The opinion of the court was delivered by: RICHEY
UNITED STATES DISTRICT JUDGE
The above-entitled case is a class and derivative action filed in the District of Columbia Superior Court on July 24, 1995, and removed to this Court on September 21, 1995. Plaintiff Dr. Gerald J. Osher brought the action, individually and on behalf of all other similarly situated, and the SCA Tax Exempt Fund Limited Partnership brought the action, derivatively through Dr. Osher. The named plaintiff alleges that the defendants violated their partnership agreement and fiduciary duties by undertaking a certain refunding and financing transaction in early 1995. On June 12, 1996, the parties entered into the Second Amended Stipulation and Agreement of Compromise and Settlement, providing for the full and final settlement of the case on the terms and conditions set forth therein. The Court is given the responsibility under Rule 23(e) of the Federal Rules of Civil Procedure to approve or reject the settlement. It is pursuant to that responsibility that the Court acts today.
Upon consideration of the Second Amended Stipulation and Agreement of Compromise and Settlement, all other pleadings by the parties, the entire record herein, the law applicable thereto, and for the reasons set forth below, the Court shall approve said Stipulation and Agreement, award Class and Derivative Counsel attorneys' fees in the amount of $ 132,631.25 and reimbursement of expenses in the amount of $ 38,780.17.
The SCA Tax Exempt Fund Limited Partnership (the "Partnership") was organized in 1986 for the purpose of acquiring a portfolio of tax-exempt mortgage revenue bonds that various state or local governments or their agencies or authorities had or would issue. The Partnership had a public offering of beneficial assignee certificates ("BACs"), which represent limited partnership interests in the Partnership. The portfolio of Bonds that the Partnership owns is made up of two distinct pools of investments ("Series I" and "Series II"). The holders of Series I BACS have an interest in Series I investments and the holders of Series II BACs have an interest in Series II investments.
The plaintiff's claims arise from a financing transaction undertaken by the Partnership in early 1995. In February, 1995, the Partnership consummated a refunding of eleven (11) of the twenty-three (23) Bonds owned by the Partnership in Series I and Series II (the "Refunding"). Pursuant to that transaction, Series A and Series B Bonds (whose aggregate principal amount equaled that of the original eleven (11) Bonds) were exchanged for each of the original Bonds. Each Series B Bond was subordinated to the related issue of Series A Bonds. Also, in February, 1995, the Partnership consummated a financing transaction (the "Financing") in which additional proceeds were raised by the Partnership through the offering of $ 67,700,000 in aggregate principal amount of Multifamily Mortgage Revenue Receipts in the Series A Bonds.
The plaintiff essentially claims that the defendants (the General Partners of the Partnership) undertook the Refunding and Financing without proper authority and in violation of the Amended and Restated Agreement of Limited Partnership for the Partnership, date June 3, 1986 (the "Partnership Agreement"). The Complaint also alleges that the Partnership Agreement requires the defendants to distribute to the BAC Holders the proceeds of the Financing and that they have failed to do so, and that the defendants failed to inform the BAC Holders of their right to the proceeds in recent public filings and in correspondence with the BAC Holders. The Complaint alleges claims on behalf of the plaintiff and, putatively, on behalf of the other BAC Holders for breach of the Partnership Agreement and of the defendants' alleged fiduciary duties (the "Class Claims") and seeks, inter alia, an accounting of the Financing, the immediate distribution of the Financing proceeds, compensatory and punitive damages, attorney's fees and pre-and post-judgment interest. The Complaint also alleges a derivative claim on behalf of the Partnership based on the allegations regarding the defendants' breach of fiduciary duties relating to the Financing (the "Derivative Claim").
On December 15, 1995, the plaintiff filed an amended complaint (the "Amended Complaint"), alleging, in addition to the Class Claims and Derivative Claim asserted in the original Complaint, that a consent solicitation statement -- which was to be distributed to BAC Holders in connection with the restructuring of the Partnership -- contained material misrepresentations and omissions regarding BAC Holders' rights relating to, and the General Partners' authority to consummate, the Financing. Based on these allegations, plaintiff Osher asserts a claim under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, seeking injunctive relief against the dissemination of the solicitation statement.
Shortly after this action was commenced in July, 1995, the General Partners undertook a transaction involving the restructuring of the Partnership into a Delaware limited liability company (the "LLC"), whereby BAC Holders would be given shares in the newly formed LLC in exchange for their Units in the Partnership (the "Transaction").
Beginning in September, 1995, Class and Derivative Counsel and counsel for the defendants commenced negotiations to resolve the Action, and, on November 8, 1995, the parties agreed to a settlement of the Action in consideration of certain modifications to the terms of and disclosure with respect to the Transaction, as set forth in a Stipulation and Agreement of Compromise and Settlement filed with the Court (the "Stipulation"). The settlement was conditioned on, among other things, the consummation of the Transaction.
On May 29, 1996, the Securities and Exchange Commission issued an Order pursuant to Section 8(a) of the Securities Act of 1933, as amended, declaring effective the registration statement containing the Consent Solicitation Statement in connection with the Transaction. On June 7, 1996, the parties to this action executed an Amended Stipulation and Agreement of Compromise and Settlement to reflect changes in the Transaction since the execution of the Stipulation. On June 12, 1996, the parties executed the Second Amended Stipulation and Agreement of Compromise and Settlement (the "Second Amended Stipulation") to reflect that the Record Date of the Transaction was June 1, 1996.
On June 20, 1996, this Court entered an Order that, inter alia : (1) certified this action as a class action and as a derivative action on behalf of the Partnership, conditionally upon final approval of the Settlement; (2) conditionally and preliminarily approved the plaintiff's counsel, Beigel Schy & White, as counsel for the plaintiff class (the "Settlement Class") and, derivatively, the Partnership; and (4) conditionally approved the form of the Notice of Class and Derivative Action Determination, Settlement and Hearing on Proposed Settlement (the "Notice") as well as the form of the Summary Notice. Pursuant to the Preliminary Order, the Notice was sent to the Settlement Class by first-class mail on or before July 2, 1996, and the Summary Notice was published in the National Edition of The Wall Street Journal on July 12, 1996. The Court held a final fairness hearing on the proposed settlement on August 29, 1996.
II. SUMMARY OF THE TRANSACTION AND PROPOSED SETTLEMENT
The proposed settlement provides that those BAC Holders who prefer to retain an investment under terms and conditions comparable to his or her investment in BACs prior to the 1995 Financing and as if the Financing had not occurred can elect to receive "Preferred Shares" in the LLC. Those BAC Holders who prefer to retain an investment substantially similar to his or her investment in BACs recognizing that the 1995 Financing did occur and would like a current capital distribution based on the proceeds received in the Financing can elect to receive "Preferred Capital Distribution Shares" in the LLC. Finally, those BAC Holders seeking a more aggressive investment in the Partnership can elect to receive "Growth Shares" in the LLC.
Upon the approval of BAC Holders holding a majority in interest in the outstanding BACs in each of Series I and Series II, each series voting as a separate class, the Partnership (both Series I and Series II) will merge into the LLC, the Partnership will cease to exist, the LLC will be the surviving company, and each BAC Holder will receive all Growth Shares, all Preferred Shares, all Preferred Capital Distribution Shares, or a combination of Growth Shares and either Preferred Shares or Preferred Capital Distribution Shares.
I. THE COURT SHALL CERTIFY THE SETTLEMENT CLASS PURSUANT TO FED. R. CIV. P. 23.
Before a court can approve a settlement in a class action, it must at some point "definitively certify the class and satisfy [itself] that the requisites of Rule 23 have been satisfied. In re General Motors Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768, 797, 800 (3d Cir.), cert. denied sub nom. General Motors Corp. v. French, U.S. , 133 L. Ed. 2d 45, 116 S. Ct. 88 (1995). The Rule 23 standards for a settlement class are no less rigorous than a class certified for litigation. Georgine v. Amchem Products, Inc., 83 F.3d 610, 624-25 (3d Cir.), cert. granted sub nom. Amchem Products, Inc. v. George Windsor, 1996 WL 480936 (1996); In re General Motors, 55 F.3d at 799. Accordingly, the Court must examine the class to determine if it meets the criteria for certification under Rule 23. If it does not, the Court will not approve the proposed settlement.
To be certified, (1) a class must be so numerous that joinder of all members is impracticable, (2) there must be questions of law or fact common to the class, (3) the claims or defenses of the representative parties must be typical of the claims or defenses of the class, and (4) the representative parties must fairly and adequately protect the interests of the class. Fed. R. Civ. P. 23(a); see, e.g., Hammon v. Barry, 752 F. Supp. 1087, 1098-99 (D.D.C. 1990). The conditionally certified Settlement Class in this litigation meets all four criteria, and, therefore, shall be definitively certified for settlement purposes.
A. The Class is Sufficiently Numerous; There are Common Issues of Law and Fact; and the Plaintiff's Claims are Typical of the Class'.
The numerosity requirement is unquestionably satisfied as there are over 14,000 individuals in the Settlement Class. See Steiner v. Equimark Corp., 96 F.R.D. 603, 608 (W.D. Pa. 1983) (numerosity requirement satisfied in securities fraud suit, when more than 4,000,000 shares of the stock in question were issued and outstanding during the class period, and those outstanding shares were owned by approximately 14,000 shareholders). The Class also meets the requirement that there are common issues of law and fact with respect to the various Class members. All the Class members stand in the same position in this litigation -- they all were holders of Series I or Series II BACs in the SCA Tax Exempt Limited Partnership. Consequently, their rights, whatever they may be, should be identical as to each Series and nearly identical between the two Series. See Kornick v. Talley, 86 F.R.D. 715, 720 (N.D. Ga. 1980) (allegations of a common course of conduct by corporate officers to defraud investors and the omission of material facts from financial statements were sufficient to satisfy the commonality requirement of the class action rule for an action on behalf of shareholders).
Because the Class members stand in identical or nearly identical positions with respect to the Partnership, the claims and defenses of the Class representative are typical of the Class as a whole. See also Koenig v. Smith, 88 F.R.D. 604, 607 (E.D.N.Y. 1980) (plaintiff's sophistication as investor did not render his claim atypical of claims of other purchasers of common stock of corporation).
B. Class Counsel Adequately Represents the Interests of the Class.
By virtue of the numerous options the settlement provides to Class members, the Court, on the whole, is confident that Class and Derivative Counsel can represent the interests of all Class members. Nonetheless, the investment choices made by Class members pursuant to the proposed settlement and the Transaction do not support Class and Derivative Counsel's contention that the named plaintiff's interests are sufficiently aligned with the absentees. See Block v. First Blood Associates, 691 F. Supp. 685, 695-96 (S.D.N.Y. 1988) (purchaser of limited partnership unit was not entitled to certification of class of all unit purchasers absent showing of sufficient identity of interest).
Class members affirmatively exercised their option to choose which investment they would hold pursuant to the terms of the proposed settlement with respect to only 190,000 of the approximately 300,000 outstanding BACs. Of those 190,000 BACs, holders of only thirteen percent (13%), or approximately 16,900, of the Series I BACs, and twelve percent (12%), or 7,440, of the Series II BACs chose Preferred Capital Shares -- the only option that provided an investment under terms and conditions comparable to his or her investment in BACs prior to the 1995 Financing, and as if the Financing had not occurred. See Plaintiff's Consolidated Memorandum in Support of Final Approval of Proposed Settlement and an Award of Attorneys' Fees and Reimbursement of Expenses at 9 ("Plaintiff's Consolidated Memorandum"). Consequently, holders of only eight percent, or approximately 24,000, of the 300,000 total BACs held by Class members affirmatively sought a return to the status quo prior to the Financing challenged in this action.
With respect to those same 190,000 BACs, holders of only two percent (2%), or approximately 2,600, of the Series I BACs, and six percent (6%), or approximately 3,700, of the Series II BACs chose Preferred Capital Distribution Shares -- the option under the proposed settlement that provides Class members an investment under terms and conditions comparable to his or her investment in BACs after the Financing, but as if the proceeds thereof were distributed to the BAC Holders. Id. Consequently, holders of only two percent, or approximately 6,300, of the 300,000 total BACs held by Class members affirmatively sought a remedy for the alleged failure to distribute the Financing proceeds.
These choices by Class members are hardly overwhelming endorsements of Class and Derivative Counsel's lawsuit seeking to challenge the propriety of the 1995 Financing. Nonetheless, because Class and Derivative Counsel have obtained for the Class members three distinct investment options, which appear to protect the interests of all Class members, the Court shall find that Class Counsel meets the adequacy of representation requirement of Rule 23. Having met all four criteria for certification under Rule 23, the Court shall certify the Class for the purpose of settlement.
II. THE COURT APPROVES THE PROPOSED SETTLEMENT BECAUSE IT FINDS THAT THE PROPOSED SETTLEMENT IS FAIR, ...