 23, 2015) (citation omitted). In considering the adequacy of a settlement, a court considers "(1) the relative strength of the plaintiffs' case on the merits, (2) the existence of any difficulties of proof or strong defenses the plaintiffs are likely to encounter if the case goes to trial, (3) the anticipated duration and expense of additional litigation, (4) the solvency of the ...

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