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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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Case 2:06-cv-03731-GHK -SH Document 402 Filed 01/18/12 Page 1 of 6 Page ID#:13496

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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 of 6


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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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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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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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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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