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United States District Court Eastern District of Texas Sherman Division Case 4:17-cv-00449-ALM Document 283-1 Filed 04/15/20 Page 1 of 69 PageID #: 12098 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF TEXAS SHERMAN DIVISION OKLAHOMA LAW ENFORCEMENT Case No. 4:17-CV-0449-ALM RETIREMENT SYSTEM, Individually And On Behalf Of All Others Similarly Situated, Judge Amos L. Mazzant, III Plaintiff, vs. ADEPTUS HEALTH INC., et al., Defendants. JOINT DECLARATION OF JEREMY P. ROBINSON AND RICHARD A. RUSSO, JR. IN SUPPORT OF: (A) PLAINTIFFS’ MOTION FOR FINAL APPROVAL OF CLASS ACTION SETTLEMENT AND PLAN OF ALLOCATION; AND (B) LEAD COUNSEL’S MOTION FOR AN AWARD OF ATTORNEYS’ FEES AND LITIGATION EXPENSES Case 4:17-cv-00449-ALM Document 283-1 Filed 04/15/20 Page 2 of 69 PageID #: 12099 TABLE OF CONTENTS Page I. INTRODUCTION .................................................................................................................. 1 II. HISTORY AND PROSECUTION OF THE ACTION .......................................................... 7 A. Adeptus Declares Bankruptcy............................................................................... 10 B. Lead Plaintiffs and Lead Counsel Are Appointed and Continue Their Extensive Investigation ......................................................................................... 11 C. Overview and Filing of the Complaint ................................................................. 13 D. Defendants’ Extensive Motions to Dismiss the CAC ........................................... 14 E. The Court’s Opinion Largely Denying Defendants’ Motions to Dismiss and the Start of Discovery..................................................................................... 17 F. The Second Amended Complaint ......................................................................... 19 G. Defendants’ Motions to Dismiss the Second Amended Complaint...................... 20 H. Plaintiffs’ Motion for Class Certification ............................................................. 21 I. Plaintiffs’ Extensive Discovery Efforts ................................................................ 24 1. Plaintiffs’ Counsel’s Litigation Teams ..................................................... 25 2. Document Discovery ................................................................................ 27 3. Written Discovery ..................................................................................... 30 4. Depositions ............................................................................................... 31 5. Expert Discovery ...................................................................................... 32 III. THE SETTLEMENT NEGOTIATIONS AND TERMS OF THE SETTLEMENT ............ 34 A. The Initial Mediation ............................................................................................ 34 B. Continued Negotiations ........................................................................................ 34 C. The Settlement ...................................................................................................... 35 i Case 4:17-cv-00449-ALM Document 283-1 Filed 04/15/20 Page 3 of 69 PageID #: 12100 IV. THE SIGNIFICANT RISKS OF CONTINUED LITIGATION .......................................... 36 A. Significant Risks Arising From Adeptus’s Bankruptcy and Competition for the Limited Remaining Available Funds ....................................................... 37 B. Plaintiffs Faced a Number of Substantial Risks in Proving Defendants’ Liability and Damages .......................................................................................... 38 C. Plaintiffs Faced Additional Risk Due to Defendants’ Challenges to Class Certification .......................................................................................................... 42 D. Plaintiffs Faced Appellate Risk ............................................................................ 43 E. General Risks Involved in Prosecuting Securities Class Actions ......................... 43 V. PRELIMINARY APPROVAL OF THE SETTLEMENT ................................................... 45 VI. PLAINTIFFS’ COMPLIANCE WITH THE COURT’S PRELIMINARY APPROVAL ORDER REQUIRING ISSUANCE OF NOTICE .......................................... 46 VII. ALLOCATION OF THE PROCEEDS OF THE SETTLEMENT ....................................... 48 VIII.THE FEE AND LITIGATION EXPENSE APPLICATION ............................................... 52 A. The Fee Application .............................................................................................. 53 1. The Time and Labor Required to Achieve the Settlement ....................... 54 2. The Quality of the Result Achieved by Lead Counsel ............................. 56 3. The Skill and Experience of Plaintiffs’ Counsel....................................... 58 4. The Fully Contingent Nature of the Fee and the Extensive Risks of the Litigation ............................................................................................. 59 5. Plaintiffs’ Endorsement of the Fee Application........................................ 60 6. The Reaction of the Settlement Class to the Fee Application to Date ........................................................................................................... 61 B. The Litigation Expense Application ..................................................................... 61 IX. CONCLUSION ..................................................................................................................... 65 ii Case 4:17-cv-00449-ALM Document 283-1 Filed 04/15/20 Page 4 of 69 PageID #: 12101 1. I, Jeremy P. Robinson, am a partner in the law firm of Bernstein Litowitz Berger & Grossmann LLP (“BLB&G”). BLB&G is co-counsel for the Court-appointed Co-Lead Plaintiff the Arkansas Teacher Retirement System (“ATRS”). I have personal knowledge of the matters set forth herein based on my active participation in the prosecution and settlement of this action (the “Securities Action” or “Action”). 2. I, Richard A. Russo, Jr., am a partner in the law firm of Kessler Topaz Meltzer & Check, LLP (“KTMC” and, together with BLB&G, “Lead Counsel”). KTMC is co-counsel for ATRS and counsel for the Court-appointed Co-Lead Plaintiff, Alameda County Employees’ Retirement Association (“ACERA”) and additional named plaintiff Miami Firefighters’ Relief and Pension Fund (“Miami,” and collectively with ATRS and ACERA, “Plaintiffs”). I have personal knowledge of the matters set forth herein based on my active participation in the prosecution and settlement of this Action. 3. We respectfully submit this Joint Declaration in support of: (a) Plaintiffs’ Motion for Final Approval of Class Action Settlement and Plan of Allocation (the “Final Approval Motion”); and (b) Lead Counsel’s Motion for an Award of Attorneys’ Fees and Litigation Expenses (the “Fee and Expense Motion”). I. INTRODUCTION 4. The proposed Settlement, if approved by the Court, will resolve all claims in this Action in exchange for a cash payment of $44 million from Defendants.1 The Settlement was 1 Defendants are: (i) Thomas S. Hall, Timothy L. Fielding, and Graham B. Cherrington (collectively, “Executive Defendants”); (ii) entities operating under the trade name Sterling Partners, SC Partners III, L.P., SCP III AIV THREE-FCER Conduit, L.P., SCP III AIV THREE-FCER L.P., Sterling Capital Partners III, LLC, Sterling Capital Partners III, L.P., Sterling Fund Management LLC, Sterling Fund Management Holdings, L.P., and Sterling Fund Management Holdings GP, LLC (collectively, “Sterling Defendants”); (iii) Richard Covert, Daniel Rosenberg, Daniel J. Hosler, Steven Napolitano, Ronald L. Taylor, Gregory W. Scott, Jeffrey S. Vender, and Stephen M. Mengert (collectively, “Director Defendants”); (iv) Goldman Sachs & Co. LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated (n/k/a BofA Securities, Inc.), BMO 1 Case 4:17-cv-00449-ALM Document 283-1 Filed 04/15/20 Page 5 of 69 PageID #: 12102 achieved after three years of highly contested litigation, during which time Lead Counsel2 expended significant efforts and resources on behalf of the Settlement Class. These efforts included investigating securities fraud and negligence claims against Defendants, engaging in an enormous discovery process, including the review and analysis of nearly three million pages of documents, and conducting, defending, or actively participating in 37 depositions, including leading the two-day depositions of Adeptus’s former CEO (Defendant Hall), CFO (Defendant Fielding) and COO (Defendant Cherrington). Moreover, Lead Counsel committed the bulk of these efforts and resources after Adeptus declared bankruptcy in April 2017, which eliminated Adeptus as a defendant and materially heightened the risk that no recovery could be achieved at all. 5. The proposed Settlement was reached after Lead Counsel had taken steps to protect the Settlement Class’s interests in Adeptus’s bankruptcy proceedings, briefed two extensive rounds of motions to dismiss as well as a class certification motion, essentially completed hard- fought fact discovery and were on the verge of exchanging merits expert reports with Defendants. The Settlement was the product of a months-long mediation process before former United States District Judge Layn Phillips (“Judge Phillips”), who ultimately had to make an interim mediator’s recommendation to get the Parties to negotiating positions within a close enough range to allow a Capital Markets Corp., Evercore Group L.L.C., Piper Jaffray & Co., Dougherty & Company LLC, Deutsche Bank Securities
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