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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 06-3731-GHK (SHx) Date January 18, 2012
Title Jim Brown v. Brett C. Brewer, et al.
Presiding: The Honorable GEORGE H. KING, U. S. DISTRICT JUDGE
Beatrice Herrera N/A N/A
Deputy Clerk Court Reporter / Recorder Tape No.
Attorneys Present for Plaintiffs: Attorneys Present for Defendants:
None None
Proceedings: (In Chambers) Order re: (1) Plaintiff’s Revised Plan of Allocation; (2) Trafelet
& Company’s Proposal Re Plan of Allocation; (3) Plaintiff’s Motion to Strike
Trafelet & Company’s Proposal Re Plan of Allocation or, in the Alternative,
Response Thereto
On September 29, 2011, we rejected the proposed plan of allocation (“Initial Plan”) as not fair,
adequate, and reasonable because it did not allow shareholders who held stock on July 18, 2005, but
sold before September 30, 2005 (“Sold Shares”), to share in the proceeds, yet the Settlement Agreement
required them to release their claims. On October 28, 2011, Lead Plaintiff Jim Brown (“Plaintiff”)
submitted his Revised Plan of Allocation (“Revised Plan”). On October 31, 2011, purported Class
Member Trafelet & Company LLC (“Trafelet”) filed its Proposal Re Plan of Allocation, which we deem
to be Trafelet’s objections to the Revised Plan (“Proposal” or “Objections”). On November 7, 2011,
Plaintiff filed a Motion to Strike Trafelet & Company’s Proposal Re Plan of Allocation or, in the
Alternative, Response Thereto (“Motion to Strike”). We held oral argument in this matter on January
12, 2012. At oral argument we DENIED Plaintiff’s Motion to Strike and REJECTED Plaintiff’s
Revised Plan. Additionally, we informed Trafelet that we would issue rulings on each of its purported
objections. We now set forth our findings and conclusions. As the Parties are familiar with the facts of
this case, we will repeat them only as necessary.
I. Plaintiff’s Motion to Strike
Plaintiff moves to strike Trafelet’s Proposal on the ground that our September 29, 2011 Order
did not invite Trafelet to submit its own plan of allocation. We note that because Trafelet is not a
representative of the Class, it may not submit a plan of allocation on behalf of the Class. However,
having reviewed Trafelet’s Proposal, we deem it to be a series of objections to the fairness of Plaintiff’s
Revised Plan. Because we have an independent duty to assess the fairness of any plan of allocation, we
choose to entertain Trafelet’s Proposal. Accordingly, Plaintiff’s Motion to Strike is DENIED.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 06-3731-GHK (SHx) Date January 18, 2012
Title Jim Brown v. Brett C. Brewer, et al.
II. Legal Standard Governing Approval of a Plan of Allocation
Assessment of a plan of allocation of settlement proceeds in a class action under Federal Rule of
Civil Procedure 23 is governed by the same standards of review applicable to the settlement as a whole
– the plan must be fair, reasonable, and adequate. Class Plaintiffs v. City of Seattle, 955 F.2d 1268,
1284-85 (9th Cir. 1992). “As numerous courts have held, a plan of allocation need not be perfect.” In
re Giant Interactive Grp., Inc. Sec. Litig., No. 07 Civ. 10588(PAE), 2011 WL 5244707, at *8 (S.D.N.Y.
Nov. 2, 2011). Instead, “[a]n allocation formula need only have a reasonable, rational basis, particularly
if recommended by competent class counsel.” In re WorldCom, Inc. Sec. Litig., 388 F. Supp. 2d 319,344 (S.D.N.Y. 2005). Moreover, “[a] plan of allocation that reimburses class members based on the
extent of their injuries is generally reasonable.” In re Oracle Sec. Litig., No. C-09-0931-VRW, 1994
WL 502054, at *1 (N.D. Cal. June 18, 1994). “It is also reasonable to allocate more of the settlement to
class members with stronger claims on the merits.” Id.
III. Plaintiff’s Revised Plan
The claims in this litigation are based on (a) violations of federal proxy laws, and (b) breach of
fiduciary duty under Delaware law in connection with the merger agreement. Plaintiff’s Revised Plan
allocates sixty percent (60%) of the net settlement fund to the proxy claim and forty percent (40%) tothe fiduciary duty. Under the Revised Plan, only shareholders who continuously held their shares from
the announcement of the merger agreement on July 18, 2005 until the closing of the transaction on
September 30, 2005 (“Held Shares”) may recover on the proxy claim. Held Shares, Sold Shares,
Purchased Shares, and In-and-Out Shares are provided various recovery percentages within the fiduciary
duty claim.1 Of the forty percent (40%) of the net settlement fund allocated to the fiduciary duty claim,
Held Shares receive sixty percent (60%), Purchased Shares receive twenty-five percent (25%), Sold
Shares receive ten percent (10%), and In-and-Out Shares receive five percent (5%). Thus, of the total
Net Settlement Fund, Held Shares receive eighty-four percent (84%) on a pro-rata basis, Purchased
Shares receive ten percent (10%) on a pro-rata basis, Sold Shares receive four percent (4%) on a pro-
rata basis, and In-and-Out Shares receive two percent (2%) on a pro-rata basis.
We REJECT Plaintiff’s Revised Plan because it allows Purchased Shares and In-and-Out
1 Under the Revised Plan, “Held Shares” are “Intermix stock held by a member of the Settlement
Class on July 18, 2005 and exchanged for Merger consideration on or after September 30, 2005.”
“Purchased Shares” are “Intermix stock purchased by a member of the Settlement Class after July 18,
2005 and exchanged for the Merger Consideration on or after September 30, 2005.” “Sold Shares” are
“Intermix stock held by members of the Settlement Class on July 18, 2005 and sold prior to September
30, 2005.” “In-and-Out Shares” are “Intermix stock purchased by a member of the Settlement Class
after July 18, 2005 and sold prior to September 30, 2005.” (See Dkt. No. 359-1).CV-90 (06/04) CIVIL MINUTES - GENERAL Page 2 of 6
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 06-3731-GHK (SHx) Date January 18, 2012
Title Jim Brown v. Brett C. Brewer, et al.
Shares to participate in the portion of the net settlement fund attributed to the fiduciary duty claim.
Delaware law clearly holds that these shares do not have standing to pursue a breach of fiduciary duty
claim in connection with a merger agreement. See Omnicare, Inc. v. NCS Healthcare, Inc., 809 A.2d
1163, 1169 n.11 (Del. Ch. 2002) (“A stockholder-plaintiff is barred from bringing claims when she
purchases stock after the board of directors has approved a transaction and the transaction has been
publicly disclosed” because “public policy detests the ‘purchase’ of a lawsuit.”). Because Plaintiff has
not pointed to, nor have we found, any authority to the contrary, we conclude that the Revised Plan
lacks a “rational basis” insofar as it entitles Purchased Shares and In-and-Out Shares (both of whom
purchased their shares after the merger agreement) to participate in the recovery allocated to the
fiduciary duty claim. Indeed, Plaintiff has stated that he, “too, recognized the likely problem with
standing for shareholders with Purchased [or In-and-Out] Shares.” (Dkt. No. 373, at 6). Additionally,
no shareholders with Purchased or In-and-Out Shares objected to the Initial Plan, under which they
would have received no portion of the net settlement fund. Moreover, during oral argument, Plaintiff’s
counsel acknowledged that he knew of no authority that conflicts with Omnicare’s holding that these
shares do not have standing to assert the fiduciary duty claim.2
IV. Trafelet’s Proposal
We construe Trafelet’s Proposal to raise the following objections to Plaintiff’s Revised Plan: (1)
Purchased and In-and-Out Shares should not participate in the settlement proceeds; if they do
participate, Purchased Shares should not participate at a greater rate than Sold Shares; (2) the Revised
Plan fails to take into account that different rates of claim submissions may result in under- or over-
allocation to some shareholders; (3) the Revised Plan fails to account for the possibility that there are
more Sold Shares than Purchased Shares; and (4) there is no basis to assign greater value to the proxy
claim than the breach of fiduciary duty claim. Insofar as any of these objections may relate to any plan
of allocation proposed in the future, we rule on them as follows.
1. Objection 1: Purchased and In-and-Out Shares should not participate in the settlement
proceeds; if they do participate, Purchased Shares should not participate at a greater
rate than Sold Shares
Because we have already rejected the Revised Plan on the ground that it allows Purchased
2 By contrast, in our September 29, 2011 Order, we noted that “there is no clear authority on
th[e] issue” of whether Sold Shares lack standing to pursue the breach of fiduciary duty claim.
Therefore, there is a rational basis to allow Sold Shares to participate in the recovery allocated to this
claim, and thus we do not find the Revised Plan to be unfair, inadequate, or unreasonable on this basis.
In sum, the only basis on which we find Plaintiff’s Revised Plan to be insufficient is its inclusion of
Purchased and In-and-Out Shares in the recovery attributed to the fiduciary duty claim.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 06-3731-GHK (SHx) Date January 18, 2012
Title Jim Brown v. Brett C. Brewer, et al.
Shares and In-and-Out Shares to participate in the settlement proceeds attributed to the fiduciary duty
claim, Trafelet’s first objection is moot.
2. Objection 2: The Revised Plan fails to take into account that different rates of claim
submissions may result in under- or over-allocation to some shareholders
Trafelet objects to the overall structure of the Revised Plan, which divides the settlementproceeds among the various categories of shares at the outset before any proofs of claims are submitted,
and then permits the shares within each group to participate on a pro-rata basis with only other shares
within the same category. Trafelet argues:
This proposal would have the undesirable and inequitable effect of under-allocating or over-
allocating settlement proceeds to individual shares in the event there are differing rates of
claims among the groups. For example, if Sold Shares submit claims at a greater rate than
Held Shares (as compared to the total number of shares within each category), the per-share
recovery for Held Shares would increase relative to the per-share recovery for Sold Shares.
(Dkt. No. 367, at 5-6).
Trafelet proposes an alternate “point system” structure, whereby each Held Share would receive
two points (one for the proxy claim and one for the fiduciary duty claim), each Sold Share would receive
one point (for the fiduciary duty claim), and each Purchased and In-and-Out Share would receive zero
points. Trafelet then proposes that the settlement proceeds be allocated on a pro-rata basis according to
the number of points obtained by each Class Member who submits a claim.
This objection is OVERRULED. First, Trafelet has provided no basis for predicting that
different share groups will submit claims at different rates. Additionally, it has provided no precedent toshow that the rate of filings for proofs of claims should factor into how a plan of allocation is structured.
Further, Trafelet’s proposed “point system” would also result in unintended and disproportionate
distributions if Class Members within each category of share submit claims at different rates. For
example, if Held Shares are given one point to compensate for the proxy claim and one point for the
fiduciary duty claim, and Sold Shares are given one point for the fiduciary duty claim and no points for
the proxy claim, class members with Held Shares could receive a disproportionately low allocation if
class members with Held Shares file proofs of claim at a lower rate. In such a scenario, Sold Shares
would receive a portion of the net settlement fund intended to compensate Held Shares for their proxy
claim – a claim which Sold Shares have no standing to assert. We perceive this to be a fundamental
flaw because it would allow shareholders like Trafelet effectively to recover on a claim that they do not
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 06-3731-GHK (SHx) Date January 18, 2012
Title Jim Brown v. Brett C. Brewer, et al.
have standing to assert.
3. The Revised Plan fails to account for the possibility that there are more Sold Shares
than Purchased Shares
Trafelet objects to the fact that the Revised Plan fails to account for the “possibility” that there
are more Sold Shares than Purchased Shares. This objection is entirely speculative. Indeed, in
articulating this objection Trafelet implicitly acknowledges that it is only a “possibility” that there are
more Sold Shares than Purchased Shares. We fail to see why any revised plan of allocation should
account for this “possibility,” when it is also a possibility that there are an even number of Sold and
Purchased Shares. Nonetheless, because we have rejected the Revised Plan on the basis that it allows
Purchased Shares to participate in the recovery, this objection is moot.
4. There is no basis to assign greater value to the proxy claim than the breach of
fiduciary duty claim
Trafelet objects to the Revised Plan’s allocation of sixty percent (60%) of the net settlement fund
to the proxy claim versus forty percent (40%) to the fiduciary duty claim. It argues that there is no basis
“to conclude that a reasonable jury is less likely to find that Defendants breached their fiduciary duties
than it is to find that Defendants committed federal proxy violations.” (Dkt. No. 367, at 10). Trafeletargues that each claim should be assigned equal weight.
This objection is OVERRULED. “An allocation formula need only have a reasonable, rational
basis, particularly if recommended by ‘experienced and competent’ cousel.” In re Am. Bank. Note
Holographics, 127 F. Supp. 2d 418, 429-30 (S.D.N.Y. 2001) (quoting White v. NFL, 822 F. Supp. 1389,
1420-24 (D. Minn. 1993), aff’d , 41 F.3d 402 (8th Cir. 1994)). Here, Plaintiff explains that the
“assessment that the federal proxy claim is stronger than the breach of fiduciary duty claim is plaintiff’s
counsel[’s] professional judgment, based on the fact that plaintiff’s counsel litigated this matter for
years, during which time plaintiff’s counsel analyzed thousands of pages of evidentiary documents,
deposed numerous defendants and third parties, worked with several experts, and made (and won andlost) numerous legal arguments before the Court.” (Dkt. No. 373, at 10). Moreover, Plaintiff explains
that he believes the “legal standard for succeeding on the fiduciary duty claim – as opposed to the proxy
claim – is more difficult,” because “there are numerous affirmative defenses and ‘raincoat’ provisions
under Delaware law that could shield defendants from liability” for the fiduciary duty claim. ( Id.). We
cannot say that this is not a rational basis for assigning greater value to the proxy claim. Indeed, it is
“reasonable to allocate more of the settlement to class members with stronger claims of the merits.” In
re Oracle, 1994 WL 502054, at *1.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 06-3731-GHK (SHx) Date January 18, 2012
Title Jim Brown v. Brett C. Brewer, et al.
V. Conclusion
In sum, Plaintiff’s Revised Plan is REJECTED because it allows Purchased Shares and In-and-
Out Shares to participate in the portion of the net settlement fund allocated to the fiduciary duty claim.
Trafelet’s first and third objections are moot in light of this ruling. Insofar as Trafelet’s second and
fourth objection would pertain to any plan of allocation proposed in the future, they are OVERRULED.
IT IS SO ORDERED.
-- : --
Initials of Deputy Clerk Bea
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