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In re Baan Co. Securities Litigation

September 30, 2003

IN RE BAAN COMPANY SECURITIES LITIGATION


The opinion of the court was delivered by: Ellen Segal Huvelle, United States District Judge.

MEMORANDUM OPINION REGARDING SETTLEMENT APPROVAL

This is a class action brought on behalf of all persons or entities who purchased or otherwise acquired the securities of Baan Company ("Baan" or the "Company") between January 28, 1997 and October 12, 1998 (the "Class and the "Class Period").*fn1 On June 26, 2003, counsel for Lead Plaintiffs and Defendants*fn2 entered into a Stipulation and Agreement of Settlement (the "Settlement Agreement"), which provides for the settlement of this case in exchange for the payment by Defendants of $32.5 million, plus interest from August 15, 2003.

Plaintiffs now move for final approval of the Settlement pursuant to Federal Rule 23(e). After a hearing before the Court held on September 30, 2003, and upon due consideration of the briefs, submissions and the prior proceedings herein, the Court finds that the Settlement is fair, adequate and reasonable, and hereby grants Plaintiffs' motion. In making this determination, the Court makes the following findings of fact and conclusions of law:

I. The Settlement

1. In determining whether to approve a class action settlement, the Court must determine that the proposed settlement is "fair, reasonable and adequate." Weinberger v. Kendrick, 698 F.2d 61, 73 (2d Cir. 1982); Luevano v. Campbell, 93 F.R.D. 68 (D.D.C. 1981); In re Nat'l Student Mktg. Litig., 68 F.R.D. 151, 155 (D.D.C. 1974). Approval of a proposed class action settlement lies within the discretion of the Court. In re Lorazepam & Clorazepate Antitrust Litig., 2003 U.S. Dist. LEXIS 12344, at *4-5 (D.D.C. June 16, 2003). Moreover, in "the context of class actions, settlement is particularly appropriate given the litigation expenses and judicial resources required in many such suits." Osher v. SCA Realty I, Inc., 945 F. Supp. 298, 304 (D.D.C. 1996). Finally, the inquiry on a motion to approve a settlement is a limited one, and "the Court must avoid deciding or trying to decide the likely outcome of a trial on the merits, in determining whether to approve the proposed settlement." Nat'l Student, 68 F.R.D. at 155.

2. An assessment of the "adequacy" of the proposed settlement requires consideration by the Court of the following factors:

[the] complexity and nature of the litigation; potential costs of litigation; the stage of the proceedings when settlement has been offered and degree of completed discovery; likelihood of establishing requisite elements of liability and damages; class reaction to settlement; risks attendant to trial; and ability of defendant to absorb a larger recovery. The opinion and judgment of experienced counsel, whose labors produced the settlement, should also receive due consideration.

Nat'l Student, 68 F.R.D. at 155 (citations omitted). Application of these factors here merits a finding that the Settlement is fair, reasonable and adequate.

1. The Stage of the Proceedings, Complexity, Expense and Likely Duration of the Action

3. The Action was resolved after merits discovery had been substantially completed and expert reports had been exchanged. During the course of merits discovery, Plaintiffs conducted a total of 18 depositions, including those of the named Defendants; former high-level employees of Baan; and representatives of Baan's outside accounting firms. In addition, Plaintiffs reviewed hundreds of thousands of documents produced by Defendants and nonparties, including the Company's outside auditors; investment banking firms that provided research coverage on Baan; and Baan's outside counsel during the relevant period. Plaintiffs also retained and consulted with experts regarding accounting issues and issues relating to causation and damages. The Court finds that, because extensive discovery was conducted, Plaintiffs had more than a sufficient basis upon which to assess the strength and weaknesses of the claims and defenses and the adequacy of the proposed Settlement entered into with Defendants and their counsel.

4. The Court also finds that there were complexities associated with this case that would have made a trial costly and highly uncertain. For example, the claims asserted were premised on the application of often arcane and disputed accounting principles concerning revenue recognition policies related to affiliated party transactions. In addition, the sheer number of related-party transactions at issue were substantial and subject to varying interpretations by the parties and their designated experts. There were also complex and disputed questions concerning loss causation and damages, including the extent of artificial inflation in the market price of Baan's securities as a result of Defendants' alleged misstatements and omissions; the "curative impact," if any, of certain public disclosures about Baan during the Class Period; and the number of investors actually affected by Defendants' alleged wrongful conduct.

5. The Court also finds that a trial could have taken at least a month and would have been very expensive given the heavy reliance on various experts. Moreover, based on the hotlycontested nature of the case over its almost five-year duration, there would likely have been extensive post-trial motions, further efforts at reconsideration of any substantive rulings by the Court, and appeals, all of which would have added years to this case. A settlement – particularly one providing all-cash compensation to members of the Class for a large portion of their asserted damages – avoids these delays and uncertainties.

2. The Likelihood and Risks of Establishing Liability and Damages

6. The Court finds that there were significant risks associated with Plaintiffs' ability to prove their claims at trial. To prevail on these claims, Plaintiffs would have had to establish that Defendants made material misrepresentations and omissions; that Defendants acted knowingly or with such recklessness as to satisfy the heightened degree of scienter required under the Private Securities Litigation Reform Act ("PSLRA"); that members of the Class suffered damages; and that ...


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