Stipulation of Settlement
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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE Chapter 11 In re: Case No. 15-12465-CSS ARCTIC SENTINEL, INC. [f/k/a 1 Fuhu, Inc.], et al., (Jointly Administered) Debtors. STIPULATION RESOLVING (1) CLASS CLAIM OF SCOTT MILLER AND JAMES E. GRIFFIN (CLAIM NO. 177), (2) CLAIM OF D&H DISTRIBUTING CO. (CLAIM NO. 153), (3) CLAIM OF WISTRON CORPORATION AND WISTRON INFOCOMM TECHNOLOGY (AMERICA) CORPORATION (CLAIM NO. 162), (4) CERTAIN ADDITIONAL CLAIMS AMONG THE PARTIES, AND (5) DISALLOWING AND EXPUNGING CLAIMS OF GUTRIDE SAFIER LLP (CLAIM NOS. 165, 166, 167, AND 168) (1) Saccullo Business Consulting, LLC, the Liquidating Trustee (the “Liquidating Trustee”) of the Tablet Liquidating Trust (the “Liquidating Trust”), (2) Scott Miller (“Miller”) and James E. Griffin IV (“Griffin”), collectively, the class representatives (the “Class Representatives”) of the certified Class (as defined herein) of purchasers of certain Nabi tablets and of various subclasses of the Class, (3) D&H Distributing Co. (“D&H”), (4) Wistron Corporation and Wistron Infocomm Technology (America) Corporation (“Wistron”), and (5) Gutride Safier LLP (“Gutride Safier”), and collectively with the Class, D&H, and Wistron the “Claimants”),2 hereby enter into this stipulation (the “Stipulation”) and agree as follows: 1 The Debtors, together with the last four digits of each Debtor’s tax identification number, are: Arctic Sentinel, Inc. [f/k/a Fuhu, Inc.] (7896); Arctic Sentinel Holdings, Inc. [f/k/a Fuhu Holdings, Inc.] (9761); Arctic Sentinel Direct, Inc. [f/k/a Fuhu Direct, Inc.] (2180); and Sentinel Arctic, Inc. f/k/a Nabi, Inc.] (4119). 2 The Claimants, together with the Liquidating Trustee shall be defined herein as the “Parties”). 1. 168991661 v3 RECITALS I. BACKGROUND A. On December 7, 2015 (the “Petition Date”), Debtors Fuhu, Inc. (“Fuhu”), and Fuhu Holdings, Inc., filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code (“Petitions”) in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). Subsequently, on December 11, 2015, Debtors Fuhu Direct, Inc., and Nabi, Inc. filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. B. On January 22, 2016, the Bankruptcy Court entered an order approving the sale of substantially all of the Debtors’ assets (the “Sale”) to Mattel, Inc. (“Mattel”) or its designee [Bankruptcy Court Docket No. 345]. That transaction closed on January 29, 2016 (“Sale Date”). C. On November 30, 2016, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the First Amended Plan of Liquidation of the Debtors Pursuant to Chapter 11 of the Bankruptcy Code [Bankruptcy Court Docket No. 892]. Pursuant to the [Confirmation Order], on January 25, 2017 the Tablet Liquidating Trust was established, the Liquidating Trustee was appointed, and substantially all of the Debtors’ remaining assets were transferred to the Liquidating Trust. Pursuant to Paragraph 53 of the Confirmation Order, the Debtors’ bankruptcy estates were substantively consolidated. II. THE CLASS ACTION D. On July 7, 2014, Miller filed a putative class action complaint in the Superior Court of the State of California, Los Angeles Division (Miller v. Fuhu, Inc., Fuhu Holdings, Inc. et al., Case No. BC550858, defined herein as the “Class Action”). The Class Action alleged six causes of action including: (1) violation of the Consumer Legal Remedies Act, (2) violation of the False Advertising Law, (3) fraud, deceit, and/or misrepresentation, (4) breach of express 2. 168991661 v3 warranty, (5) violation of the Song-Beverly Consumer Warranty Act, and (6) deceptive and unlawful trade practices under the California Unfair Competition Law against Debtors Fuhu, Inc. and Fuhu Holdings, Inc. (together, the “Fuhu Defendants”). At all times, Miller has been represented by a single law firm, Gutride Safier. E. On August 8, 2014 the Class Action was removed to the U.S. District Court for Central District of California (Western Division) (the “District Court”) and assigned Case No. 14-cv-6119 CAS (ASx) [District Court Docket No. 1]. F. On November 26, 2014, Miller and the Fuhu Defendants entered into a stipulated protective order in the Class Action allowing the parties to designate materials produced in discovery as confidential. G. On March 5, 2015, Miller filed a first amended complaint in the Class Action, re- alleging the same six causes of action and adding a seventh cause of action for declaratory judgment based on changes to Fuhu’s online Terms of Service [District Court Docket No. 31]. H. On May 25, 2015, Miller filed the operative second amended complaint (“Second Amended Complaint”) in the Class Action [District Court Docket No. 50]. The Second Amended Complaint alleged claims on behalf of Miller and those similarly situated who purchased Nabi tablets for (1) violation of California’s Consumers Legal Remedies Act, Cal. Civil Code § 1750, et seq.; (2) violation of California’s False Advertising Law, Cal. Bus. Prof. Code § 17500, et seq.; (3) common law fraud, deceit, and/or misrepresentation; (4) breach of express warranty, in violation of Cal. Com. Code § 2100, et seq.; (5) breach of the implied warranty of merchantability, in violation of the Song-Beverly Consumer Warranty Act, Cal. Civil Code § 1790, et seq.; (6) violation of California’s Unfair Competition Law, Cal. Bus. Prof. Code §§ 17200, et seq.; and (7) for a declaratory judgment that the Defendants’ Terms of Use 3. 168991661 v3 and the arbitration provision contained therein were unconscionable, illegal and unenforceable. Except for the seventh cause of action regarding the arbitration provision, the gravamen of Miller’s claims is that the Nabi tablet computers were falsely advertised as being “rechargeable” and suitable and appropriate for use by children, despite the fact that the Fuhu Defendants, and their manufacturers and distribution partners, knew they were being designed and manufactured with defective, substandard charging systems that were prone to failure (including, alleging in certain rare instances, such defects caused burns and fires) and that did not allow the tablets to be reliably recharged. I. On June 11, 2015, the Fuhu Defendants filed their Answer to the Second Amended Complaint [District Court Docket No. 58]. The Fuhu Defendants denied that Miller’s purported classes are certifiable or that Miller or others similarly situated suffered any injury or damage as a result of their actions or alleged omissions. In addition, the Fuhu Defendants asserted 24 affirmative defenses. J. On June 29, 2015, Miller filed a motion for class certification pursuant to Rule 23 of the Federal Rules of Civil Procedure [District Court Docket No. 82]. K. On October 13, 2015, the Fuhu Defendants filed an opposition [District Court Docket No. 111], to which Miller replied on November 2, 2015 [District Court Docket No. 132]. L. On December 2, 2015, the District Court entered a 39-page decision and order denying Miller’s motion seeking to represent a class of certain purchasers of the Nabi tablets, without prejudice. [District Court Docket No. 163]. 4. 168991661 v3 III. THE CLASS CLAIM M. On May 31, 2016, Miller filed a motion in the Bankruptcy Court seeking limited relief from the automatic stay to renew his motion for class certification in the District Court, or alternatively for an order applying Bankruptcy Rule 7023 pursuant to Bankruptcy Rule 9014(c) to permit the filing of a renewed motion for class certification in the Bankruptcy Court [Bankruptcy Court Docket No. 616]. N. On June 28, 2016, the Class Representatives filed identical proofs of claim numbered 174, 175, 177 and 178 against each of the four Debtors in the Bankruptcy Court asserting a general unsecured claim in the sum of $455,664.063.32 arising from the Class Action. O. On July 7, 2016, the Bankruptcy Court entered an order approving a stipulation (the “July 7, 2016 Stipulation And Order”) among the Debtors, the Committee and the Class Representatives. [Bankruptcy Court Docket No. 667]. The July 7, 2016 Stipulation and Order certified the following Class and subclasses for the limited purposes of filing and liquidation of class proofs of claim in the Bankruptcy Court and the distribution of funds, if appropriate, to the Class members, Class Representatives and their counsel to the extent of their respective entitlements thereto. Miller and Griffin were jointly appointed as representatives of each Class and subclass as set forth below: All persons, who between July 3, 2010 and September 30, 2015 purchased, in the United States, a Nabi 2, Nabi 2S, Nabi XD, Nabi Jr. (including Nabi Jr. S) or Nabi DreamTab tablet (the “Class”);3 All members of the Class who purchased and registered their Nabi tablet with one or more of the Debtors prior to September 24, 2014 (the “Unconscionability Subclass”); 3 The Class excludes, inter alia, purchasers of the Nabi BigTab tablets, purchasers for purpose of resale and purchasers who are affiliates of the Debtors. 5. 168991661 v3 All members of the Class who purchased their Nabi tablets from a third-party retailer (the “Warranty Subclass”). P. The above Class and each Subclass (collectively referred to as the “Class”) is further subdivided into those members who purchased a Nabi (a.k.a. Nabi 1) or Nabi 2 Tablet (“First Generation Tablet”) and those members who purchased a Nabi 2S, Nabi XD, Nabi Jr. (including Nabi Jr. S) or Nabi DreamTab Tablet (“Second Generation Tablet”). Miller was appointed to represent the subclasses pertaining to the First Generation Tablets, and Griffin was appointed to represent the subclasses pertaining to the Second Generation Tablets. Q. The July 7, 2016 Stipulation And Order appointed Gutride Safier as Class counsel (“Class Counsel”). It also provided that each of the Class Representatives was authorized to file one or more class proofs of claims asserting general unsecured claims against the Debtors in the bankruptcy cases, but that duplicative claims by Class Representatives against multiple Debtors shall be deemed withdrawn upon consolidation of the Debtors’ estates.