In re IKON OFFICE SOLUTIONS, INC. SECURITIES LITIGATION. Andrew J. Karcich, Custodian for Andrew J. Karcich-UGMA NJ, Plaintiff, v. John E. Stuart, et al., Defendants, 194 F.R.D. 166

MEMORANDUM & ORDER KATZ, Senior District Judge. The parties have requested approval of two settlements. The first is a partial settlement of a securities class action for $111 million; class counsel seeks thirty percent of this fund as attorneys’ fees. The second is a complete settlement of a related derivative suit for $5 million, which will be contributed to the class action fund. Attorneys’ fees for the derivative suit would come from the amount awarded to class counsel. After a fairness hearing on April 11, 2000, the court grants all of these requests and issues a final judgment and order under Rule 54(

b) of the Federal Rules of Civil Procedure. I. Introduction A. Background and Underlying Allegations '1. In re Ikon Ikon Office Solutions, Inc., is the successor to Aleo Standard Corporation. Aleo had two primary businesses. The first included sales and leasing of document imaging equipment, document management, and related services; the second was a paper supply and packaging systems distribution business. As of January 1, 1997, Aleo spun off the paper and packaging business to shareholders under the name of Unisource Worldwide, Inc. and changed its own name to Ikon Office Solutions, Inc.

Aleo stock was traded on the New York Stock Exchange, and Ikon stock is still traded there. During the period at issue, Ikon embarked on an aggressive strategy of integrating numerous individually operating copier dealers and related businesses in a so-called “transformation initiative.” Ikon acquired more than 200 companies, purchasing many primarily with Ikon stock. While the parties disagree on the exact source and scope of the financial difficulties that soon followed, the incorporation of these companies into the Ikon network clearly did not proceed smoothly.

On August 14,. 1998, Ikon announced that it was taking a $110 million charge against earnings, $94 million in the third fiscal quarter of 1998, and $16 million against the previously reported second fiscal quarter earnings, which were restated. This charge had several components: a write-down of accounts receivable, charges with respect to lease defaults, breakdowns in the execution of internal controls, loss from an asset impairment in a technologies services company, and adjustments at numerous operating units.

Ikon stock declined at the time of the Unisource spin-off and traded through most of 1997 and the first half of 1998 at a range of $20.00 to $30.00 per share. At the end of the first half of 1998 and into the second half, it began falling steadily, reaching about $10.00 a share. After the charge to earnings, it fell even farther. The charge to earnings and subsequent decline in stock price led to the present litigation. Fourteen actions were filed in the Eastern District of Pennsylvania, and, on October 20, 1998, this court consolidated those and subsequent actions.

On November 30, 1998, the court approved a proposed structure for lead plaintiffs and lead counsel submitted by plaintiffs’ counsel. Plaintiffs filed their Consolidated Class Action complaint on December 19, 1998. This complaint asserted violations of sections 10(

b) and 20(

a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78t(a), and Rule lOb-o, 17 C.F.R. § 240.10b-5. The complaint named as defendants Ikon itself, as well as John Stuart, Kurt Dinkelacker, James Forese, and ■ Michael J. Dillon, who were all members of Ikon’s senior management. For purposes of this memorandum, these parties will be referred to as the “Ikon defendants” or the “settling defendants.” The complaint alleged that defendants engaged in a fraudulent scheme to falsify Ikon’s financial results and to issue aggressive financial projections for which defendants lacked a reasonable basis.

Plaintiffs focused on allegedly materially false and misleading financial statements regarding Ikon’s revenue and income; the utilization of accounting devices such as understatement of reserves for doubtful account receivables, obsolete inventory and lease defaults; recognition of revenue based on the improperly inflated value of leased equipment; and recording of revenue from lease transactions that had not actually taken place. Plaintiffs also alleged that Ikon’s senior management deliberately pressured lower level management to issue reports with inflated results.

According to the complaint, this led Ikon business units improperly to reduce reserves, accrued pay-ables, and other accounts in violation of generally accepted accounting principles (GAAP), all of which artificially inflated earnings and income. Plaintiffs contended that these fraudulent practices enabled Ikon to overstate its income during the class period, described subsequently, by at least $110 million, and concurrently to inflate its securities. On March 15, 1999, the court approved the parties’ stipulation certifying the following class pursuant to Federal Rule of Civil Procedure 23(

a) and 23(b)(3): All persons who purchased or otherwise acquired common stock and/or call options of Aleo Standard Corp., and/or Ikon Office Solutions, Inc. during the period from January 1, 1997 through and including August 13, 1998; or “when issued” common stock of Aleo Standard Corp. during the period from December 9, 1996, through and including December 31, 1996; or convertible preferred stock of Aleo Standard Corp. and/or Ikon Office Solutions, Inc. during the period from December 16, 1996 through and including August 13, 1998.

Excluded from the Class are defendants, the officers and directors of Ikon, members of the immediate families of such officers and directors, and subsidiaries and affiliates of the defendants (the “Certified Class”). Order of Mar. 15,1999 111. In late June 1999, plaintiffs filed an Amended Consolidated Class Action Complaint alleging 10(

b) violations against the accounting firm Ernst & Young (E & Y). This Amended Complaint also included claims against Ikon and the individual defendants brought under sections 11 and 12(2) of the Securities Act of 1933, 15 U.S.C. §§ 77k, 771, based on alleged errors and misrepresentations contained in the May 1997 Registration Statement. In August 1999, the court permitted the plaintiffs to file a Second Amended and Consolidated Complaint that added

section 11 allegations against E & Y based on its role in the May 1997 Registration Statement. E & Y served as Alco’s independent outside accountant and continued in that role for Ikon. As of January 1997, E & Y also assumed responsibilities for Ikon’s internal audits, and most of the allegations focused on that internal role. E & Y is not a party to the proposed settlement and originally raised several objections to its terms. Settlement negotiations commenced in spring 1999.

The parties represent that, during these negotiations, plaintiffs’ counsel contended that they had a strong liability case and could prove enormous damages. Defendants responded both that the liability portion of the case was weak and that Ikon could not pay the damages demanded. Consequently, plaintiffs engaged Wilbur Ross, Senior Managing Director of Rothschild, Inc., an investment banking firm, to analyze the maximum amount Ikon could pay without impairing its operations. See Joint Decl. of Lead Counsel II42. Settlement negotiations continued over the next several. months.

On November 24, 1999, this court granted joint motions for an order preliminarily approving a partial settlement between plaintiffs and the Ikon defendants, as embodied in a memorandum of understanding, and staying pretrial proceedings, including discovery between plaintiffs and E & Y, pending final approval of the partial settlement in the spring of 2000. By order of December 29, 1999, the court preliminarily approved the terms of the stipulation of settlement. 2. The Derivative Suit In late November 1999, an individual Ikon shareholder filed a derivative action captioned as Karcich, Custodian for Andrew J.

Karcichr-UGMA, NJ, et al. v. Stuart, et al. (hereinafter Karcich or the derivative suit). This suit names as defendants John Stuart, James Forese, Kurt Dinkelacker, and Michael Dillon. It also names Ikon itself as a nominal defendant.

Karcich alleges that the individual defendants breached their fiduciary duties to Ikon by, inter alia, failing to supervise adequately Ikon operations, employees, and managers; failing to become or remain adequately informed as to the conduct of Ikon operations; failing to take action to correct improper financial practices and/or concealing, directing, or encouraging such practices; and recklessly exposing Ikon to substantial losses, including the class action, as a result of these errors. By order of December 29, 1999, the court granted preliminary approval of the proposed settlement in this action. B.

The Terms of the Settlements Although the two settlements are very much dependent upon one another, there are separate agreements in the two cases. 1. In re Ikon The settling defendants have paid into an escrow account on behalf of plaintiffs and the global class the cash sum of $111 million, which has been earning interest since January 13, 2000. Five million of the $111 million total comes from the settlement of the derivative suit, discussed in the next section. As of April 13, 2000, the account had earned approximately $841,000 in interest.

The global class, which is the certified class plus the settlement class, is defined as: a. all persons who purchased or otherwise acquired common stock, convertible preferred stock, and/or call options of Aleo Standard Corp. and/or IKON during the period from January 24, 1996 through and including August 13, 1998, other than the members of the Certified Class who do not timely exclude themselves from the Settlement Class; and b. all persons who excluded themselves from the Certified Class but who, pursuant to the Settlement, request inclusion in the Settlement Class for the purpose of being able to participate in the Settlement.

See Preliminary Approval Order of Dec. 30, 1999 H3. The settlement provides that, following payment of attorneys’ fees and reimbursement of expenses to plaintiffs’ counsel, the net settlement fund, which is defined as the settlement fund plus interest minus settlement administration costs and attorneys’ fees and cost reimbursement, will be distributed to global class members whose proofs of claim are approved on a pro rata basis as described in the plan of allocation. In addition to the cash settlement, the settling defendants have agreed to cooperate with plaintiffs in the case against E & Y.

As plaintiffs describe this obligation, This cooperation, which is already underway, provides for the interviews of all of the individual defendants and up to 12 current IKON employees selected by plaintiffs. Further, these individuals are required, upon request of plaintiffs’ counsel, to execute appropriate written statements accurately reflecting their knowledge of pertinent, non-privileged facts and to accept trial subpoenas to appear as witnesses at any trial against E & Y.

IKON has also agreed to cooperate with plaintiffs’ counsel concerning the authentication of documents, and the production of potentially useful documents not yet in the possession of plaintiffs’ counsel. Joint Deck 1148; see also Stip. and Agmt. of Settlement 1110 (describing nature of cooperation). Upon court approval of the settlement, plaintiffs and global class members will release all claims against the settling defendants and related parties, excluding E & Y, that were or could have been asserted in this litigation.

For these purposes, the release contained in the final order of judgment defines “settled claims” as follows: [A]ll claims, demands, rights, liabilities and causes of action of every nature and description whatsoever, known or unknown, asserted or that might have been asserted, including, without limitation, claims for negligence, gross negligence, fraud, negligent misrepresentations, breach of fiduciary duty, or violations of any state or federal statutes, rules or regulations, by any Lead Plaintiff or Global Class member against Settling Defendants or Released Parties arising out of, relating to, or in connection with purchases or acquisitions by any other means, directly or indirectly, of IKON Securities at prices which are alleged to have been wrongfully inflated during the Class Period from January 24, 1996 through and including August 13, 1998 — or arising out of or relating to any of the acts, omissions, misrepresentations, facts, events, matters, transactions or occurrences referred to in any of the complaints filed in the Litigation or the Derivative Action or otherwise alleged, asserted or contended in the Litigation or Derivative Action as having wrongfully inflated the market price of IKON Securities; provided however, Settled Claims shall not include: (

a) any claim that, in connection with a Global Class member’s sale of his or her business to IKON in return in whole or in part, for securities, IKON breached its contract with the Global Class member by failing to perform any of its obligations, except that a claim alleging that there was a wrongful inflation of the price of IKON Securities is a Settled Claim; (

b) any claim that IKON or other Released Parties violated duties to any IKON employee who is a Global Class member, except that such claims are Settled claims insofar as the injury alleged is that the Global Class member or a trust or other ERISA related entity of which the Global Class member is a beneficiary or participant was caused to acquire or did acquire, directly or indirectly, IKON Securities at wrongfully inflated prices during the Class period; and (

c) any claims, demands, rights, liabilities, and causes of action, of any nature and description whatsoever, that are asserted or that could have been asserted by a Lead Plaintiff or Global Class member against Ernst & Young LLP, or any of its predecessors, successors, affiliates, partners, principals, or employees. Final Judgment of Dismissal with Prejudice as to Certain Defendants H 6. In addition, the settlement provides that class counsel may seek attorneys’ fees of up to thirty percent of the settlement fund and costs up to $3.9 million. 2.

The Derivative Action The Ikon settlement is also contingent upon court approval of the proposed settlement in the derivative suit. This settlement provides for Reliance Insurance Company to deposit $5 million dollars on behalf of the individual defendants into the settlement fund established for the Ikon securities actions. Essentially, the individual defendants have made their liability insurance policies payable to Ikon, thus reducing the amount that the corporation will pay.

The settlement also provides that derivative counsel may request up to twelve percent of the derivative settlement amount, including interest, in addition to expenses. C. The Fairness Hearing On April 11, 2000, the court held a fairness hearing on the proposed settlements. Counsel for the settling parties in the securities action outlined the terms and plan of allocation. The court then heard from five objectors: the so-called ERISA plaintiffs in Whetman v. Ikon Office Solutions, Inc., a case consolidated with In re Ikon by the JPMDL’s order; James and Darin Wallis, plaintiffs in Wallis v.

Ikon Office Solutions, Inc., another consolidated case; non-settling defendant E & Y; John Guest and Bryan Chapman; and the Hogan, Smith, Alspaugh, Samples & Pratt, P.C. Profit Sharing Retirement Plan (hereinafter HSA). The court granted uncontested motions to intervene submitted by Guest and Chapman and HSA. See Orders of April 11, 2000. The parties in the derivative suit also summarized the terms of that settlement, to which there were no objectors. II.

In re Ikon “The law favors settlement, particularly in class actions and other complex cases where substantial judicial resources can be conserved by avoiding formal litigation.” In re Gen. Motors Corp. Pick-Up Track Fuel Tank, 55 F.3d 768, 784 (3d Cir. 1995). Nonetheless, the court has an obligation to ensure that class members’ interests have been protected. Before approving a settlement, the court must examine whether adequate notice was issued to prospective class members. See Fed.R.Civ.P. 23(c)(2).

The court must also determine whether a settlement class is properly certified under Federal Rules of Civil Procedure 23(

a) and (b)(3). Finally, the court must decide whether the proposed settlement itself is fair to settling parties and relevant third parties. See Fed.R.Civ.P. 23(e). Although the court may acknowledge that the proposed class is a settlement class, it may not even reach the fairness question if there is not a proper class and may not substitute the fairness inquiry for the Rule 23(

a) and (

b) inquiry. See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620-21, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997); In re Prudential Ins. Co. of Amer. Sales Practices Litig., 148 F.3d 283, 308 (3d Cir.1998). A. Adequacy of Notice ' “In order to satisfy due process, notice to class members must be ‘reasonably calculated under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.’ ” Lachance v. Harrington, 965 F.Supp. 630, 636 (E.D.Pa.1997) (quoting Mullane v.

Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865 (1950)). This determination must be made before inquiry into the merits is proper. See In re Prudential, 148 F.3d at 326-27; Lachance, 965 F.Supp. at 636; see also Fed.R.Civ.P. 23(e) (barring settlement of class action unless proper notice is made). In 23(b)(3) actions, class members must receive “ ‘the best notice practicable under the circumstances,’ ” including individual notice to all shareholders who can be identified through reasonable effort. Lachance, 965 F.Supp. at 636 (quoting Fed.R.Civ.P. 23(c)(2)).

The notice provided met the requirements of due process and the Rules of Civil Procedure. In July 1999, plaintiffs’ counsel mailed more than 140,000 copies of a Notice of Pendency of Class Action and Request for Exclusion and published a

Summary Notice of Pendency of Class Action. Only about 2,500 requests for exclusion were received following this dissemination. See Aff. of D. Lee Janvrin (Apr. 10, 2000) 117. In January 2000, plaintiffs mailed more than 170,000 notices entitled Notice of Pendency of Class Action, Proposed Settlement and Hearing Thereon (“Settlement Notice”), and Proofs of Claim and Release forms to individuals who purchased common stock, convertible preferred stock, or call options of Ikon or Aleo from January 24,1996, through and including August 13,1998.

See Aff. of Cheryl Washington (Mar. 7, 2000) 113; Janvrin Aff. (Apr. 10, 2000) H3. In response to inquiries or correspondence, more than 75,000 additional Settlement Notices and claim forms were mailed. See Janvrin Aff. (Apr. 10, 2000) 115. In addition, the plaintiffs published a

Summary Notice in the Wall Street Journal National Edition on January 25, 2000. See id. 116. The substance of the Settlement Notice was also adequate. It contained a detailed explanation of the settlement terms, including estimates of potential recovery if the action were to proceed to trial and counsel’s reasons for proposing the settlement. The potential maximum request for attorneys’ fees was included, as were the names and contact information of relevant attorneys. The proposed release was reproduced verbatim, as was the plan of allocation. Similarly, the

Summary Notice gave the essential terms of the settlement and information on how to acquire the full notice. B. Class Certification The parties seek to certify this settlement class pursuant to Federal Rules of Civil Procedure 23(

a) and 23(b)(3). Class actions are particularly appropriate in cases alleging securities fraud, see, e.g., Eisenberg v. Gagnon, 766 F.2d 770, 785 (3d Cir.1985), and this settlement class easily meets the certification requirements. The court makes no comment as yet on the status of any class action against non-settling defendant E & Y. 1. Rule 23(

a) Rule 23(

a) requires a showing of numerosity, commonality, typicality, and adequacy of representation. a. Numerosity To be maintained as a class action, the class must be so “numerous that joinder of all members is impracticable.” Fed. R.Civ.P. 23(a)(1). Impracticality does not mean impossibility of joinder, and the court should make common sense assumptions on this issue. See Moskowitz v. Lopp, 128 F.R.D. 624, 628 (E.D.Pa.1989). There is ho doubt that the settlement class meets this requirement.

The parties agree that there were 135 million shares of Ikon common stock outstanding during the global class period, and, as described in the notice discussion, more than 200,000 notices were mailed to class members. b. Commonality Before the court may certify a class, it must find that “there are questions of law and fact common to the class.” Fed.R.Civ.P. 23(a)(2).

Like numerosity, this requirement has been applied liberally in securities fraud litigation, see Moskowitz, 128 F.R.D. at 628 (citing numerous cases), and commonality “is not defeated by slight differences in class members’ positions!)]” Id. “A finding of commonality does not require that all class members share identical claims, and indeed ‘factual differences among the claims of the putative class members do not defeat certification.’ ” In re Prudential, 148 F.3d at 310 (quoting Baby Neal v. Casey, 43 F.3d 48, 56 (3d Cir.1994)).

The plaintiffs identify several common questions: “whether the Settling Defendants made material misstatements and/or omitted material facts; whether they acted with scienter; whether IKON’s stock traded in an efficient and developed market; and whether the Settling Defendants made the statements attributed to them.” Plf. Mem. in Support of Final Approval of Settlement and Plan of Allocation at 13.

Particularly as this factor requires only that the named plaintiffs share “ ‘at least one question of fact or law with the grievances of the prospective class,’ ” In re Prudential, 148 F.3d at 310 (quoting Casey, 43 F.3d at 56), this requirement is met. c.

Typicality The third requirement is that “the claims or defenses of the representative parties are typical of the claims or defenses of the class.” Fed.R.Civ.P. 23(a)(3). “[T]ypicality entails an inquiry whether ‘the named plaintiffs individual circumstances are markedly different ... or the legal theory upon which the claims are based differs from that upon which the claims of other class members will perforce be based.” Eisenberg, 766 F.2d at 786 (quoting Weiss v. York Hosp., 745 F.2d 786, 809 n. 36 (3d Cir.1984)).

That is, the theories of the named plaintiffs must not be in conflict with those of the putative members. See In re Prudential, 148 F.3d at 311; Baby Neal, 43 F.3d at 57. In most eases, a plaintiffs claim is typical of a class if it arises from “the same event or course of conduct which in turn had given rise to the claims of other class members[J” In re Data Access Sys. Sec. Litig., 103 F.R.D. 130, 139 (D.N.J. 1984) (citations omitted); see also In re Scott Paper Co. Sec. Litig., 142 F.R.D. 611, 615 (E.D.Pa.1992) (same). The typicality requirement is also met with little difficulty.

There is no difference between the legal theories advanced by the plaintiffs and those of the other class members. The named plaintiffs and those they represent allege violations of the federal securities laws stemming from the same course of conduct. See In re IGI Sec. Litig., 122 F.R.D. 451, 456 (D.N.J.1988) (noting that the typicality test looks to defendants’ actions, rather than to those of plaintiffs). The allegedly fraudulent scheme to inflate Ikon stock price is the “linchpin” of the complaint, regardless of the relatively minor differences in the ways in which plaintiffs were injured.

In re Prudential, 148 F.3d at 311; see also id. at 312 (noting that all parties would need to “demonstrate the existence of this scheme”). d. Adequacy Finally, the representative parties must “fairly and adequately protect the interests of the class.” Fed.R.Civ.P. 23(a)(4). Adequacy requires an evaluation of two issues. It first “serves to uncover conflicts of interest between named parties and the class they seek to represent”; it also “tests the qualifications of the counsel to represent the class.” In re Prudential, 148 F.3d at 312 (citations, internal punctuation omitted); see also In re Gen.

Motors Corp., 55 F.3d at 800 (focusing on same issues). The adequacy of representation inquiry requires special attention when addressing settlement classes. See In re Prudential, 148 F.3d at 308; In re Gen. Motors Corp., 55 F.3d at 801. The court must consider whether class counsel has adequate experience, “vigorously prosecuted the action,” and “acted at arm’s length from the defendant.” In re Gen. Motors, 55 F.3d at 801. Both aspects of the inquiry are met here.

First, no conflicts have been identified between the lead plaintiffs and those they seek to represent, and the court sees none upon its own examination. While, as has been acknowledged throughout this litigation, different parties may have different measures of damages, these variations are addressed in the plan of allocation, described subsequently. Cf. Amchem, 521 U.S. at 625-28, 117 S.Ct. 2231 (finding inadequacy in part because the settlement’s terms created a conflict between different groups of plaintiffs); In re Gen. Motors Corp., 55 F.3d at 800-01 (same).

Plaintiffs’ counsel clearly possess the expertise to litigate this matter effectively. Their backgrounds are extensively documented in the submission entitled, “Plaintiffs Compendium of Law Firm Affidavits.’ these documents show, all of the co-lead attorneys have extensive experience in large class actions, experience that has enabled this case to proceed efficiently and professionally even under short deadlines and the pressure of handling thousands of documents in a large multi-district action.

As These counsel have also acted vigorously in their clients’ interests and have negotiated at arms’ length from the defendants. Plaintiffs’ counsel owes the entire class a fiduciary duty, see In re Gen. Motors Corp., 55 F.3d at 801, and there is no basis for believing that they have failed in this obligation. The settlement negotiations extended over several months and resulted in a sizable cash fund.

In contrast to some more questionable settlements, see id. at 803-04, the cooperation arrangement with the settling defendants, which is the only non-monetary result of the settlement, provides obvious, if non-quantifiable, benefits to the plaintiff class in the continuing litigation against E & Y. While the court has been favorably impressed with the professionalism with which counsel for all parties have treated this matter, there is no suggestion that this collegiality in any way compromised plaintiffs’ interests or resulted in a collusive settlement.

Counsel have aggressively prosecuted this case for over a year and a half, and some of the battles over discovery have been particularly hard-fought. The only possible basis for questioning the adequacy of representation might be the attorneys’ fee request which is, undeniably, very large. See In re Gen. Motors Corp., 55 F.3d at 803 (acknowledging that fees might play a role in evaluating this factor).

However, although the Settlement Notice sent to class members included a statement that class counsel could seek up to thirty percent of the settlement fund, no objections raised that issue in any meaningful way, and, as discussed more thoroughly subsequently, the facts of this case justify an award of that level. Also, this is not a situation in which counsel “effected a settlement that would yield very substantial rewards to them after what ... was little work.” Id. Counsel worked diligently and on short deadlines to recover a large sum of money. 2. Rule 23(b)

(3) In addition to Rule 23(a), the requirements of one of the subdivisions of Rule 23(

b) must be met before a class may be certified. The parties seek certification under Rule 23(b)(3), which requires that common questions of law or fact predominate over individual questions and that the class action structure be the superior method of managing the case. a. Predominance The predominance test is “readily met” in many securities fraud actions, Amchem, 521 U.S. at 625, 117 S.Ct. 2231; see also In re Prudential, 148 F.3d at 314 (same), as is the case here.

Plaintiffs’ memorandum accurately states that “the Settling Defendants’ alleged liability arises from their dissemination of false and misleading statements and the omission of material facts regarding IKON’s business and financial results.” Plf. Mem. in Support of Final Approval of Settlement and Plan of Allocation at 15-16. These issues would be central questions in any case brought by any of the plaintiffs or the putative class members, a fact that suggests strongly that common questions predominate over individual claims. See Moskowitz, 128 F.R.D. at 636.

The same alleged misrepresentations, whether made in press releases or required filings, would be crucial in the claims of any class member, whether the member was a market purchaser of stock or had acquired stock through the sale of a business, and any plaintiff would rely on the same documents in proving his or her claim.

Other common issues would be whether the defendants acted willfully, knowingly, or recklessly in omitting to state or misrepresenting any material facts; and whether the market price of Ikon stock during the class period was actually artificially inflated due to the actions alleged in the complaint. “Confronted with a class of purchasers allegedly defrauded over a period of time by similar misrepresentations, courts have taken the common sense approach that the class is united by a common interest in determining whether a defendant’s course of conduct is in its broad outlines actionable, which is not defeated by slight differences in class members’ positions, and that the issue may profitably be tried in one suit.” Blackie v.

Barrack, 524 F.2d 891, 902 (9th Cir.1975); see also In re Penn Cent Sec. Litig., 347 F.Supp. 1327, 1344 (E.D.Pa.1972) (addressing same issue). Although individual damage claims will differ depending on when and what type of stock was acquired, these issues cast no doubt on the finding of predominance. See, e.g., Eisenberg, 766 F.2d at 786; In re Data Access Sys., 103 F.R.D. at 138-40, 142. b. Superiority A class action must be “superior to other available methods for the fair and efficient adjudication of the controversy.” Fed. R.Civ.P. 23(b)(3).

In evaluating the superiority of a class action, the court should inquire as to the class members’ interest in “individually controlling the prosecution or defense of separate actions[,] ... the extent and nature of any litigation concerning the controversy already commenced by or against members of the class,” whether it is desirable to concentrate litigation of claims in this forum, and the manageability of a class action. Id. As in most securities suits, investors who are geographically dispersed allege to have lost varying amounts of money.

Putative class members range from individual investors who have only a few shares to entities such as the City of Philadelphia through its Board of Pensions and Retirement that have a much larger stake. The realistic alternatives to a class action are many scattered suits with possibly contradictory results for some plaintiffs, and, for many more, abandonment of claims. These very issues have led the Third Circuit to acknowledge that the unique qualities of. securities litigation mean that the class action is often superior to individual suits.

See Eisenberg, 766 F.2d at 785; In re Data Access Sys., 103 F.R.D. at 142. This portion of Rule 23 “had dominantly in mind vindication of the rights of groups of people who individually would be without effective strength to bring their opponents into court at all.” Amchem, 521 U.S. at 617, 117 S.Ct. 2231 (citations omitted). This is such a case. The JPMDL’s decision to transfer various other cases to this court for consolidated management also supports a finding of superiority, as it reinforces the conclusion that the claims are most efficiently addressed in a single forum by a single action. C.

Fairness A settlement of a class action may not be approved unless it is “fair, adequate, and reasonable.” Walsh v. Great Atl. & Pac. Tea Co., Inc., 726 F.2d 956, 965 (3d Cir.1983); see also Eichenholtz v. Brennan, 52 F.3d 478, 482 (3d Cir.1995) (same). The Third Circuit has gone so far as to suggest that the district court must act as a fiduciary in protecting the interests of absent class members. See In re Gen. Motors Corp., 55 F.3d at 785. To allow for meaningful appellate review, the district court must explain on the record its reasons for approving a class action settlement.

See Eichenholtz, 52 F.3d at 488.

Relevant factors in assessing fairness are: (1) the complexity, expense, and likely duration of the litigation ...; (2) the reaction of the class to the settlement ...; (3) the stage of the proceedings and the amount of discovery completed ...; (4) the risks of establishing liability ...; (5) the risks of establishing damages ...; (6) the risks of maintaining the class action through the trial ...; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement-fund in light of the best possible recovery ...; (9) the range of reasonableness of the settlement to a possible recovery in light of all the attendant risks of litigation[.] Girsh v.

Jepson, 521 F.2d 153, 156 (3d Cir. 1975) (citations omitted); see also In re Gen. Motors Corp., 55 F.3d at 785; Eichenholtz, 52 F.3d at 488. The proponents of settlement bear the burden of establishing that these factors support settlement. See In re Gen. Motors Corp., 55 F.3d at 785. In addressing a settlement, the court must reconcile two principles that are, at least superficially, in tension. On the one hand, the court must scrupulously ensure that the proposed settlement is in the best interests of class members by reference to the best possible outcome.

On the other hand, the court must not hold counsel to an impossible standard, as a settlement is virtually always a compromise, “a yielding of the highest hopes in exchange for certainty and resolution.” In re Gen. Motors Corp., 55 F.3d at 806; see also Bryan v. Pittsburgh Plate Glass Co., 494 F.2d 799, 804 (3d Cir. 1974) (noting that the court should not turn the fairness inquiry into a full-fledged trial on the merits); Sommers v. Abraham Lincoln Fed. S & L Ass’n, 79 F.R.D. 571, 576 (E.D.Pa.1978) (recommending caution before rejecting settlement proposed by experienced counsel).

With these principles in mind, the court turns to the proposed settlement. 1. Complexity and Duration “This factor is intended to capture ‘the probable costs, in both time and money, of continued litigation.’ ” In re Gen. Motors Corp., 55 F.3d at 812 (quoting Bryan, 494 F.2d at 801). In the absence of a settlement, this matter will likely extend for months or even years longer with significant financial expenditures by both defendants and plaintiffs.

This is partly due to the inherently complicated nature of large class actions alleging securities fraud: there are literally thousands of shareholders, and any trial on these claims would rely heavily on the development of a paper trail through numerous public and private documents. Also, the discovery in this case has proved to be particularly complex because of Ikon’s decentralized structure during the class period: many of the businesses purchased by Ikon had not been fully integrated, administratively or otherwise, into its system. See Joint Deck fl 7.

Finally, the extremely large sums of money at issue almost guarantee that any outcome, whether by

summary judgment or trial, would be appealed. This factor thus weighs in favor of the proposed settlement. An equally significant issue is the likely complexity of proof. Many of the allegations relate to defendants’ accounting decisions, and extensive expert testimony would certainly be required on the nature of the accounting practices, the significance of various decisions in relation to GAAP, and the effect that those practices ultimately had on stock prices and the plaintiffs’ finances. The difficulty of presenting these issues either in the context of a motion for

summary judgment or at trial thus weighs in favor of settlement, particularly when considered in conjunction with the corresponding financial outlays by both sides. 2. Class Reaction “This factor attempts to gauge whether members of the class support the settlement.” In re Prudential, 148 F.3d at 318. Although the number of those expressing objections or choosing to opt-out of the class is some measure of the strength of the opposition, courts must be cautious about “inferring support from a small number of objectors to a sophisticated settlement.” In re Gen. Motors Corp., 55 F.3d at 812.

This is particularly true in securities cases, as many shareholders may have such small holdings of the stock that it is imprudent to invest the time and resources to contest a settlement. See id.; Bell Atl. Corp. v. Bolger, 2 F.3d 1304, 1313 n. 15 (3d Cir.1993). This risk is exacerbated when notice of the class is sent simultaneously with notice of the settlement. See In re Gen. Motors Corp., 55 F.3d at 812-13. Even acknowledging these cautionary notes, the nature and number of objections to this settlement are extremely limited. Six parties filed objections to the proposed settlement.

Two objections primarily seek to clarify rather than to reject the settlement: the Wallis plaintiffs sought exclusion only to the extent that the settlement would unilaterally release certain claims brought in their independent action, and the ERISA plaintiffs seek clarification of the status of their “holder” claims. Two other objections are no longer at issue. E & Y’s objections pertained to issues specific to its status as a non-settling defendant, which have been resolved through the submission of stipulated language, and the Gill and Campbell objections were withdrawn prior to the fairness hearing.

Only two remaining objections deal directly with the proposed settlement, and they address relatively peripheral aspects. No large institutional investor has objected to the proposed settlement, and there have been few opt-outs given the size of the class. See Janvrin Aff. (Apr. 10, 2000) K 7 (stating that 2,324 timely requests and 238 untimely requests for exclusion were received from the certified class following the July Class Action Notice); Joint Decl. K82 (stating that only two persons have since sought exclusion from the global class). This factor also weighs in favor of approval. 3.

Stage of the Proceedings and Amount of Discovery Completed A settlement should not be approved if the parties do not have an “ ‘adequate appreciation’ ” of the merits of the case. In re Prudential, 148 F.3d at 319 (quoting In re Gen. Motors Corp., 55 F.3d at 813). Consequently, the type and amount of discovery that has occurred since the commencement of the action are relevant to the propriety of settlement. Counsel have invested sufficient time and attention to the merits of the case to have a reasoned opinion of its settlement value as well as whether settlement is even the prudent course of action.

The Joint Declaration of Lead Counsel outlines the discovery and factual investigation conducted thus far. Obviously, class counsel reviewed defendants’ SEC filings, securities analysts’ reports, press releases, and other public documents. They also sought out former Ikon employees who would provide information about the allegations against the settling defendants. Plaintiffs served five document requests and four sets of interrogatories on defendants and moved unsuccessfully for unlimited extension of the interrogatory and deposition limits contained in the Federal Rules of Civil Procedure.

See Joint Decl. 1HI19-20. Settling defendants eventually produced over two million pages of documents. To manage this information while minimizing duplication, class counsel established a computerized document retrieval system and organized document review by teams of attorneys. See id. KK 21-22. Counsel also eventually obtained documents from Ikon business districts after concluding that the materials at Ikon’s headquarters were insufficient. See id. II23.

Plaintiffs acquired the following items: minutes of Ikon boards of directors and committee meetings, internal communications between senior management, communications between Ikon and E & Y personnel, extensive financial reports, budgeting and forecasting documents, documents related to the “transformation initiative” and internal controls and audits, internal accounting materials, individual customer files, files for Ikon acquisitions during the global class period, documents regarding communications between Ikon and securities analysts who covered Ikon, and documents concerning Ikon sales and trends. See id.

II24. Counsel conducted over thirty-five depositions of Ikon personnel in an extremely short time and served subpo.enas on many non-parties. One such subpoena led to plaintiffs’ request to include E & Y as a defendant. See id. KK 27-28. Plaintiffs also retained experts in forensic accounting to review documents produced by the settling defendants, particularly to evaluate compliance with GAAP and to calculate damages and the plan of allocation.

This is not a situation in which plaintiffs’ counsel have conducted only cursory investigation or have otherwise failed to consider the ramifications of settlement; the fact that counsel claim over 45,000 hours of time on this matter, which has been before this court for more than a year and a half, strongly suggests that they are well-informed on the merits of settlement versus continued litigation.

While the parties’ willingness to reach agreement on certain issues (for example, the early stipulation of a class) has streamlined this proceeding, the parties sought court assistance on several occasions, most notably on contentious discovery matters of great significance to the course of the litigation. Cf In re Gen. Motors, 55 F.3d at 813-14 (finding this factor weighed against approval because counsel submitted the settlement only four months after filing the consolidated complaint and without conducting discovery on the merits of the ease or retaining experts). 4.

Risks of Maintaining the Class Action through Trial “The value of a class action depends largely on the certification of the class because, not only does the aggregation of the claims enlarge the value of the suit, but often the combination of the individual cases also pools litigation resources and may facilitate proof on the merits. Thus, the prospects for obtaining certification have a great impact on the range of recovery one can expect to reap from the action.” In re Gen. Motors Corp., 55 F.3d at 817.

While decertification is always a possibility given the conditional nature of all class certifications, decertification would have been extremely unlikely for the second half of the settlement class period given the strong congruity of issues and legal theories. However, the court denied without prejudice a motion to certify a class for the first half of the settlement class period, and the plaintiffs acknowledge that proof of wrongdoing is generally weaker for that period. This issue weighs in favor of settlement, as settlement eliminates any remaining uncertainty as to the earlier period. 5.

Risks of Establishing Liability and Damages These inquiries “survey the possible risks of litigation in order to balance the likelihood of success and the potential damage award if the case were taken to trial against the benefits of an immediate settlement.” In re Prudential, 148 F.3d at 319. For example, if it appears that further litigation would realistically risk dismissal of the case on

summary judgment or an unsuccessful trial verdict, it is in the plaintiffs’ interests to settle at a relatively early stage. In contrast, if it appears that liability is extraordinarily strong, and it is highly likely that plaintiffs would prevail at trial, settlement might be less prudent. On this issue, the court should avoid conducting a mini-trial and must “to a certain extent, give credence to the estimation of the probability of success proffered by class counsel, who are experienced with the underlying case, and the possible defenses which may be raised to their causes of action.” Lachance, 965 F.Supp. at 638. Plaintiffs primarily allege violations of

section 10(

b) of the 1934 Act and Rule 10b-5 promulgated thereunder. To prevail on such claims, plaintiffs must show that the defendants made misstatements or omissions of a material fact with scienter in connection with the sale or purchase of securities. Plaintiffs would also have to demonstrate that they relied on such statements and that the reliance proximately caused injury. See, e.g., In re Phillips Petroleum, 881 F.2d 1236, 1244 (3d Cir.1989); Seidman v. American Mobile Sys., 965 F.Supp. 612, 619 (E.D.Pa.1997); In re Novacare Sec. Litig., Civ. A. No. 94-5808, 1995 WL 605533, at *6 (E.D.Pa. Oct.13, 1995).

The plaintiffs asserted claims that were sufficiently specific that the settling defendants chose not to file a motion to dismiss, even though the 1995 Private Securities Litigation Reform Act (PSLRA), makes it more difficult for plaintiffs to prevail on such motions. See 15 U.S.C. § 78u-4(b)(l)-(3). Plaintiffs now, however, point to several issue that cast doubt on their ability to prevail at

summary judgment or at trial. The first, and probably most significant, barrier to a favorable result for plaintiffs is proof of scienter, which requires showing a mental state “embracing intent to deceive, manipulate, or defraud.” In re Phillips Petroleum, 881 F.2d at 1244 (citations omitted). Even aside from the inherent difficulties establishing such proof, the settling defendants claim that they reasonably relied on E & Y’s advice that Ikon’s financial statements complied with GAAP and were not deceptive, an argument that constitutes a strong defense.

E & Y served as Ikon’s independent auditor and performed most of the internal audit field work during the class period; E & Y was also influential in Ikon’s decision to take the charge to earnings in August 1998. Plaintiffs cite two examples of problems they might face in prevailing on this issue. First, while plaintiffs contend that Ikon senior management encouraged district units to reduce reserves in order to report higher earnings in violation of Ikon accounting policy, the settling defendants argue that E & Y advised them that those internal policies were more conservative than GAAP required.

Plaintiffs have also placed great stock on a handwritten note obtained in discovery from E & Y, which suggested that E & Y had information that defendant Dinke-lacker, Ikon’s CFO, was “cooking the books.” However, plaintiffs now state that some witnesses have testified that subsequent investigation did not support this allegation. Plaintiffs also stress that the settling defendants directly challenge the allegation that they issued deceptive financial statements.

The global class period begins in January 1996 and continues into August 1998, but the settling defendants contend that there were no material errors in any Ikon financial statements until at least April 22, 1998, when Ikon announced its earnings for the second quarter of FY 1998. Defendants would and do argue that, upon learning that certain districts had significant accounting problems, Ikon embarked on a special investigation in the spring and summer of 1998. Following that investigation, E & Y required only restatement of fiscal second quarter earnings and a special charge in the third quarter of FY 1998.

That is, notwithstanding an investigation into the very issues that are the subject of this litigation, Ikon’s independent auditor found no need to restate any earlier financial statements. Finally, most of the allegations against the settling defendants pertain to GAAP violations contained in various public statements and filings. Plaintiffs concede these standards are somewhat flexible and that their application requires judgment calls. Defendants can argue that a subsequent difference in opinion that led E & Y to require restatement does not necessarily mean that earlier actions were wrongful.

Plaintiffs do not specifically address the

section 11 and 12(2) claims brought under the 1933 Act, noting that the core of their case addresses

section 10(

b) and Rule 10(b)-5 violations, but defendants contend that these claims are unlikely to succeed because they rest on the incorporation in a May 1997 Registration Statement of the 1996 fiscal year-end audited financials and the unaudited financials for the first two quarters of fiscal 1997.

Defendants argue that there is no evidence that those statements were materially misstated, and that even if the plaintiffs could establish liability for the 1933 Act claims, recovery would be limited to those who acquired stock pursuant to the May Registration Statement prospectus, as 12(2) does not apply to secondary market transactions. See Gustafson v. Alloya Co., Inc., 513 U.S. 561, 566, 115 S.Ct. 1061, 131 L.Ed.2d 1 (1995); Ravenna v. Integrated Food Tech. Corp., Civ. A. No. 99-524, 1999 WL 740384, at *2 (E.D.Pa. Sept.15, 1999). Settling defendants also note that

section 11 claims are limited to initial offerings. See, e.g., Shapiro v. UJB Fin. Corp., 964 F.2d 272, 286 (3d Cir.1992). The next issue is the risk of proving damages. Damages would have been aggressively contested at trial, and plaintiffs’ likely recovery, even assuming they prevailed on the liability issues, is speculative. In a 10(

b) action, the measure of actual damages is the “out-of-pocket loss measured by the difference between the fair value of what the plaintiff received and the fair value of what ... would have [been] received had there been no fraudulent conduct.” Lachance, 965 F.Supp. at 643; see also In re Computron Software, Inc., 6 F.Supp.2d 313, 319-20 (D.N.J.1998) (describing methods of proving damages); Seidman, 965 F.Supp. at 620 (noting difficulties of proof). Plaintiffs have identified at least two potential difficulties in proving damages.

First, the decline in stock prices may have been influenced by factors other than the revelation of the alleged fraud; second, allegedly fraudulent conduct may not have been the only factor increasing the stock price during the global class period. As plaintiffs concede, the decline in Ikon’s stock prices occurred throughout much of the global class period and was not confined to the period after the charge to earnings. Consequently, the relationship between the price decline and defendants’ conduct would have been hotly contested, and the outcome of this dispute is difficult to predict.

See, e.g., Blackie, 524 F.2d at 909 & n. 25 (noting that drop in price following corrective release is not the only way to measure inflation); Burger v. CPC Int’l, Inc., 76 F.R.D. 183, 188 (S.D.N.Y. 1977) (stating that risk that defendants could point to other factors besides disclosure that caused decline supported settlement). The parties also differed widely in their damage estimates. Plaintiffs have consistently maintained that damages are more than $1 billion; defendants contend that damages are, at most a “few” hundred million.

On both the causation and the estimate of damages, the parties would have to submit expert testimony. Regardless of the strength of plaintiffs’ position, a jury might reject their expert witnesses. See, e.g., In re Computron, 6 F.Supp.2d at 320; In re Novacare, 1995 WL 605533, at *6-7. The settlement avoids this uncertainty. In the end, the court agrees with the defendants’ summation of the situation: plaintiffs’ ability to prove

section 10(

b) and Rule 10(b)-5 liability is strongest for the later portion of the class period, and the damages would likely be less than plaintiffs’ most optimistic estimates. The other causes of action would be extremely difficult to win in the early portions of the class period. These factors support the settlement. 6. Defendants’ Ability to Withstand Greater Judgment There is little specific information on this issue.

According to the plaintiffs, settling defendants could not pay a greater amount in light of Ikon’s financial distress and the fact that the relevant insurance policies constitute wasting assets insofar as defense costs are taken from them. However, no specific documentation has been presented in support of these contentions; nor has there been material submitted regarding the status of the individual defendants. The court acknowledges the settling defendants’ contention that a verdict much larger than that paid out in this settlement could have forced the Ikon into bankruptcy. See Def.

Mem. in Support of Settlement at 15. Also, class counsel represented that they retained forensics accountants to assist them in calculating a settlement that reasonably compensated class members without sending Ikon into bankruptcy. See Joint Decl. HH 79-81. Nonetheless, given the lack of documentary evidence, this factor weighs only slightly in favor of settlement. ■ 7.

Range of Reasonableness of the Settlement Fund in Light of the Best Possible Recovery and the Attendant Risks of Litigation “In order to assess the reasonableness of a proposed settlement seeking monetary relief, ‘the present value of the damages plaintiffs would likely recover if successful, appropriately discounted for the risk of not prevailing, should be compared with the amount of the proposed settlement.’ ” In re Prudential, 148 F.3d at 322 (quoting In re Gen. Motors Corp., 55 F.3d at 806). This settlement falls within a reasonable range.

Taking class counsel’s best estimate of recovery at trial if all issues were resolved in their favor, the settlement provides a recovery of approximately 5.2% of the best possible recovery for those who acquired common stock and approximately 8.7% for those who acquired convertible preferred stock. While this range appears low, several caveats are in order. First, the fact that a proposed settlement constitutes a relatively small percentage of the most optimistic estimate does not, in itself, weigh against the settlement: rather, the percentage should be considered in light of the strength of the claims.

See, e.g., In re Sunrise Sec. Litig., 131 F.R.D. 450, 457 & n. 13 (E.D.Pa.1990). Second, the defendants argued that provable losses were much lower, and the settlement comprises between 13.5% and 23.6% of defendants’ estimated best recovery for those with common stock, and between 25.2% and 36.4% for those with convertible preferred stock. Finally, these averages do not reflect the different proportions contained in the plan of allocation, which reimburses the strongest claims at one hundred percent of loss as defined by the settlement.

Considering the present value of the money, the probability of lengthy litigation in the absence of a settlement, the high risks that the plaintiffs would not have been able to succeed on liability, at least not for the entire period, and the likelihood the damages received would have been much lower than those demanded by plaintiffs, the settlement is a reasonable percentage of the total likely recovery at trial.

Additional factors lending support to this conclusion are the non-mone-tizable value of the settlement’s provision for cooperation between Ikon and the plaintiffs against the non-settling defendant, E & Y, and the fact that the plaintiffs were not able to “tag-along” on an investigation by an entity such as the SEC. Also, the hallmarks of a questionable settlement are not present: plaintiffs receive a significant monetary settlement as well as the non-tangible benefit of cooperation, and there is no suggestion of collusion between the defendants and plaintiffs’ counsel. D.

The Allocation Plan “Approval of a plan of allocation of a settlement fund in a class action is ‘governed by the same standards of review applicable to approval of the settlement as a whole: the distribution plan must be fair, reasonable and adequate.’ ” In re Computron, 6 F.Supp.2d at 321 (citations omitted). In general, a plan of allocation that reimburses class members based on the type and extent of their injuries is reasonable. See id. The present plan- is reasonable. Claimants are reimbursed at various percentages for their defined losses based largely on when they bought and sold stock.

The plan acknowledges that those who purchased Ikon stock in an inflated market and sold before disclosure of damaging information would have difficulty in proving damages; more difficulty, for example, than those who held their shares after the disclosures. There are three significant dates for these purposes: April 21, 1998; June 26, 1998; and August 13, 1998, each of which marks a partial disclosure. See 2d Am. & Suppl. Compl. 1111 87-88, 94, 97.

Individuals who acquired stock after January 15, 1997, and held it through any of those dates receive one hundred percent of their calculated losses in recognition of the effect of these disclosures. Individuals who bought and sold before the next such decline are “entitled to a significantly smaller Recognized Claim (typically 10% of calculated loss), because of the special difficulty of showing that any decline of the market price during the period when that investor held was caused by a partial disclosure of information that had been wrongfully concealed.” Joint Decl. H 53.

In addition, those who acquired stock from January 24, 1996, to January 15, 1997, when the evidence of fraud is weakest and there is the greatest difficulty in class certification, are further discounted. In addition to these time based distinctions, two other multipliers are employed for special circumstances. First, the recognized claims of those who acquired call options are multiplied by .5. Second, the recognized claims of those who acquired Ikon securities in exchange for the sale of a business to Ikon on or after May 7, 1997, are multiplied by 1.5.

These individuals, unlike those who sold their business before the date of the Registration Statement, would have a much stronger

section 11 claim for which they would not have to prove scienter. See id. Each distinction is reasonable and accurately reflects the different risks and harms experienced by individuals who acquired Ikon stocks at different times in different ways. E. Objections Six objections to the proposed settlement were filed, one of which was withdrawn prior to the fairness hearing. The remaining five objections have either been resolved between the parties or do not cast doubt on the fairness of the settlement. 1.

Wallis Plaintiffs’ Objections James and Darin Wallis, plaintiffs in one of the cases consolidated and transferred here by the JPMDL, sold their business to Ikon in July 1995, primarily in exchange for Ikon stock. Following the sale, Ikon employed James Wallis, and he participated in the Ikon Retirement Savings Plan. James and Darin Wallis did not object generally to the proposed settlement; rather, they sought exclusion to the extent that the settlement would release either the independent claims originally brought in Nevada pertaining to the sale of their business or subsequent employment claims.

The parties have since reached a stipulation memorializing their understanding of the effect of the release, see Stip. Regarding the Scope and Effect of the Securities Settlement on the Claims in Wallis (May 3, 2000), and this objection is accordingly moot. .2. E & Y Non-settling defendant E & Y originally raised four objections to the proposed settlement: three addressed the purported extinction of E & Y’s contribution and related rights, one pertained to the admissibility of evidence in subsequent proceedings.

Counsel have since represented that the parties have agreed to language that resolves those objections. As the court finds that these revisions are appropriate, this language has been incorporated in the accompanying final judgment. See Final Judgment 114 (addressing evidentiary concerns), 1111 (addressing contribution issues). 3. ERISA Plaintiffs The plaintiffs in Whetman v. Ikon, originally filed in Utah and transferred here by order of the JPMDL, seek a determination of the scope of the settlement’s release as it affects certain ERISA claims.

These plaintiffs acknowledge that some claims that could have been asserted under ERISA will be released, citing, for example, certain claims under ERISA sections 404 and 406. See ERISA Plf. Mem. Concerning the Proposed Settlement at 4. The ERISA plaintiffs contend, however, that the release does not include all claims that could be brought under ERISA. First, they state that the release does not include claims pertaining to Ikon stock that was acquired before the class period began and retained throughout the class period. All the parties agreed with this point at the hearing.

The more contentious issue is plaintiffs’ second argument, in which they maintain that the release does not cover “holder” claims even if the stock was acquired during the class period. The ERISA plaintiffs explain, “Like the claims for stock acquired before the class period began, these holder claims include claims for touting the stock, concealing the ongoing securities fraud, and, with respect to the employer match, retaining those matched funds in IKON stock instead of switching them to another fund.

In other words, these claims are identical to the other holder claims except that they apply to held stock that was acquired during the securities class period instead of before.” Id. at 5-6. The ERISA plaintiffs do not believe that they need to exclude themselves because they do not construe the release language as applying to such claims, but they ask for a ruling confirming this belief. They argue that were the settlement to include such claims, it would be unfair and unreasonable.

They also informally request the inclusion of the following language in the release to clarify their point: “ ‘Settled Claims’ does not include claims, if any, for beach of fiduciary duty under ERISA based on holding IKON Securities, regardless of when those [securities were] acquired.” Correspondence of Apr. 20, 2000. While the settling parties’ blanket assertion that issuing any

interpretation of the settlement’s term would constitute an impermissible advisory opinion is overbroad, the court cannot grant the ERISA plaintiffs’ request for clarification.

This is not a question of defining an unclear term or interpreting poorly drafted settlement language, as the settlement language is clear with respect to what claims are released: “[A]ll claims ... arising, out of, relating to, or in connection with purchases or acquisitions by any other means, directly or indirectly, of IKON Securities at prices which are alleged to have been wrongfully inflated during the Class Period.” Final Judgment H 6.

By asking the court to issue a ruling further explaining this language, the ERISA plaintiffs effectively request a premature ruling on the res judicata or collateral estoppel effects of a settlement when these issues are not yet before the court. The facts will be developed subsequently in the ongoing Whetmcm litigation under this court’s supervision; before that, time, the court cannot speculate as to what specific effect this settlement will have.

The ERISA plaintiffs suggest that to approve a settlement that could release the claims they describe would be unfair, and, in support, they rely on two Supreme Court decisions, Amchem Products, Inc. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997), and Ortiz v. Fibreboard Corporation, Inc., 527 U.S. 815, 119 S.Ct. 2295, 144 L.Ed.2d 715 (1999), in which settlements were rejected in part because of their failure to address adequately the varying interests of different subclasses. These cases are distinguishable.

Both settlements arose in the unique context of asbestos-related tort claims, a particularly troublesome area of the law that has repeatedly defied class-wide resolution and that, according to the Supreme Court, requires legislative action. See Ortiz, 119 S.Ct. at 2302. More significantly, Ortiz and Amchem address the appropriate treatment of subclasses in class action settlements. In this case, there has never been any request for certification of an ERISA subclass or suggestion that the ERISA plaintiffs’ interests are so divergent that class certification is inappropriate.

Indeed, such claims would have little merit, at least based on the present record. On this point, some comparison to Amchem is helpful. There, the district judge approved the proposed settlement and found that common questions predominated based on class members’ shared exposure to asbestos products supplied by the defendants and their common interest in receiving prompt compensation for claims with minimal transaction cost. See Amchem, 521 U.S. at 622-23, 117 S.Ct. 2231.

The Third Circuit and the Supreme Court rejected the settlement, finding that the class failed to meet predominance and adequacy of representation requirements uftder Federal Rules of Civil Procedure 23(b)(3) and 23(a)(4).

While this conclusion was based partly on the uniquely “sprawling” class and partly on the obstacles to unitary resolution of various state-law claims, see id. at 624-25, 117 S.Ct. 2231, the most significant difficulty was that the different groups of claimants had very different interests depending on the timing of their exposure and injuries: those individuals who were already suffering from asbestos-related ailments had a profound interest in an immediate, generous payment, while those who had only been exposed to asbestos had an equally profound but divergent interest in an inflation-protected fund from which they could recover in the future.

See id. at 624, 626-27, 117 S.Ct. 2231; see also Ortiz, 119 S.Ct. at 2318-20 (noting, in context of limited fund analysis, that settlement favored known plaintiffs from earlier individual settlements to detriment of other groups). The Supreme Court also suggested that those who did not yet know of exposure or the extent of potential harm would not have the “information or foresight needed to decide, intelligently, whether to stay in or opt out.” Amchem, 521 U.S. at 628, 117 S.Ct. 2231. These factors are in marked contrast to the present ease.

Here, the class members are united not only by a generalized sense of injury and desire to resolve the matter but by the very specific nature of their claims pertaining to harm suffered as a result of artificial inflation of Ikon securities. Unlike certain participants in the Amchem and Ortiz settlements, the ERISA plaintiffs are not being penalized or functionally left out of the allocation plan: they are receiving the same compensation and measure of damages as are the other non-ERISA plaintiffs who suffered losses based on the artificial inflation of the stock prices.

While counsel for the ERISA plaintiffs have repeatedly argued that ERISA claims have different measures of damages and that these claimants might be able to advance different claims pertaining to the inflation of securities, there is simply no basis for concluding that these largely unspecified claims are so unique or so divergent from those of other class members that they require a separate allocation plan or separate treatment to the extent they are released. Nor do the ERISA plaintiffs suffer from an absence of information.

To say that a class member can opt-out if the settlement is not to her liking begs the question of the settlement’s fairness, but the settlement language here enables all Ikon class members to make an informed decision as to whether they want to participate and release other potential claims, including some ERISA claims.

Finally, in contrast to Amchem, there is no indication that the named plaintiffs in this securities action failed to operate “under a proper understanding of their representational responsibilities.” Id. at 627, 117 S.Ct. 2231; see also Ortiz, 119 S.Ct. at 2318-19 (noting that some attorneys who negotiated settlement had a conflict of interest because of earlier, individual settlements). The ERISA plaintiffs do not claim that the named plaintiffs in the securities action or their counsel have shortchanged the ERISA plaintiffs in any way, and the court sees no such evidence on its own inquiry.

These issues would have been better addressed in the context of a motion for certification of a subclass or a challenge to the adequacy of representation or predominance of common issues. The ERISA plaintiffs have not made any such motions, however, and have explicitly stated that they are satisfied with the settlement fund. In the absence of more specific information, the court simply cannot conclude that the ERISA plaintiffs are being prejudiced or that their claims based on artificial inflation of.stock are so different that they require a different measure of damages. 4.

HSA Although HSA originally filed ten separate objections to the settlement, at present, only one conditionally remains. The original plan of allocation provided that claims under $15.00 would not be paid for reasons of administrative efficiency, see Settlement Notice K 28(f), and HSA argues that this was inappropriate, as class actions have typically paid out minimum claims of $5.00 or $10.00. See Aff. of L. Stephens Tilghman HH 3(a)-(b). While the plaintiffs have consistently contended that a $15.00 minimum check is reasonable, they have agreed to adopt the inter-venor’s suggestion.

See Correspondence of Apr. 18, 2000 (filed by Order of Apr. 19, 2000). The court will accept this change in the proposed plan of allocation. While it seems doubtful that a disbursement between $5.00 and $15.00 would be particularly significant to any claimant, the affidavit originally submitted by lead plaintiffs in support of the $15.00 limit states only that costs are approximately $1.50 per check and that there are additional costs incurred in reconciling the accounts. See Aff. of D. Lee Janvrin re: Minimum Check Amount 114.

The same affidavit notes that in three recent securities litigation actions, the minimum checks were $10.00, $10.00, and $5.00. See id. H 3. Absent evidence that the $5.00 disbursement would be economically unfeasible or that there are other factors counseling against the interve-nors’ suggestion, the court sees no principled reason to require a $15.00 minimum check. HSA indicated that it would withdraw its objections if the court were to approve this change, see Intervenor’s Withdrawal of Objections, and this objection is accordingly moot. 5.

Guest and Chapman Like the HSA objectors, Guest and Chapman originally filed several objections; the court understands only two to remain. The first objection pertaining to the minimum check disbursement has already been resolved. The second objection contends that the Settlement Notice impermissibly failed to inform claimants of the tax consequences of any disbursement.

Guest and Chapman seek to require the inclusion of the following language in post-settlement transmittals: Please take notice that these settlement proceeds herein may [ ] be either taxable income or a non-taxable return of capital if the class security is still being held by the recipient as received. You should consult your, own tax advisor with respect to the tax treatment. Correspondence of Apr. 26, 2000 (filed by Order of Apr. 26, 2000). The court will not order the inclusion of such language in subsequent correspondence and finds that the Settlement Notice properly omitted any such instructions.

First, class counsel has represented that it is standard practice when distributing checks to include general, notice “advising class members that they should consult their own tax advisor concerning the tax treatment of their distributions[.]” Aff. of Edward Radetich H 4; see also id. 11115-6 (stating that providing more specific information increases risk of confusion). Second, there is no consensus as to whether the requested information is actually correct.

While the objectors have included an opinion letter stating that, in some circumstances, the disbursement might be treated as a nontaxable return of capital, there are numerous caveats to that statement even in the letter. S.ee Opinion Letter of O’Neill & O’Neill. All things considered, singling out one of many potential tax consequences seems more likely to create than alleviate confusion. Generic language stating that it is advisable to consult a tax specialist is preferable. F.

Conclusion The settlement class in this securities action is properly certified, notice was properly distributed, the settlement itself is fair to all parties, and all of the objections have either been withdrawn or do not constitute a reason to reject the settlement. III. The Derivative Suit Like class actions, derivative suits may not be settled without notice and court approval. See Fed.R.Civ.P. 23.1.

As the Third Circuit explained: The principal factor to be considered in determining the fairness of a settlement concluding a shareholders’ derivative action is the extent of the benefit to be derived from the proposed settlement by the corporation, the real party in interest. The adequacy of the recovery provided the corporation by the settlement must be considered in the light of the best, possible recovery, of the risks of establishing liability and proving damages in the event the case is not settled, and of the cost of prolonging the litigation. Shlensky v.

Dorsey, 574 F.2d 131, 147 (3d Cir.1978) (citations omitted); see also Bell Atl. Corp. v. Bolger, 2 F.3d 1304 (3d Cir. 1993) (applying Girsh factors to derivative settlements). As did Judge Lee in approving both a derivative suit and a securities fraud suit in In re Chambers Development Securities Litigation, 912 F.Supp. 822 (W.D.Pa.1995), this court stresses that it “does not review the settlement of the derivative action in a vacuum, but in conjunction with its review of the settlement reached in the main class action, of which this derivative action is merely an appendage.” Id. at 841.

As in In re Chambers, the settlements are inextricably connected, little has occurred independently in this litigation, and there has been no separate motion for class certification. See id. Consequently, the determination that this derivative settlement is reasonable and fair is made in the shadow of the securities settlement. A. Notice By order of December 29, 1999, the court granted preliminary approval of the derivative settlement and directed that notice be given to Ikon shareholders.

This initial notice was mailed to 52,755 Ikon record shareholders on or about January 14, 2000, and an additional 15,008 notices were mailed subsequently. See Aff. of D. Lee Janvrin (Mar. 7, 2000) 111 14, 6. In addition, a

Summary Notice was published in the Wall Street Journal’s, national edition on March 9, 2000. See Aff. of Cheryl Washington (Apr. 7, 2000) H 7. The Notice summarized the terms of the settlement and the bases for counsel’s belief that settlement was appropriate and provided other informatiQn, such as the possible maximum request for attorneys’ fees. It also included the date of the hearing and provided information on how to submit objections. The

Summary Notice provided a brief description of these facts as well. This notice was adequate, as it reasonably provided individual notice and appropriately gave information regarding the premises of the settlement. B. Fairness Factors 1. Complexity and Duration Continued litigation would require significant expenditure of time and money for essentially the same reasons described in the Ikon settlement: the matters at issue are complex, document-intensive, and would require extensive expert analysis.

Particularly as the likely payment for such expenses would be the defendants’ insurance policies, which are also the source of recovery for this derivative settlement, prolonged litigation would hamper the plaintiffs ability to recover even the amounts at issue here. 2. Class Reaction As described previously, thousands of notices have been mailed, and

summary notice was published in the Wall Street Journal. No objections were received either before or after the March 28, 2000, deadline. Even acknowledging that silence does not necessarily mean approval, the total absence of objections is noteworthy, and this factor weighs in favor of settlement. 3. Stage of the Proceedings and Amount of Discovery Completed Derivative counsel stress that they received access to the documents produced by the defendants in the securities litigation and that they reviewed thousands of pages of documents and deposition transcripts.

It is undisputed, however, that this matter has not progressed very far, and there has been no formal discovery specific to the derivative action. Ordinarily, this fact would probably weigh strongly against approval of the settlement. “[M]ere access to the materials from other proceedings does not establish that counsel developed the merits, particularly where the other cases were premised on different theories of recovery.” In re Gen. Motors, 55 F.3d at 814.

This is especially true if the record does not demonstrate that counsel “conducted significant independent discovery or investigations to develop the merits of their case (as opposed to supporting the value of the settlements), that they had retained their own experts, or that they had deposed a significant number of individuals implicated in the materials from these other proceedings.” Id.

Even acknowledging these warnings, the extensive materials produced in the securities litigation gave derivative counsel sufficient information to evaluate the merits of settlement in an informed manner, particularly as the court does not believe settlement requires “massive” discovery in every case. Lachance, 965 F.Supp. at 644. While the causes of action are different, they are very closely related and allege essentially the same behavior by the individual defendants.

Derivative counsel also had a preview of the defenses that would be raised based on the motion to dismiss filed in the preceding derivative suit that was voluntarily withdrawn. Finally, the settlement in this ease provides monetary relief, thus minimizing concerns over the actual value of the settlement. See In re Gen. Motors, 55 F.3d at 807-11. In the end, while this factor does not support settlement, it does not weigh against settlement, either, given the relationship between the derivative suit and the class action. 4.

Risks of Establishing Liability and Damages This factor weighs in favor of settlement, particularly with respect to the risks of establishing liability. First, some of the difficulties discussed in the securities action are equally applicable here, such as defendants’ defense of reasonable reliance on the independent auditor and the difficulties of establishing damages. There are also, however, independent barriers to establishing liability in this derivative action.

The most significant obstacle if the litigation were to continue would be- the difficulty of showing that the failure to make a demand on the Board of Directors was excused, whether by futility or for some other reason. Under Ohio law, which all parties agree applies, “it is presumed that

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