Robert Clayton, et al. v. Orthovita, Inc., et al. 11-CV...

Case 2:11-cv-03535-CMR Document 41 Filed 08/16/12 of 13

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

ROBERT CLAYTON, on behalf of himself and all others similarly situated,

Plaintiff,

v.

ORTHOVITA, INC., et al., Defendants.

ADOLPHINA VAN BAREL, individually and on behalf of all others similarly situated, and derivatively on behalf of ORTHOVITA, INC.,

Plaintiff,

v.

ANTONY KOBLISH, et al., Defendants.

: : : : : : : : : : : : : : : : : : :

CIVIL ACTION NO. 11-3535

CIVIL ACTION NO. 11-3652

ORDER AND FINAL JUDGMENT

This matter came before the Court for a hearing on August 9, 2012 (“Final Settlement

Hearing”), pursuant to the Court’s May 7, 2012 Order Granting Preliminary Approval of

Settlement, Certifying Settlement Class, 1 Providing for Notice to the Settlement Class and

Setting Date and Time for the Final Settlement Hearing (“Preliminary Approval Order”), on the

application of the Parties for approval of the settlement of the Actions as set forth in the

1 In its Preliminary Approval Order [Doc. No. 30], the Court certified a non-opt-out class consisting of: “All record holders and beneficial owners of common stock of Orthovita, Inc. (‘Orthovita’) at any time during the period beginning on and including May 16, 2011, through and including June 28, 2011, and excluding R. Scott Barry, Morris Cheston Jr., Antony Koblish, Mary E. Paetzold, Paul G. Thomas, William E. Tidmore Jr., and Paul T. Touhey Jr., Orthovita, Inc., Stryker Corporation, Owl Acquisition Corporation, members of the immediate family of any Defendant, their subsidiary companies, affiliates, any entity in which a Defendant has or had a controlling interest, directors or officers of Defendant entities, and the legal representatives of any Defendant (the ‘Settlement Class’).”

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Stipulation and Agreement of Compromise, Settlement and Release dated January 31, 2012 (the

“Stipulation”).

Due and adequate notice having been given to the Settlement Class as required in said

Preliminary Approval Order, and the Court having considered all papers filed and proceedings

had herein and otherwise being fully informed in the premises and good cause appearing

therefore, IT IS HEREBY ORDERED, ADJUDGED AND DECREED that:

1. This Judgment incorporates as if set forth herein all findings made by the Court

on the record at the May 4, 2012 hearing on Plaintiffs’ Motion for Preliminary Approval of

Settlement and at the August 9, 2012 Final Settlement Hearing, the January 31, 2012 Stipulation

and Agreement of Compromise, Settlement and Release, 2 and the Court’s Preliminary Approval

Order, 3 and incorporates by reference the definitions in the Stipulation, and all terms, unless

otherwise defined herein, shall have the same meanings as set forth in the Stipulation.

2. This Court has jurisdiction over the subject matter of the Actions and over all

parties to the Actions, including all members of the Settlement Class.

3. The mailing of the Notice of Pendency of Class Actions, Proposed Class Action

Determination, Proposed Settlement of Class Actions, Settlement Hearing, and Right to Appeal

(the “Notice”) pursuant to and in the manner prescribed in the Preliminary Approval Order,

which was mailed by first class mail as set forth in the affidavit of mailing, 4 is hereby determined

to be the best notice practicable under the circumstances and in full compliance with Rules 23

2 Doc. No. 26-1.

3 Doc. No. 30.

4 Declaration of Michael J. Lee in Connection with the Mailing of the Notice [Doc. No. 38].

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and 23.1 of the Federal Rules of Civil Procedure, the requirements of due process and applicable

law. As detailed in the affidavit of mailing and the Parties’ presentation on the record at the

Final Settlement Hearing, the Notice was successfully provided by mail to 8,364 individuals or

entities. 5 In addition, Notice was posted on the Depository Trust & Clearing Corporation Legal

Notice Service (LENS). 6

4. It is further determined that, as this is a non-opt-out Class approval, all Settlement

Class members are bound by this Judgment.

5. Under Rule 23(e)(1)(A), the Court must approve all class action settlements, and,

after a hearing, find that the settlement is fair, adequate and reasonable. In making that

determination, courts evaluate the factors set forth in Girsh v. Jepson , 7 which include: (1) the

complexity, expense and likely duration of the litigation; (2) the reaction of the class to the

settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks

of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the

class action through trial; (7) the ability of the defendants to withstand a greater judgment; (8)

the range of reasonableness of the settlement fund in light of the best possible recovery; and (9)

the range of reasonableness of the settlement fund to a possible recovery in light of all the

5 According to the affidavit, Notice was mailed by RG/2 Claims Administration LLC (“RG/2 Claims”) to 4,195 individual beneficial owners of Orthovita stock or brokers who held shares as nominees. Notice was mailed to a further 3,498 class members whose names and addresses were provided to RG/2 Claims by brokers or nominees. An additional 737 Notices were mailed in bulk for distribution by those brokers and nominees. Of the 8,430 Notices mailed, only 66 were returned as undeliverable for which RG/2 Claims was ultimately unable to obtain a valid address through the United States Postal Service or by searching public and private data resources, including utility records, property tax records, motor vehicle registration records, and credit bureaus. Lee Decl. ¶¶ 5-13. As of the date of the Final Settlement Hearing, neither counsel for the Parties nor RG/2 Claims had received any objections or requests for exclusion from the Class.

6 Lee Decl. ¶ 7.

7 521 F.2d 153 (3d Cir. 1975).

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attendant risks of litigation. 8 No single Girsh factor is dispositive. Instead, courts should “look

at all the circumstances of the case and determine whether the settlement is within the range of

reasonableness.” 9 Here, the Court finds that the Girsh factors weigh in favor of final approval of

the Settlement.

a. As to the first Girsh factor, in a case involving a $316 million tender offer

(the “Transaction”), litigation of breach of fiduciary duty and federal securities claims would

likely have involved expensive evaluations by investment bankers and other experts retained by

both sides, extensive fact discovery, and a complex, lengthy trial, and, potentially, post-trial

motions and appeals. As other courts have noted, “[s]tockholder litigation is notably difficult

and notoriously uncertain even in the best of circumstances.” 10 Instead, the Settlement provided

shareholders with the relief sought – additional disclosures of material information concerning

the process leading up to the Transaction – prior to the close of the tender offer, and without

delaying its completion.

b. As to the second factor, although the Court believes it is unlikely that a

Settlement would encounter significant objections in an action which seeks only additional

8 Id. at 157. The Third Circuit expanded these factors in In re Prudential Ins. Co. Am. Sales Prac. Litig. Agent Actions, 148 F.3d 283, 323 (3d Cir. 1998), to include, where appropriate, (1) the maturity of the underlying substantive issues, as measured by experience in adjudicating individual actions, development of scientific knowledge, extent of discovery on the merits, and other factors that bear on the ability to assess the probable outcome of trial on the merits; (2) the existence and probable outcome of claims by other classes and subclasses; (3) a comparison between the results achieved by the settlement for individual class or subclass members and the results achieved - or likely to be achieved - for other claimants; (4) whether class or subclass members are accorded the right to opt out; (5) whether provisions for attorneys ’ fees are reasonable; and (6) whether the procedure for processing individual claims is fair and reasonable. To the extent that these factors are applicable to this Settlement, the Court finds that they, too, weigh in favor of approval, as discussed herein.

9 In re Orthopedic Bone Screw Prods. Liab. Litig., 176 F.R.D. 158, 184 (E.D. Pa. 1997).

10 In re SmithKline Beckman Corp. Sec. Litig., 751 F. Supp. 525, 529 (E.D. Pa. 1990) (internal quotation marks omitted).

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disclosures and where individual stakes are low, the Parties have represented to the Court that

objections have been filed in comparable cases; therefore, the fact that no class member has

objected to the Settlement weighs in favor of final approval.

c. As to the third factor, although the Parties entered into a Memorandum of

Understanding (“MOU”) containing agreed-upon terms for settlement soon after the filing of the

Actions, early settlement was warranted due to the nature of the Transaction and short window in

which relief based on disclosure could be provided to shareholders. Extensive confirmatory

discovery conducted after the signing of the MOU ensured the fairness and adequacy of the

Settlement.

d. As to the fourth and fifth Girsh factors, Plaintiffs would have faced

substantial risks and expenses in proving both liability and damages. Although Plaintiffs believe

that their claims regarding violations of the Exchange Act (requiring full material disclosure to

obtain shareholder approval of an action) were strong, Plaintiffs would have faced difficulties

establishing liability for breach of fiduciary duty because, as Plaintiffs explain in their Motion,

Pennsylvania corporate law does not impose any enhanced duty on directors in connection with

the sale of a company. 11 Moreover, Plaintiffs would have had to persuade the Court to enter an

order temporarily restraining the Transaction pending litigation, and may have had to post a

substantial bond to secure that injunction. Monetary damages would likely have been difficult to

determine and obtain, not only as Plaintiffs would have had to prove that any established breach

of duty or violation of the Exchange Act caused quantifiable economic harm to Plaintiffs and the

Class, but also as, at the time of the Transaction, Orthovita’s Articles of Incorporation limited its

11 Pls ’ Mem. in Supp. of Mot. for Final Approval at 13 [Doc. No. 37].

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directors’ personal liability for breach of the duty of care, 12 and confirmatory discovery did not

uncover any evidence of a breach of duty of loyalty. Confirmatory discovery verified that the

only viable claims under which Plaintiffs had the potential to recover monetary damages were

the disclosure claims. 13 As to those claims, however, injunctive relief is an appropriate remedy

where it is difficult to quantify and prove a monetary loss associated with the lack of

disclosure, 14 and, in any event, Defendants agreed to provide the supplemental disclosures.

e. As to the sixth Girsh factor, the Court agrees with Plaintiffs that, given the

nature of Plaintiffs’ claims and the Court’s earlier determination that the Class satisfied the

requirements of Federal Rule of Civil Procedure 23, it does not appear that there was any

significant risk that a class action could not be maintained.

f. As to the seventh factor, because the Settlement is non-pecuniary in

nature, it is certain that Defendants could withstand a greater judgment; however, as Plaintiffs

have explained in their Motion and memorandum in support thereof, confirmatory discovery

created substantial doubt as to the viability of any claim for money damages, and the

supplemental disclosures sought by Plaintiffs were provided in connection with the Settlement. 15

g. The eighth and ninth Girsh factors generally test “whether the settlement

represents a good value for a weak case or a poor value for a strong case.” 16 As detailed in

12 Id. at 15.

13 Id. at 16.

14 Polaroid Corp. v. Disney, 862 F.2d 987, 1006 (3d Cir. 1988).

15 Pls ’ Mem. in Supp. of Mot. for Final Approval at 17.

16 In re CertainTeed Corp. Roofing Shingle Prods. Liab. Litig., 269 F.R.D. 468, 489 (E.D. Pa. 2010) (quoting In re Warfarin Sodium Antitrust Litig., 391 F.3d 516, 538 (3d Cir. 2004)).

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Plaintiffs’ memorandum of law and the Parties’ presentation on the record at the Final Settlement

Hearing, the Settlement provided for disclosure of material information underlying the Board’s

decision to sell Orthovita and concerning the process leading up to the Transaction. These

curative disclosures conferred a substantial benefit on shareholders, by allowing them to make a

fully informed decision whether to tender their shares in connection with the Transaction. Given

the complexities of the Actions, and the risks and expenses of a trial to prove liability and

damages, the Court finds that the Settlement provided the shareholders with a positive and

meaningful recovery.

6. Accordingly, for the reasons stated both herein and on the record at the Final

Settlement Hearing, Plaintiffs’ Motion for Final Approval of the Settlement and Award of

Attorneys’ Fees and Expenses [ Clayton v. Orthovita, et al. , No. 11-3535, Doc. No. 35] is hereby

GRANTED and the Court hereby APPROVES the Settlement set forth in the Stipulation and

finds that said Settlement is, in all respects, fair, reasonable and adequate to each of the Parties,

and the Parties are hereby directed to perform its terms.

7. As of the date hereof, each and every member of the Settlement Class, on his,

her or its own behalf and on behalf of any person or entity that might purport to assert a claim

through him, her or it, including heirs, executors, administrators, beneficiaries, predecessors,

successors, assigns, present and former employees, directors, officers, accountants, agents,

attorneys, representatives, affiliates and subsidiaries (collectively, the “Releasing Parties”)

shall be deemed to have, and by operation of the Judgment shall have, fully, finally, and forever

settled, and unconditionally, absolutely and irrevocably released and discharged Defendants,

and each of them, along with his, her and/or its respective past and present affiliates,

employers, employees, agents, consultants, insurers, directors, managing directors, officers,

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partners, principals, members, attorneys, accountants, financial, legal, and other advisors,

investment bankers, underwriters, lenders, commercial bankers, entities providing fairness

opinions, advisors or agents, heirs, executors, trustees, general or limited partners or

partnerships, limited liability companies, members, joint ventures, personal or legal

representatives, estates, administrators, predecessors, successors, or assigns and any other

representatives of any of these persons and entities (collectively, the “Released Persons”) with

respect to all manner of actions, causes of action, suits, debts, accounts, promises, warranties,

damages and consequential damages, agreements, costs, expenses, claims (including but not

limited to any claims arising under federal, state, foreign or common law, including federal

securities laws and any state disclosure law), or demands whatsoever, of any kind or nature

whether known or unknown, liquidated or unliquidated, disputed or undisputed, contingent,

inchoate or matured, in law or in equity (other than those obligations arising out of the MOU

and this Stipulation) that the Releasing Parties now have or ever had against the Released

Persons, or any of them, upon or by reason of any manner, cause or thing whatsoever on or at

any time prior to the date of this Judgment arising out of or relating in any way to his, her or

its ownership of shares of Orthovita and all claims concerning, arising out of, or relating to the

facts, circumstances, events, and transactions that are alleged or that could have been alleged

in the Actions (collectively, the “Released Claims”), it being the intention of the Releasing

Parties to reserve nothing whatsoever hereunder as to the Released Claims and to assure the

Released Persons, and each of them, their peace and freedom from each and every of the

Released Claims of whatever character and description. Without limiting the foregoing, this

release shall cover any and all claims under the federal securities laws, including claims

related to the Recommendation Statement and any amendments or supplements thereto, filed

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in connection with the Transaction, provided, however, that nothing contained in this

paragraph shall be deemed or construed to be a release, waiver or discharge of the terms and

conditions of the Stipulation or the parties’ rights thereunder and further provided that the

Released Claims shall not include any properly perfected claims for appraisal pursuant to

Subchapter 15D of the Pennsylvania Business Corporation Law of 1988, as amended.

8. As of the date hereof, each of the Released Persons shall be deemed to have, and

by operation of the Judgment shall have, fully, finally, and unconditionally, absolutely and

irrevocably released and discharged plaintiffs in the Actions, and each of them, and their

respective attorneys, representatives, heirs, successors and assigns with respect to all manner

of actions, causes of action, suits, debts, accounts, promises, warranties, damages and

consequential damages, agreements, costs, expenses, claims or demands whatsoever, of any

kind or nature whether known or unknown, liquidated or unliquidated, disputed or undisputed,

contingent, inchoate or matured, in law or in equity (other than those obligations arising out

of the MOU and the Stipulation) which they now have or ever had against them upon or by

reason of any manner, cause or thing whatsoever on or at any time prior to the date of this

Judgment arising out of or relating in any way to the institution, prosecution, assertion,

settlement or resolution of the Actions or the Released Claims, provided that nothing

contained in this paragraph shall be deemed or construed to be a release, waiver or discharge

of the terms and conditions of the Stipulation or the parties’ rights thereunder.

9. As of the date hereof, except as explicitly set forth above, the parties

understand and agree that the releases set forth herein are intended to and do include any and

all claims of every nature and kind whatsoever (whether known, unknown, suspected, or

unsuspected) that the parties now have, had, or may have, individually or collectively against

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each other up through and including the execution of the Stipulation and that arise out of, are

connected with, or in any way relate to the subject matter of the releases, and the parties

further acknowledge that they may hereafter discover facts different from or in addition to

those that they now know or believe to be true with respect to the Released Claims and agree

that, in such event, this Judgment and the releases contained in it shall nevertheless be and

remain effective in all respects, notwithstanding such different or additional facts.

Accordingly, with respect to any and all released claims, each party hereby waives the

provisions, rights and benefits of California Civil Code § 1542 (to the extent it applies herein),

which provides:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

10. As of the date hereof, each party hereto expressly waives, and shall be deemed

to have waived, and by operation of this Judgment shall have waived any and all provisions,

rights and benefits conferred by any law of any state or territory of the United States, or

principle of common law or foreign law, that is similar, or comparable in effect to California

Civil Code § 1542.

11. The Court permanently bars and enjoins Plaintiffs and all members of the

Settlement Class (and their predecessors, successors, and assigns) from commencing,

prosecuting, instigating or in any way participating in the commencement, prosecution or

instigation of any action asserting any Settled Claims, either directly, representatively,

derivatively, or in any other capacity, against any Released Party.

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12. Defendants have agreed to pay Plaintiff Counsel attorneys’ fees and expenses of

$492,500, subject to the Court’s approval. This Court is required to thoroughly analyze all

attorney fee awards in class action settlements. 17

a. Where, as here, there is no common settlement fund, and it is difficult to

calculate the dollar value of the benefit to the Class, the lodestar method is the appropriate

method to calculate fees. In setting the lodestar amount, a court multiplies that number of hours

reasonably worked on a case by reasonable billing rates for such services in the given geographic

area provided by a lawyer of comparable experience.

b. After deducting total expenses of $20,547.36, Plaintiffs’ Counsel’s overall

lodestar is $342,246.25, representing an average hourly rate of $445.86 per hour, for a fee that is

approximately 1.44 times Plaintiffs’ Counsel’s lodestar. 18

c. The Third Circuit has identified a number factors a court should consider

in evaluating an attorneys’ fee request, including (1) the size of the settlement fund created and

the number of persons benefitted thereby; (2) the presence or absence of substantial objections

by members of the class to settlement terms or fee; (3) the skill and efficiency of the attorneys

involved; (4) the complexity and duration of the litigation; (5) the risk of nonpayment; (6) the

amount of time devoted to the case by the plaintiffs’ counsel; and (7) awards in similar cases. 19

17 In re Rite Aid Corp. Sec. Litig., 396 F.3d 294, 299 (3d Cir. 2005).

18 Pls ’ Mem. in Supp. of Mot. for Final Approval at 28-29; Declaration of Sandra G. Smith, Exs. A-E [Doc. 35-2 at 19-38].

19 See In re Am. Inv. Life Ins. Co. Annuity Mktg. & Sales Practices Litig., 263 F.R.D. 226, 243 (E.D. Pa. 2009) (citing Gunter v. Ridgewood Energy Corp., 223 F.3d 190, 195 n.1 (3d Cir. 2000)).

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d. The Court finds that these factors weigh in favor of approving Plaintiffs’

Counsel’s fees in this case. First, although the Settlement is non-pecuniary, it provided

substantial benefit to the Class members in terms of additional curative disclosures necessary for

the shareholders to make a fully informed decision. 20 Second, it is apparent that counsel for all

Parties worked with skill and efficiency to obtain the disclosures on an expedited basis due to the

nature of the transaction, and verified the fairness and accuracy of the Settlement through

confirmatory discovery. Third, the proposed amount is comparable to that awarded in cases of

similar complexity and risk. 21 Fourth, no objections have been made as to the proposed

attorneys’ fees. Finally, the agreement to pay Plaintiffs’ attorneys’ fees was reached through

extensive arms-length negotiation with well-qualified Defense counsel, long after the Parties had

agreed upon the substantive Settlement terms and conducted confirmatory discovery.

13. Therefore, for the reasons stated herein and on the record at the Final Settlement

Hearing, the Court hereby APPROVES the sum of $492,500.00 for Plaintiffs’ attorneys’ fees

and expenses, payment to be made in accordance with the terms and subject to the conditions of

¶ 13 of the Stipulation, or within ten (10) days after plaintiff Thorn has provided counsel for

Defendants satisfactory proof that the Thorn Action 22 has been marked discontinued, with

prejudice, in accordance with ¶ 3 of the Stipulation, whichever is later.

20 See Merola v. Atlantic Richfield Co., 515 F.2d 165, 169-70 (3d Cir. 1975).

21 Pls ’ Mem. in Supp. of Mot. for Final Approval at 27 (collecting cases).

22 Thorn v. Koblish, et al. , No. 2011-11644, Court of Common Pleas of Montgomery County,

Pennsylvania.

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14. Without affecting the finality of this Judgment in any way, this Court hereby

retains continuing jurisdiction over: (a) implementation of this Settlement; and (b) all Parties

hereto for the purpose of construing, enforcing and administering the Stipulation.

15. The effectiveness of the provisions of this Judgment and the obligations of

Plaintiffs and Defendants under the Stipulation shall not be conditioned upon or subject to the

resolution of any appeal from this Judgment that relates solely to the issue of Plaintiffs’

attorneys’ fees and expenses.

It is so ORDERED.

BY THE COURT:

/s/ Cynthia M. Rufe

DATED: August 16, 2012 CYNTHIA M. RUFE, J.

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