The opinion of the court was delivered by: Gladys Kessler U. S. District Judge
Plaintiff, Freeport Partners, L.L.C. ("Freeport Partners"), brings this action on behalf of itself and a putative class of shareholders of Riggs National Corporation ("Riggs"), the parent company of Riggs Bank, N.A. ("Riggs Bank" or "the Bank"). Plaintiff alleges that Defendants,*fn1 who are former directors or employees of Riggs, engaged in acts of money laundering, wire fraud, and mail fraud in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq.. Am. Compl. ¶ 1. According to Plaintiff, these unlawful activities caused a decline in the value of Riggs common stock and led to its July 2004 merger with PNC Financial Services Group ("PNC") at what Plaintiff claims was a depressed price. Id. ¶¶ 1-10.
This matter is currently before the Court on two Motions: Plaintiff's Motion for Final Approval of Class Action Settlement and Certification of the Settlement Class [Dkt. No. 49] and Plaintiff's Motion for Attorneys' Fees [Dkt. No. 43]. The Court has carefully considered the Motions, the related affidavits, declarations, and exhibits, the parties' representations at a Fairness Hearing held on March 1, 2006, and the entire record herein. For the reasons stated below, Plaintiff's Motion for Final Approval of Class Action Settlement and Certification of the Settlement Class is hereby granted, and Plaintiff's Motion for Attorneys' Fees is hereby granted in part and denied in part.
Freeport Partners is an "investment club" founded by a "small number of longtime friends and business associates." Pl.'s Resp. to the Court's Mem. Order [Dkt. No. 33] (hereinafter "Pl.'s Resp."), Ex. A, Drulias Decl. ¶ 2. Organized as a Nevada limited liability company, Freeport bought five shares of Riggs stock some time before July 16, 2004, the day Riggs entered into a merger agreement with PNC Financial Services Group, Inc. ("PNC"), and an additional 95 shares on February 10, 2005, the day PNC announced it would acquire Riggs at a lower price than had previously been negotiated. Pl.'s Resp. at 4. Freeport held those shares at least through May 13, 2005, which was the effective date of the Riggs-PNC merger. Id.
Defendants are all former directors or employees of Riggs, the corporate parent of Riggs Bank, which prior to its merger with PNC was the largest and one of the most prominent financial institutions headquartered in Washington, DC. Plaintiffs claim that between 1997 and 2004, Riggs Bank employees, and specifically the members of its International Banking Group, engaged in illegal money laundering, wire fraud, and mail fraud on behalf of several large clients.*fn2 Am. Compl. ¶¶ 1-10, 37. Defendants, Plaintiff alleges, knew such activities were occurring and actively encouraged them. Id. ¶ 1.
Beginning in 2002, when the Bank was cited by the Office of the Comptroller of the Currency ("OCC") for weak anti-money laundering controls, Riggs became the subject of media reports regarding suspicious transactions in its International Banking Group. Id. ¶ 38. Based on those reports, the Senate Committee on Government Affairs began investigating Riggs in 2003. Id. ¶¶ 39-40.
In July 2003, Riggs entered into a Consent Order with the OCC that required the Bank to take various actions to ensure better compliance with the Bank Secrecy Act and other money laundering statutes. Id. § 41. That Order also subjected Riggs to increased regulatory monitoring. In May 2004, the OCC cited Riggs for failure to abide by the Consent Order and imposed a civil penalty of $25 million. Id. § 45; see also Terence O'Hara, Riggs Lost $34.4 Million, Hurt by Fines, Core Operations, WASH. POST, Aug. 10, 2004, at E01.
Following its year-long investigation, the Senate Committee on Government Affairs issued a damaging report on July 15, 2004. Id. § 46. The report accused Riggs Bank employees and directors, including several Defendants, of engaging in money laundering and fraud on behalf of certain clients, including General Pinochet and President Mbasogo. See Terence O'Hara and Kathleen Day, Riggs Bank Hid Assets Of Pinochet, Report Says, WASH. POST, July 15, 2004, at A01.
Just after the Senate Committee released its report, in August 2004, the U.S. Attorney's Office for the District of Columbia and the U.S. Department of Justice opened criminal investigations into Riggs Bank's operations. See Kathleen Day, Criminal Probe of Riggs Bank Underway, WASH. POST, Aug. 21, 2004, at E01. On January 27, 2005, Riggs entered a guilty plea to one charge of failure to report potential money laundering and agreed to pay a $16 million fine. Am. Compl. ¶ 7; see also Terence O'Hara, Riggs Bank Agrees to Guilty Plea And Fine, WASH. POST, Jan. 28. 2005, at A1.
The citation by the OCC and resulting fine, the Senate Committee's investigation and report, and the criminal investigations and guilty plea generated extensive -- and negative -- media attention for Riggs throughout 2004 and early 2005. According to Plaintiffs, these events precipitated a decline in the value of Riggs stock during that same period, a decline that they contend Defendants proximately caused by encouraging and assisting unlawful financial transactions at Riggs Bank. Am. Compl. ¶ 1.
PNC and Riggs began merger talks in the spring of 2004. On July 16, 2004, PNC agreed to purchase Riggs for $779 million, or approximately $24.25 per share. Id. ¶ 5. On February 7, 2005, however, shortly after Riggs entered its guilty plea, PNC backed out of the merger, citing "unexpected adverse developments at Riggs" and "a litany of legal and regulatory matters that Riggs continues to face." Id. ¶ 8. Three days later, on February 10, 2005, PNC and Riggs announced that they had reached a new merger agreement, this time for $652 million or $20 per share. Id. ¶ 9. Plaintiff alleges that this merger, which was consummated on May 13, 2005, occurred at a deep discount to PNC and deprived Riggs shareholders of the reasonable value of their shares. Id. But for Defendants' money laundering, wire fraud, and mail fraud, Plaintiffs maintain, PNC would have paid substantially more to purchase Riggs stock than it ultimately did. Id. ¶ 1.
Plaintiff seeks the following relief: (1) a declaratory judgment that Defendants committed RICO violations that proximately caused shareholder losses through the merger with PNC at a depressed price; (2) certification of a class of Plaintiff shareholders who suffered financial losses; (3) money damages for those losses; and (4) costs and attorneys' fees.
Plaintiff initiated this action on November 18, 2004 and filed an Amended Complaint against Defendants on March 11, 2005. Defendants responded with a Joint Motion to Dismiss [Dkt. No. 20] on April 11, 2005. They argue, first, that Plaintiff's losses were not proximately caused by Defendants' activities and that, therefore, Plaintiff has no standing to bring a RICO suit against them. Second, they claim that the Private Securities Litigation Reform Act of 1995 ("PLSRA") precludes a suit under RICO where, as here, the grounds consist of conduct that would be actionable as securities fraud. Third, and finally, they contend that even if a RICO case could lie here, Plaintiffs did not plead sufficient facts to permit the required inference that Defendants personally committed racketeering activity. Defs.' Joint Mot. to Dismiss [Dkt. #20] at 1-4.
The parties began settlement negotiations in early 2005 and on March 22, 2005 Plaintiff made its initial demand of $19 million.*fn3 See Pl.'s Resp. at 13. Defendants rejected that offer, but the talks continued. See Pl.'s Resp. at 14. Plaintiff brought renewed intensity to the bargaining table in the spring of 2005 after it became clear that the pending settlement of a Riggs shareholders' derivative action in Delaware state court might jeopardize this case. In June 2005, Defendant made its "final and best offer of $5.25 million," which Plaintiff accepted on behalf of a putative class of shareholders. Id. at 14.
On July 21, 2005, the parties executed a Stipulation and Agreement of Settlement (hereinafter the "Agreement") providing, inter alia that: (1) Defendants would establish a gross settlement fund of $5.25 million for distribution to the class plus $100,000 for administrative expenses;*fn4 (2) all administrative costs over and above the $100,000 and attorneys' fees would be deducted from the fund prior to any distribution to the class; (3) distribution would be made on a pro rata basis to all record holders of common stock in Riggs National Corporation as of May 13, 2005, excluding Defendants and their successors in interest; and (4) the Garden City Group of Melville, NY would serve as Settlement Administrator. See Pl.'s Mot. to Certify Class and Preliminarily Approve Settlement and Approve Class Notice [Dkt. No. 29], Ex. A.*fn5
Specifically, the Agreement defined the class as consisting of:
All persons who held Riggs common stock at any time during the period from July 15, 2004 through May 13, 2005, inclusive, and their respective representatives, trustees, executors, administrators, heirs, transferees, successors, and assigns, exclusive of the Defendants, Former Defendants, Simon Kareri, their immediate family members, and their affiliates, predecessors, successors, representatives, trustees, executors, administrators, heirs, assigns or transferees, immediate or remote, and any person or entity acting for or on behalf of, or claiming under any of them, and each of them. Also excluded from the Class are any putative class members who exclude themselves by serving a timely request for exclusion in accordance with the requirements set forth in the Notice.
Because Federal Rule of Civil Procedure 23(e) requires Court approval for the settlement of any class action, Plaintiff filed an Unopposed Motion for Preliminary Certification of the Class for Settlement Purposes and Preliminary Approval of the Settlement and Class Notice on October 7, 2005; see also Fed. R. Civ. P. 23(e). The Court then ordered Plaintiff to answer a series of specific questions regarding the settlement so that it would be in a better position to make the requisite findings under Rule 23(e). See Mem. Order Staying Plaintiff's Preliminary Mot. for Class Certification [Dkt. No. 32]. Plaintiff filed its Response, as ordered, on November 15, 2005. See Dkt. No. 33.
On November 30, 2005, the Court granted Plaintiff's Motion, preliminarily certifying the class for settlement purposes and preliminarily approving the settlement. See Dkt. No. 35. The Court approved the proposed Notice to the Class ("Notice") and ordered the Settlement Administrator to include copies of Plaintiff's Motion for Attorneys' Fees and Costs ("Attorneys' Fees Motion") [Dkt. No. 43] in its mailing of the Notice.
According to its February 14, 2006 affidavit, the Settlement Administrator sent a total of 16,110 Notice packets to the class between December 30, 2005 and February 13, 2006. See Dkt. No. 48 ("Fraga Aff."). The Settlement Administrator also posted the Notice and the Attorneys' Fees Motion on its website, and established a toll-free phone number for inquiries regarding the settlement. Id. As of the date of its affidavit, the Administrator had received fifty seven phone calls about the settlement.
Pursuant to the Notice, the deadline for opting out of the class was February 13, 2006 and the deadline for filing objections was February 19, 2006. Only one member of the class, who owned sixteen shares, opted out. See Notice of Request for Exclusion [Dkt. No. 51]. Furthermore, only one objection was filed, from a shareholder who objected not to the settlement itself but to the attorneys' fees being paid before funds are distributed to the class. See Objection to Plaintiff's Motion for Attorney Fees by Party of the Class [Dkt. No. 46].
On February 21, 2006, Plaintiff filed an Application for Final Approval of Class Action Settlement and Certification of the Settlement Class [Dkt. No. 49] (hereinafter "Pl.'s Mot. for Final Approval and Certification"). The Court held a Fairness Hearing on March 1, 2006 to consider that Motion, as well as the Attorneys' Fees Motion. Only counsel for Plaintiff and for Defendants participated in that Hearing; no member of the class appeared either in support of, or in opposition to, the settlement.
II. THE PROPOSED CLASS SATISFIES THE REQUIREMENTS OF RULE 23 AND IS THEREFORE CERTIFIED FOR SETTLEMENT PURPOSES
Federal Rule of Civil Procedure 23(a) requires the plaintiff to satisfy the following four requirements before a class can be certified: (1) the class must be so numerous that joinder of all members is impracticable ("numerosity"); (2) there must be questions of law or fact common to the class ("commonality"); (3) the claims or defenses of the representative parties must be typical of the claims or defenses of the class ("typicality"); and (4) the representative parties, and their counsel, must fairly and adequately protect the interests of the class ("adequacy"). See Fed. R. Civ. P. 23(a). In addition, the plaintiff must satisfy one of the three requirements of Rule 23(b).
The plaintiff bears the burden of proof on each element of Rule 23. See McCarthy v. Kleindienst, 741 F.2d 1406, 1414, n.9 (D.C. Cir. 1984). "A district court exercises broad discretion in deciding whether to permit a case to proceed as a class action." Hartman v. Duffey, 19 F.3d 1459, 1471 (D.C. Cir. 1994); see also Gulf Oil Co. v. Bernard, 452 U.S. 89, 100 (1981).
A class may be certified for settlement purposes only, Amchem Prods. Inc. v. Windsor, 521 U.S. 591, 618 (1997), and such "settlement-only" classes have become an increasingly prominent feature of federal class action practice. See T. Willging, L. Hooper, & R. Niemic, Empirical Study of Class Actions in Four Federal District Courts: Final Report to the Advisory Committee on Civil Rules 61-62 (1996). Our Court of Appeals has instructed courts to approach certification of a settlement-only class with the same degree of scrutiny they would use to evaluate a traditional motion for class certification. See Thomas v. Albright, 139 F.3d 227, 234 (D.C. Cir. 1998).