1 James S. Christian (SBN 023614) CHRISTIAN ANDERSON PLC 2 5050 North 40th Street, Suite 320 Phoenix, Arizona 85018 3 Telephone: (602) 478-6828 [email protected] 4 James W. Johnson (admitted pro hac vice) 5 Michael H. Rogers (admitted pro hac vice) James T. Christie (admitted pro hac vice) 6 LABATON SUCHAROW LLP 140 Broadway 7 New York, New York 10005 Telephone: (212) 907-0700 8 [email protected] [email protected] 9 [email protected] 10 Counsel for Plaintiff Public Employees’ Retirement System of Mississippi 11 12 IN THE SUPERIOR COURT OF THE STATE OF ARIZONA 13 IN AND FOR THE COUNTY OF MARICOPA 14 PUBLIC EMPLOYEES’ RETIREMENT ) SYSTEM OF MISSISSIPPI, individually ) 15 and on behalf of all others similarly situated, ) Case No.: CV2016-050480 ) 16 Plaintiffs ) Declaration of James W. Johnson in v. ) Support of Lead Plaintiff’s Motion 17 ) for Approval of Class Action SPROUTS FARMERS MARKET, INC., et ) Settlement and Plan of Allocation and 18 al., ) an Award of Attorneys’ Fees and ) Payment of Expenses 19 Defendants. ) ) (Complex case) 20 ) ) 21 ) (Assigned to the Hon. Roger Brodman) ____________________________________ ) 22 23 24 25 26 27 28 DECLARATION OF JAMES W. JOHNSON 1 I, JAMES W. JOHNSON, declare as follows, under penalty of perjury: 2 1. I am a partner of the law firm of Labaton Sucharow LLP (“Labaton 3 Sucharow”). Labaton Sucharow serves as Court-appointed Lead Counsel for Lead 4 Plaintiff the Public Employees’ Retirement System of Mississippi (“PERS” or “Lead 5 Plaintiff”), and the proposed Settlement Class in the Action.1 I have been actively 6 involved throughout the prosecution and resolution of the Action, am familiar with its 7 proceedings, and have personal knowledge of the matters set forth herein based upon my 8 close supervision of the material aspects of the Action. 9 2. I submit this declaration in support of Lead Plaintiff’s Motion for Final 10 Approval of Class Action Settlement and Plan of Allocation and an Award of Attorneys’ 11 Fees and Payment of Expenses. The motion has the full support of Lead Plaintiff. See 12 Declaration of George Neville on behalf of PERS, attached hereto as Exhibit 1.2 13 I. PRELIMINARY STATEMENT 14 3. Following extensive, arm’s-length negotiations and a formal mediation 15 process facilitated by Michelle Yoshida (the “Mediator”), Lead Plaintiff has agreed to 16 settle all claims asserted against Defendants,3 and related claims, in exchange for the 17 payment of $9,500,000 (the “Settlement Amount”), for the benefit of the Settlement 18 Class. 19 20 1 All capitalized terms not otherwise defined herein have the same meaning as that set forth in the Stipulation and Agreement of Settlement, dated as of December 27, 2018 (the 21 “Stipulation”) previously filed with the Court as Exhibit 1 to Lead Plaintiff’s December 28, 2018 Motion for Preliminary Approval of Proposed Class Action Settlement. 22 2 Citations to “Exhibit” or “Ex.___” herein refer to exhibits to this Declaration. For clarity, exhibits that themselves have attached exhibits will be referenced as “Ex. __-__.” 23 The first numerical reference is to the designation of the entire exhibit attached hereto and the second alphabetical reference is to the exhibit designation within the exhibit 24 itself. 3 “Defendants” are Sprouts Farmers Market, Inc. (“Sprouts” or “the Company”), J. 25 Douglas Sanders, Amin N. Maredia, Donna Berlinski, Andrew S. Jhawar, Shon Boney, Joseph Fortunato, Lawrence P. Molloy, and Steven H. Townshend (the “Individual 26 Defendants” and with Sprouts, the “Sprouts Defendants”), AP Sprouts Holdings, LLC, and AP Sprouts Holdings (Overseas), L.P. (together “AP”), Barclays Capital Inc. and 27 Morgan Stanley & Co. LLC (the “Underwriter Defendants,” and with AP and the Sprouts 28 Defendants, collectively, the “Defendants”). 1 DECLARATION OF JAMES W. JOHNSON 1 4. Lead Plaintiff has succeeded in obtaining a favorable recovery for the 2 Settlement Class in the amount of $9,500,000, in cash. As set forth in the Stipulation, in 3 exchange for this payment, the proposed Settlement resolves all claims asserted by Lead 4 Plaintiff and the Settlement Class and all Released Claims against the Released 5 Defendant Parties. 6 5. The Action has been vigorously litigated for more than two years - from its 7 commencement in March 2016 through the execution of the Stipulation. The Settlement 8 was achieved only after Lead Counsel, inter alia, as detailed herein: (i) conducted a 9 thorough investigation concerning the allegedly fraudulent misrepresentations and 10 omissions made by Defendants in connection with the Company’s secondary public 11 offering of common stock that occurred on or about March 5, 2015 (the “Offering”), 12 including gathering and analyzing information about price indices, vegetable prices, price 13 inflation and deflation, and shipping and freight information related to fresh produce; 14 (ii) prepared and filed a detailed amended class action Complaint; (iii) overcame a 15 removal challenge that included litigation in the U.S. District Court for the District of 16 Arizona (the “District Court”) and the U.S. Court of Appeals for the Ninth Circuit (the 17 “Ninth Circuit”); (iv) successfully opposed a motion to stay the action in light of the 18 Supreme Court’s anticipated decision in Cyan, Inc. v. Beaver County Employees’ 19 Retirement Fund; (v) researched and drafted an opposition to Defendants’ comprehensive 20 motion to dismiss the Complaint, after which the Court entered an Order that granted in 21 part, and denied in part, Defendants’ motion ; (vi) moved for class certification; (vii) 22 engaged in extensive and diligent fact discovery, including analyzing approximately 23 62,000 pages of discovery documents produced by Defendants and third parties; (viii) 24 consulted with experts on damages and causation issues; and (ix) engaged in settlement 25 discussions under the guidance of an experienced Mediator. At the time the Settlement 26 was reached, Lead Counsel had a deep understanding of the strengths and weaknesses of 27 the Parties’ positions. 28 2 DECLARATION OF JAMES W. JOHNSON 1 6. As discussed below, according to Lead Plaintiff’s consulting damages 2 expert, aggregate damages in the Action were estimated to be approximately $69.8 3 million, assuming Lead Plaintiff was able to establish liability and factoring in 4 Defendant’s negative causation arguments. The $9.5 million Settlement, therefore, 5 represents a recovery of approximately 13.6% of Lead Plaintiff’s expert’s estimated 6 damages—a favorable recovery that is well within the range of reasonableness, 7 particularly in light of the countervailing legal and factual arguments tenaciously pursued 8 by Defendants and attendant litigation risks. See Lead Plaintiff’s Motion for Final 9 Approval of Class Action Settlement and Plan of Allocation and an Award of Attorneys’ 10 Fees and Expenses and Memorandum of Points and Authorities (“Motion”) at §I.B.3. 11 7. In deciding to settle, Lead Plaintiff and Lead Counsel took into 12 consideration the significant risks associated with advancing the claims alleged in the 13 complaint, as well as the duration and complexity of the legal proceedings, including 14 continued briefing on class certification, summary judgment motions, and trial, which 15 remained ahead. The Settlement was achieved in the face of staunch opposition by 16 Defendants who would have, had the Settlement not been reached, continued to raise 17 serious arguments concerning, among other things, materiality, traceability of the class’s 18 shares to the Offering, negative causation and damages. In the absence of a settlement, 19 there was a real risk that the Settlement Class could have recovered nothing or an amount 20 significantly less than the negotiated Settlement. 21 8. In addition to seeking approval of the Settlement, Lead Plaintiff seeks 22 approval of the proposed plan for allocating the proceeds of the Settlement among 23 claimants (the “Plan of Allocation”). As discussed in further detail below and in Lead 24 Plaintiff’s Motion, the proposed Plan was developed by Lead Plaintiff’s consulting 25 damages expert, and provides for the fair and equitable distribution of the Net Settlement 26 Fund to Settlement Class Members who submit Claim Forms that are approved for 27 payment. 28 3 DECLARATION OF JAMES W. JOHNSON 1 9. With respect to the Fee and Expense Application, the requested fee of 17% 2 of the Settlement Fund is eminently fair to the Settlement Class, and warrants the Court’s 3 approval. This fee request is well within the range of fee percentages frequently awarded 4 in this type of action, below the benchmark followed by courts within Arizona, and below 5 the lodestar value of Plaintiffs’ Counsel’s time dedicated to the case.4 Lead Counsel also 6 seeks litigation expenses totaling $98,598.40, plus an award to Lead Plaintiff, 7 commensurate with the time it dedicated to the case, in the amount of $25,050. 8 II. SUMMARY OF LEAD PLAINTIFF’S CLAIMS 9 10. As set forth in the Complaint, Sprouts is a discount grocery chain that 10 focuses on selling fresh, natural, and organic foods. Complaint ¶¶25, 33. The Action 11 arises out of Defendants’ allegedly false and misleading representations in the 12 Registration Statement filed with the U.S. Securities and Exchange Commission in 13 connection with the Company’s secondary public offering of 15,847,800 shares of 14 Sprouts common stock that occurred on or about March 5, 2015 (the “Offering”). 15 11. As alleged in the Complaint, the Registration Statement contained 16 misstatements or omissions concerning fresh produce price inflation and deflation 17 immediately prior to the Offering, causing the Settlement Class to suffer losses. 18 12. The Complaint was brought against Defendants for violations of Sections 19 11 (against all Defendants), 12(a)(2) (against the Sprouts Defendants and the Underwriter 20 Defendants) and 15 (against the Sprouts Defendants and AP) of the Securities Act of 21 1933 (the “Securities Act”).