Case 1:08-Cv-02940-AT Document 123 Filed 04/23/12 Page 1 of 53
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Case 1:08-cv-02940-AT Document 123 Filed 04/23/12 Page 1 of 53 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA ) In re ) CARTER’S, INC. SECURITIES LITIGATION ) Civil Action No. 1:08-CV-2940-AT ) DECLARATION OF JONATHAN GARDNER IN SUPPORT OF LEAD PLAINTIFF’S MOTION FOR FINAL APPROVAL OF PARTIAL CLASS ACTION SETTLEMENT AND PLAN OF ALLOCATION AND LEAD COUNSEL’S MOTION FOR ATTORNEYS’ FEES AND REIMBURSEMENT OF LITIGATION EXPENSES Case 1:08-cv-02940-AT Document 123 Filed 04/23/12 Page 2 of 53 JONATHAN GARDNER declares as follows, pursuant to 28 U.S.C. § 1746: 1. I am a member of Labaton Sucharow LLP (“Labaton Sucharow” or “Lead Counsel”), Court-appointed lead counsel for Plymouth County Retirement System (“Lead Plaintiff” or “Plymouth”) and the proposed Settlement Class in the above-captioned class action (the “Consolidated Action”).1 I am admitted to practice before this Court. 2. I have been actively involved in the prosecution of this case, am intimately familiar with its proceedings, and have personal knowledge of the matters set forth herein based upon my close supervision and participation in the Consolidated Action. 3. I respectfully submit this declaration in support of Lead Plaintiff’s motion, pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, for final approval of the partial settlement of this class action (the “Settlement”) for $20,000,000 in cash (the “Settlement Amount”), and the plan of allocation for distribution of the net settlement proceeds (the “Plan of Allocation”).2 I also 1 All capitalized terms used herein, unless otherwise defined, have the same meaning as that set forth in the Stipulation and Agreement of Settlement with Company and Individual Defendants (the “Stipulation”), dated December 21, 2011. (Docket No. 111-3). 2 This declaration is submitted in support of a negotiated settlement and is, therefore, subject to Rule 408 of the Federal Rules of Evidence and inadmissible in 1 Case 1:08-cv-02940-AT Document 123 Filed 04/23/12 Page 3 of 53 submit this declaration in support of Lead Counsel’s motion for an award of attorneys’ fees and reimbursement of counsel’s expenses incurred during the prosecution of the Consolidated Action. 4. Both the Settlement and Lead Counsel’s motion for attorneys’ fees and reimbursement of litigation expenses have the support of Lead Plaintiff. See Declaration of William R. Farmer, Executive Director of Plymouth County Retirement System, in Support of Lead Plaintiff’s Motion for Final Approval of Partial Class Action Settlement and Lead Counsel’s Motion for an Award of Attorneys’ Fees and Reimbursement of Litigation Expenses, annexed hereto as Ex. 1. I. THE SETTLEMENT BENEFITS TO THE SETTLEMENT CLASS 5. The Settlement, which this Court preliminarily approved in its January 18, 2012 Preliminary Approval Order Providing for Notice and Hearing in Connection With Proposed Partial Class Action Settlement (the “Preliminary Approval Order”), provides for the gross payment of $20,000,000 to secure a settlement of the claims alleged in the Consolidated Action against defendants Carter’s, Inc. (“Carter’s” or the “Company”), and Frederick J. Rowan II any proceeding, other than in connection with this Settlement. In the event the Court does not approve the Settlement, this declaration and the statements contained herein and in any supporting memoranda are made without prejudice to Lead Plaintiff’s position on the merits. 2 Case 1:08-cv-02940-AT Document 123 Filed 04/23/12 Page 4 of 53 (“Rowan”), Joseph Pacifico (“Pacifico”), Michael D. Casey (“Casey”), Andrew North (“North”), Charles E. Whetzel, Jr. (“Whetzel”), and Joseph M. Elles (“Elles”) (together, the “Individual Defendants” and, collectively with Carter’s, “Settling Defendants”). If approved, the Settlement will finally resolve Lead Plaintiff’s allegations against the Settling Defendants and release all claims (and related claims) against them in the Consolidated Action. Defendant PricewaterhouseCoopers LLP (“PwC”) is not a party to the Settlement and the claims against PwC will continue to be litigated. 6. The Settling Defendants have not admitted liability or any wrongdoing as part of the Settlement, and they vigorously maintain that they are not liable to the Settlement Class. 7. All eligible Settlement Class Members who timely submit valid Proofs of Claim will receive a distribution from the Net Settlement Fund, which is the Settlement Fund, plus any accrued interest, minus administration expenses, Lead Counsel’s fees and expenses approved by the Court, and any taxes incurred on the interest income earned by the Settlement Fund. The Court will be asked to approve the distribution of the Net Settlement Fund at a future date, once the administration is completed. 3 Case 1:08-cv-02940-AT Document 123 Filed 04/23/12 Page 5 of 53 8. The Settlement provides an immediate and substantial recovery to Carter’s investors, who faced a significant risk of no recovery at all. Indeed, the Court (Forrester, J.) previously granted the Defendants’ motion to dismiss the First Amended Consolidated Class Action Complaint (the “FAC”) on March 17, 2011 (the “Dismissal Order”) (Docket No. 90), finding that Lead Plaintiff “should [still] be given an opportunity to restate [its] claims in a manner consistent with [the Court’s] Order.” Immediately following the Court’s Dismissal Order, the Consolidated Action was reassigned to the Honorable Amy Totenberg, and Lead Plaintiff subsequently filed the operative Second Amended and Consolidated Class Action Complaint on July 20, 2011 (the “SAC”) (Docket No. 97). The SAC includes new allegations stemming from investigations of the Company by the Securities and Exchange Commission (the “SEC”) and the U.S. Department of Justice (the “DOJ”). The Settlement was reached before the Settling Defendants moved to dismiss the SAC. 9. The Dismissal Order held, inter alia, that (1) Lead Plaintiff had not established a strong inference of scienter for any of the alleged false and misleading statements and omissions (Docket No. 90 at 36-77); (2) mixed statements of present fact and forward-looking statements would be considered entirely forward-looking under Eleventh Circuit precedent, id. at 83-84; (3) the 4 Case 1:08-cv-02940-AT Document 123 Filed 04/23/12 Page 6 of 53 forward-looking statements were protected by the statutory safe harbor, 15 U.S.C. § 78u-5(c)(1), since Lead Plaintiff had not established Defendants’ actual knowledge of falsity and further, that allegedly false statements made after February 22, 2006 were accompanied by adequate cautionary language, id. at 84- 87; and (4) because the group pleading doctrine did not survive the enactment of the Private Securities Litigation Reform Act (the “PSLRA”), Lead Plaintiff did not sufficiently allege that certain of the Individual Defendants made any allegedly false and misleading statement. Id. at 30-33. 10. There is a substantial risk the Court could find that the SAC failed to cure the deficiencies identified in the Dismissal Order as to the Settling Defendants. Even if the SAC did survive a second motion to dismiss, Lead Plaintiff would still need to overcome additional hurdles before the Settlement Class could possibly recover any damages, including class certification, summary judgment and trial. For example, the Settling Parties took very different positions on causation and damages issues that would likely be hotly contested during the Consolidated Action, including (1) the amount by which Carter’s common stock was allegedly artificially inflated (the Settling Defendants deny that there was inflation) during the Class Period; and (2) the extent to which the various matters that Lead Plaintiff alleged were materially false or misleading influenced the price 5 Case 1:08-cv-02940-AT Document 123 Filed 04/23/12 Page 7 of 53 of Carter’s common stock during the Class Period (the Settling Defendants deny that they did). Further proceedings before the Court would also require considerable additional judicial resources, time, and expense. Given these and other difficulties that the Settlement Class faced in pursuing the claims against the Settling Defendants, the Settlement provides an excellent guaranteed recovery immediately. 11. The Settlement was reached only after extensive investigative efforts by Lead Counsel. Lead Counsel identified 160 potential witnesses, contacted 114 potential witnesses and interviewed approximately 68 third parties. Lead Counsel also conducted a thorough review of publicly available information, prepared and filed three detailed consolidated complaints, and researched and prepared Lead Plaintiff’s opposition to Defendants’ motion to dismiss the FAC. Lead Counsel further explored the factual and legal issues regarding loss causation by consulting a damages expert. These efforts provided Lead Plaintiff with a clear understanding of the strengths and weaknesses of its claims before it entered into the Settlement. 12. The negotiations leading up to the Settlement were also hard-fought, and efforts to settle the claims were successful only after a full day of mediation before former United States District Court Judge Layn R. Phillips (“Judge Phillips”). Judge Phillips is a former Assistant United States Attorney in the 6 Case 1:08-cv-02940-AT Document 123 Filed 04/23/12 Page 8 of 53 Central District of California and a former United States Attorney for the Northern District of Oklahoma. He was appointed and served as a United States District Judge in the Western District of Oklahoma. After he resigned from the federal bench, he joined Irell & Manella LLP, where he specializes in complex civil litigation and mediations. Judge Phillips is one of the most experienced and respected mediators in the United States in securities class actions. Among the securities class action settlements that he mediated are the following: In re Cendant Corp. Sec. Litig. (D.N.J.); UnitedHealth Grp. Inc. PSLRA Litig. (D.Minn.); In re Healthsouth Corp.