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Case 3:10-cv-01833-F Document 117 Filed 06/14/11 Page 1 of 32 PageID 2684

THE UNITED STATES DISTRICT COURT


NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

:
BILLITTERI v. SECURITIES AMERICA, : 3:09-cv-01568-F
INC., et al. (Provident Royalties Litigation) : AND RELATED CASES
:
:
THIS DOCUMENT RELATES TO: :
ALL ACTIONS :
:
:
C. RICHARD TOOMEY, et al. v. :
:3:10-cv-01833-F
SECURITIES AMERICA, INC., et al.
:
:
:
IN RE: MEDICAL CAPITAL SECURITIES Case No. ML 10-2145 DOC (RNBx)
:
LITIGATION (C.D. Cal.)
:
:
:
THIS DOCUMENT RELATES TO: : Limited transfer for settlement
McCoy, SACV09-1084 DOC (RNBx) (C.D. : purposes as Case No. 3-11-cv-00191-
Cal.) : F (N.D. Tex.)
:

MEMORANDUM IN OF LAW IN SUPPORT OF PLAINTIFFS’ MOTION


FOR FINAL APPROVAL OF CLASS ACTION SETTLEMENT WITH
SECURITIES AMERICA, INC., SECURITIES AMERICA FINANCIAL
CORPORATION AND AMERIPRISE FINANCIAL, INC.
Case 3:10-cv-01833-F Document 117 Filed 06/14/11 Page 2 of 32 PageID 2685

TABLE OF CONTENTS

I. INTRODUCTION 1

II. BACKGROUND OF THE LITIGATION AND SETTLEMENT 2

III. MATERIAL TERMS OF THE SETTLEMENT 2

A. The Settlement Classes 2

B. The Settlement Fund 3

C. Allocation of the Settlement Fund 3

D. The Release of Settlement Class Members’ Claims 4

E. Attorneys’ Fees and Expenses and Administrative Costs 4

F. Supplemental Agreement 5

IV. THE SETTLEMENT NOTICE SATISFIED RULE 23 AND DUE PROCESS 5

V. THE COURT SHOULD CERTIFY THE SETTLEMENT CLASSES 6

A. The Settlement Classes Are Sufficiently Numerous 7

B. Common Questions of Law and Fact Predominate 7

1. The Texas Securities Act Claims Asserted in Provident 8

2. The Federal Securities Act Claims Asserted In Provident and


Medical Capital 9

3. The Breach of Fiduciary Duty Claim Asserted in Provident 10

4. The Negligence Claim Asserted in Medical Capital 11

C. The Representative Plaintiffs’ Claims Are Typical 11

D. The Representative Plaintiffs Adequately Represent the Classes 12

E. A Class Action Is Superior 13

VI. THE COURT SHOULD APPOINT SETTLEMENT CLASS COUNSEL 15

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VII. THE SETTLEMENT IS FAIR, REASONABLE AND ADEQUATE AND


SHOULD BE APPROVED 15

A. The Absence of Fraud and Collusion Weighs In Favor of Settlement 16

B. The Complexity, Expense and Likely Duration of the Litigation Weigh in


Favor of Approval 18

C. The Stage of the Proceedings Weighs in Favor of Approval 19

D. The Probability of Success on the Merits Weighs in Favor of Approval 20

E. The Range of Possible Recovery Weighs in Favor of Approval 22

F. The Opinions of Settlement Class Counsel, Class Representatives and


Absent Class Members 23

VIII. CONCLUSION 24

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TABLE OF AUTHORITIES

Cases
Amchem Products, Inc. v. Windsor
521 U.S. 591 (1997) 6, 7, 13, 15

Ayers v. Thompson
358 F.3d 356 (5th Cir. 2004) 16, 19, 24

City of San Antonio v. Hotels.com


2008 WL 2486043 (W.D. Tex. May 27, 2008) 8

Columbus Drywall & Insulation, Inc. v. Masco Corp.


258 F.R.D. 545 (N.D. Ga. 2007) 5

Cotton v. Hinton
559 F.2d 1326 (5th Cir. 1977) 15, 20, 23, 24

DeHoyos v. Allstate Corp.


240 F.R.D. 269 (W.D. Tex. 2007) passim

Durrett v. John Deere Co.


150 F.R.D. 555 (N.D. Tex. 1993) 14

Eatmon v. Palisades Collection, LLC


2010 WL 1189571 (E.D. Tex. Mar. 5, 2010) 7, 8

Eisen v. Carlisle & Jacquelin


417 U.S. 156 (1974) 5

Feder v. Electronic Data Systems Corp.


429 F.3d 125 (5th Cir. 2005) 12

Fernea v. Merrill Lynch Pierce Fenner & Smith, Inc.


2011 WL 56057 (Tex. App. Jan. 7, 2011) 9, 21

G.A. Thompson & Co. v. Partridge


636 F.2d 945 (5th Cir. 1981) 10

Hollinger v. Titan Capital Corp.


914 F.2d 1564 (9th Cir. 1990) 10

Howard v. Everex Sys., Inc.


228 F. 3d 1057 (9th Cir. 2000) 10

iii
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In re AOL Time Warner, Inc. Securities & “ERISA ” Litig.


2006 WL 903236 (S.D.N.Y. Apr. 6, 2006) 24

In re CertainTeed Corp. Roofing Shingles Products Liability Litig.


269 F.R.D. 468 (E.D. Pa. 2010) 11

In re Charles Schwab Corp. Sec. Litig.


257 F.R.D. 534 (N.D. Cal. 2009) 21

In re Corrugated Container Antitrust Litig.


643 F.2d 195 (5th Cir. 1981) 12, 20

In re Dell, Inc.
2010 WL 2371834 (W.D. Tex. June 11, 2010) 6

In re Education Testing Services Proaxis Principles of Learning & Teaching: Grades 7-12 Litig.
447 F. Supp. 2d 612 (E.D. La. 2006) 22

In re Enron Corp. Securities, Derivative & "ERISA " Litig.


228 F.R.D. 541 (S.D. Tex. 2005) 22

In re Enron Corp. Securities, Derivative & ERISA Litig.


2008 WL 2566867 (S.D. Tex. June 24, 2008) 4

In re Enron Corp. Securities, Derivative & "ERISA " Litig.


586 F. Supp. 2d 732 (S.D. Tex. 2008) 20

In re HealthSouth Corp. Securities Litig.


334 Fed. Appx. 248, 253-55 & n.1 1 (11th Cir. 2009) 5

In re WorldCom, Inc. Sec. Litig.


2005 WL 591189 (S.D.N.Y. Mar. 14, 2005) 4

James v. City of Dallas


254 F.3d 551 (5th Cir. 2001) 11, 12

Jenkins v. Raymark Industries, Inc.


782 F.2d 468 (5th Cir. 1986) 6

Klein v. O’Neal
705 F. Supp. 2d 632 (N.D. Tex. 2010) 17, 18, 20, 23

Lehocky v. Tidel Tech., Inc.


220 F.R.D. 491 (S.D. Tex. 2004) 14

iv
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Longden v. Sunderman
123 F.R.D. 547 (N.D. Tex. 1988) 9, 14

Maher v. Zapata Corp.


714 F.2d 436 (5th Cir. 1983) 18

McNamara v. Bre -X Minerals Ltd.


214 F.R.D. 424 (E.D. Tex. 2002) 6, 7, 12

Miller v. Republic Nat'l Life Insurance Co.


559 F.2d 426 (5th Cir. 1977) 15

Miller v. Thane Int’l, Inc.


519 F.3d 879 (9th Cir. 2008) 10

Mullen v. Treasure Chest Casino, LLC


186 F.3d 620 (5th Cir. 1999) 7, 9, 11

Plotkin v. Joekel
304 S.W.3d 455 (Tex. App. 2009) 10

Pope v. Harvard Bancshares, Inc.


240 F.R.D. 383 (N.D. Ill. 2006) 11

Reed v. General Motors Corp.


703 F.2d 170 (5th Cir. 1983) passim

Schwartz v. TXU Corp.


2005 WL 3148350 (N.D. Tex. Nov. 8, 2005) passim

Shaw v. Toshiba Am. Info. Sys., Inc.


91 F. Supp. 2d 942 (E.D. Tex. 2000) 7, 14

Stirman v. Exxon Corp.


280 F.3d 554 (5th Cir. 2002) 11

Tracker Marine L.P. v. Ogle


108 S.W.3d 349 (Tex. App. 2003) 8

Turner v. Murphy Oil USA, Inc.


472 F. Supp. 2d 830 (E.D. La. 2007) 23

Vaughn v. American Honda Motor Co.


27 F. Supp. 2d 738 (E.D. Tex. 2007) 17, 24

v
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Watson v. Shell Oil Co.


979 F.2d 1014 (5th Cir. 1992) 11

Weatherly v. Deloitte & Touche


905 S.W.2d 642 (Tex. App. 1995) 8, 9

Williams v. First Nat’l Bank of Pauls Valley


216 U.S. 582 (1910) 15

Young v. Katz
447 F.2d 431 (5th Cir. 1971) 20

Statutes
15 U.S.C. § 77 l(a)(2) 10

15 U.S.C. § 77o(a) 10, 21

15 U.S.C. § 78u-4(a)(7) 6

Tex. Rev. Civ. Stat. art. 581, § 33(A)(2) 8

Tex. Rev. Civ. Stat. art. 581, § 33(F)(1) 8, 9, 21

Rules
Fed. R. Civ. P. 23(b)(3) 7, 13

Fed. R. Civ. P. 23(c)(2) 5

Fed. R. Civ. P. 23(g)(1)(A) 15

Fed. R. Civ. P. 23(g)(1)(B) 15

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I. INTRODUCTION

On May 5, 2011, the Court entered an order granting preliminary approval of the

proposed class action settlement with Defendants Securities America, Inc., Securities America
Financial Corporation (SAFC), and Ameriprise Financial, Inc. (together, the “Settling

Defendants”). The Court also preliminarily certified Rule 23(b)(3) classes for settlement

purposes under the Federal Rules of Civil Procedure, preliminarily approved the settlement terms

as fair, reasonable and adequate, and approved notice to the class. (Billitteri Dkt. No. 435) The

Court scheduled a fairness hearing for July 25, 2011 to consider final approval of the settlement.
The representative plaintiffs, Joseph Billitteri, the Sharon Kreindel Revocable Trust DTD

02/09/2005, Henry Mitchell, Alvin Sabroff and June Sabroff, now ask the Court to enter an order
finally certifying the settlement classes and approving the settlement.

The settlement provides for an all-cash payment of $80 million to 2,158 Settlement Class

Members, who will recover approximately 40% of their losses. Investors who commenced

arbitration proceedings are being paid from a separate $70 million fund, resulting in a total

payment of $150 million to investors who purchased Provident Securities and Medical Capital

Notes through Securities America. The settlement will be funded through a special purpose loan

by Ameriprise to Securities America, an extraordinary result given the significant challenges


plaintiffs would face in proving Ameriprise’s liability as a control person under the securities

laws. Settlement Class Members will recover far more from this settlement than investors

typically recover through litigation—the median recovery in securities class actions settled in

2010 was 2.4% of investor losses.

The global settlement is the product of extensive arm’s-length negotiations by

experienced counsel who were sufficiently familiar with the relevant facts and law to assess the

strengths and weakness of the cases and the relative benefits of settlement over trial and any

appeals. The result is a fair and adequate settlement that the Representative Plaintiffs and

Settlement Class Counsel believe is in the best interests of the Settlement Classes and an

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excellent recovery given the many obstacles prior to trial. 1 The settlement also has the support

of the PR Liquidating Trustee, Provident Receiver Dennis Roossien, and Medical Capital

Receiver Thomas W. Seaman. See Apx. 231, 234-235. The settlement merits final approval.
II. BACKGROUND OF THE LITIGATION AND SETTLEMENT

The accompanying Joint Declaration of Daniel C. Girard and Susan Salvetti sets forth the

procedural and factual background leading up to and supporting the settlement. See Apx 1-29.
III. MATERIAL TERMS OF THE SETTLEMENT

A. The Settlement Classes


The proposed settlement has been reached on behalf of two Settlement Classes. The

Provident Settlement Class is defined as “all Investors, their successors and assigns, who

purchased Provident Securities from SAI, and were damaged thereby.” (Settlement Agreement

¶ I.23.) The 335 Provident investors who assigned their claims to the PR Liquidating Trust will

participate in the settlement in accordance with the terms of the Provident Bankruptcy Plan. (See

id., ¶ I.13.) The Medical Capital Settlement Class is defined as “all Investors, their successors

and assigns, who purchased Medical Capital Notes from SAI and were damaged thereby.” ( Id.,
¶ 12.)

The Settlement Classes exclude any Settlement Class Member who timely and validly

requests exclusion and any Provident or Medical Capital investor who commenced arbitration

against Securities America prior to April 1, 2011 and agreed to settle his or her claims in

arbitration by executing a Confidential Individual Claimant Agreement as part of the separate

Arbitration Settlement. Also excluded are the defendants, parents and subsidiaries of the

defendants, and defendants’ officers, directors, affiliates, legal representatives, predecessors,

successors and assigns, as well as Provident and Medical Capital, their parents, subsidiaries,

officers, directors, affiliates, legal representatives, predecessors, successors and assigns. ( Id.,
¶¶ I. 12 & I.13.)

1Capitalized terms in this brief are defined in the Settlement Agreement, attached as exhibit 8 to
the joint declaration. See Apx 182-212.

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B. The Settlement Fund

The Settling Defendants will pay $80,000,000 in cash to resolve the claims of investors

who purchased Provident Securities and Medical Capital Notes through Securities America and

who do not participate in the Arbitration Settlement or opt out of the settlement. (Settlement
Agreement ¶¶ I. 14, I.15, I.36, VIII.D.)

C. Allocation of the Settlement Fund


The parties propose that the Settlement Fund be allocated pro rata to the members of

both Settlement Classes. After payment of court-approved attorneys’ fees and expenses and
administrative costs related to notice and distribution of the settlement funds, the Settlement

Fund will be divided proportionately between the Provident Settlement Class and the Medical

Capital Settlement Class based upon the amount of money actually invested in such securities,

net of any return of investments received by the Settlement Class Members. (Settlement
Agreement ¶ VIII.H.2.)

The Net Provident Settlement Fund will then be distributed to the Provident Settlement

Class Members on a pro rata basis, in the same proportion as each individual Provident

Settlement Class Member’s lost principal investment amount in Provident Securities bears to the

total lost principal investment amount of all Provident Settlement Class Members, net of any

return of investments. ( Id., ¶ VIII.H. 2(a).) Payments that would be made to Provident
Settlement Class members who assigned their claims to the PR Liquidating Trust will be made

directly to Mr. Segner for distribution in accordance with the Bankruptcy Plan, and will not be
reduced by plaintiffs’ counsel’s attorneys’ fees. ( Id., ¶ I.13.)

The Net Medical Capital Settlement Fund will be distributed to the Medical Capital

Settlement Class Members on a pro rata basis, in the same proportion as each individual Medical

Capital Settlement Class Member’s lost principal investment amount in Medical Capital

Securities bears to the total lost principal investment amount of all Medical Capital Settlement

Class Members, net of any return of investments. ( Id. ¶ VIII.H.2(b).)

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The proposed order of final settlement approval and judgment also includes a mutual bar

order and a judgment reduction provision. These types of provision are typical of class action

settlements, and the Court does not need to determine what type of judgment reduction may be

applicable. See, e.g., In re Enron Corp. Securities, Derivative & ERISA Litig., No. MDL-1446,

2008 WL 2566867, at *5, *8-9 (S.D. Tex. June 24, 2008); In re WorldCom, Inc. Sec. Litig., No.

02 Civ. 3288(DLC), 2005 WL 591189, at *5-6 (S.D.N.Y. Mar. 14, 2005).


D. The Release of Settlement Class Members’ Claims

The Settlement Agreement provides that Settling Defendants and their affiliates and
subsidiaries, along with each of their current and former officers, directors, agents, registered

investment advisors and employees, including Securities America’s Registered Representatives

(collectively, “Releasees”) will be released from any and all liability as to the Released Claims.

(Settlement Agreement ¶¶ I.24, I.25.) The Settlement Agreement defines Released Claims as:

any and all Claims (known or unknown) that have or could have been asserted by,
on behalf of, for the benefit of, or in the name of, any Settlement Class Member
against Releasees, directly or indirectly, based upon, arising out of, or related to:
(i) an investment or interest in one or more of the Provident Securities or Medical
Capital Notes, or (ii) the facts, transactions, events, occurrences, acts, or
omissions that relate to any of the matters alleged or that could have been alleged
in the Class Actions. The Released Claims do not include claims by Milo Segner,
Trustee, for avoidance of fraudulent transfers pursuant to 11 U.S.C. Section 548 et
seq. and/or the Uniform Fraudulent Transfer Act.
(Id., ¶ I.30.) The release will bar and permanently enjoin Settlement Class Members from

prosecuting, commencing or continuing any and all Released Claims they had or have against the
Releasees in any forum. (Id., ¶¶ VIII.C.3-4.)

E. Attorneys’ Fees and Expenses and Administrative Costs


Plaintiffs’ counsel are separately applying for an award of attorneys’ fees of up to 25% of

the Settlement Fund, excluding the portion of the Settlement Fund allocable to the PR

Liquidating Trust, and for reimbursement of the expenses they have advanced to pursue the
litigation. (Settlement Agreement ¶¶ VIII.B.1(g), VIII.C.8., VIII.H.2.) The award of fees and

expenses is subject to Court approval. A minimal portion of the Settlement Fund will be used to

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pay administrative costs related to mailing the notice and distributing the Settlement Fund. (Id.,

¶ VIII.H.2.) Plaintiffs’ counsel anticipate that the administrative costs will not exceed $60,000.
F. Supplemental Agreement

Settlement Class Counsel and Settling Defendants’ counsel have entered into a
supplemental agreement setting forth certain conditions under which the Settling Defendants, at

the sole discretion of Ameriprise, may withdraw from the Settlement Agreement if class

members above a certain threshold amount exclude themselves from the Settlement Classes. The

supplemental agreement will not be filed prior to the Fairness Hearing unless a dispute arises as
to its terms, and will then be filed under seal. (Settlement Agreement, ¶ VIII.F.) The legitimate

interests of the settling parties in maintaining the confidentiality of these types of agreements has

been recognized by the courts. See, e.g., In re HealthSouth Corp. Securities Litig., 334 Fed.
Appx. 248, 253-55 & n.1 1 (11th Cir. 2009); Columbus Drywall & Insulation, Inc. v. Masco

Corp., 258 F.R.D. 545, 560 (N.D. Ga. 2007).

IV. THE SETTLEMENT NOTICE SATISFIED RULE 23 AND DUE PROCESS


The notice to the Settlement Class satisfied the requirements of Rule 23, due process and

the PSLRA. Settlement Class Members received “the best notice practicable under the

circumstances, including individual notice to all members who can be identified through
reasonable effort.” Fed. R. Civ. P. 23(c)(2); see also Eisen v. Carlisle & Jacquelin, 417 U.S.

156, 173-74 (1974) (due process requires the best notice practicable). The Provident and

Medical Capital Receivers, through their agents, each assembled lists of mailing addresses of

Settlement Class Members and provided those lists to Settlement Class Counsel. Apx 232, 235.

Settlement Class Counsel provided those lists, and the list assembled by counsel for Securities

America, to the settlement administrator. After updating the addresses, the settlement

administrator sent 2,158 copies of the Court-approved notice by first-class mail on May 16,
2011.2 Apx 239. The PR Liquidating Trustee received notice on behalf of all Provident

2 Three investors who are members of both Settlement Classes were only sent one copy of the
notice. Apx 239

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investors who assigned their claims. Apx 255.

“The notice ... adequately describes both the key facts of the suit, the monetary

distribution of the settlement, and the procedure for objecting to the settlement.” In re Dell, Inc.,

No. A-06-CA-726-SS, 2010 WL 2371834, at *5 (W.D. Tex. June 11, 2010). The notice

described the nature, history and status of the class actions; set forth the definition of the

Settlement Classes; explained how to opt out; said that class members may enter an appearance

through their own counsel; and pointed out the binding effect of the settlement approval

proceedings. It also supplied the date, time and place of the Fairness Hearing, and the
procedures for commenting on the settlement and appearing at the hearing. Apx 242-51.

The notice described the settlement, the proposed plan of distribution, the amount of

attorneys’ fees and expenses that plaintiffs’ counsel are seeking, and the reasons the parties are

proposing the settlement. As required by the PSLRA, the notice stated the amount of the

Settlement to be distributed to class members, in both the aggregate and an approximate amount

per dollar invested; the amount of fees and costs that plaintiffs’ counsel are seeking, in both the

aggregate and an approximate amount per dollar invested; and the amount of damages the classes

could recover if the claims were to proceed to trial. See 15 U.S.C. § 78u-4(a)(7). The notice

provided a toll-free number, website address and contact information for Settlement Class
Counsel for class members to obtain additional information. In sum, the notice “contain[ed] an

adequate description of the proceedings written in objective, neutral terms that, insofar as

possible, may be understood by the average absentee class member.” McNamara v. Bre -X

Minerals Ltd., 214 F.R.D. 424, 432 (E.D. Tex. 2002) (citation omitted).
V. THE COURT SHOULD CERTIFY THE SETTLEMENT CLASSES

The Court preliminarily certified the settlement classes when it granted preliminary
approval of the settlement. “[T]he ‘settlement only’ class has become a stock device,” and “all

Federal Circuits recognize [its] utility.” Amchem Products, Inc. v. Windsor, 521 U.S. 591, 618

(1997). The Court has broad discretion in determining whether to certify a class. Jenkins v.

Raymark Industries, Inc., 782 F.2d 468, 471 (5th Cir. 1986). Because the Settlement Classes

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satisfy the four Rule 23(a) prerequisites—numerosity, commonality, typicality and adequacy—

and the predominance and superiority requirements of Rule 23(b)(3), the Court should grant final

certification of the classes for settlement purposes.


A. The Settlement Classes Are Sufficiently Numerous

The Settlement Classes are so numerous that joinder of all members of each class is

impracticable. See Mullen v. Treasure Chest Casino, LLC, 186 F.3d 620, 624 (5th Cir. 1999)

(finding that a class of 100 to 150 members satisfies numerosity). Securities America sold more

than $47 million in Provident Securities to 543 investors, 178 of whom are members of the
Provident Settlement Class. Apx 239. Securities America sold nearly $700 million in Medical

Capital Notes to 2,605 investors, 1,983 of whom are members of the Medical Capital Settlement

Class. Apx 239. In addition, the Settlement Class Members are too geographically dispersed to

be easily joined into one action. See, e.g., Eatmon v. Palisades Collection, LLC, No. 2:08-CV-
306-DF-CE, 2010 WL 1189571, at *4 (E.D. Tex. Mar. 5, 2010) (considering the “geographic

dispersion of the class”).

B. Common Questions of Law and Fact Predominate

Rule 23(a) requires the existence of “questions of law or fact common to the class.” Fed.
R. Civ. P. 23(a)(2). “The test for commonality is not demanding.” Mullen, 186 F.3d at 625. It is

satisfied where, as here, “there is at least one issue, the resolution of which will affect all or a
significant number of the putative class members.” Id. at 625 (citation omitted).

Rule 23(b)(3) requires that the common issues predominate over any questions affecting

only individual members of the class. Fed. R. Civ. P. 23(b)(3). The predominance requirement

“is readily met in certain cases alleging consumer or securities fraud or violations of antitrust
law.” McNamara, 214 F.R.D. at 429 (quoting Amchem, 521 U.S. at 625); see also Schwartz v.

TXU Corp., No. 3:02-CV-2243-K, 2005 WL 3148350, at *15 (N.D. Tex. Nov. 8, 2005).

“Efficiency is the traditional focus of the predominance test” and “[w]here significant common

issues can be resolved for all claimants in a single adjudication, the advantage of a class-wide
proceeding is obvious.” Shaw v. Toshiba America Information Systems, Inc., 91 F. Supp. 2d

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942, 955 (E.D. Tex. 2000).

The common legal and factual issues – centering upon defendants’ conduct directed at all

class members – predominate over any individual issues in both the Provident litigation and the
Medical Capital litigation. See, e.g., Eatmon, 2010 WL 1189571, at *8 (common issues

predominate where defendants are “alleged to have acted wrongfully in the same basic manner

towards an entire class”) (citation omitted). Because the majority of the elements of the claims

asserted in both cases turn on class-wide evidence, common issues easily predominate over any

individual issues. See City of San Antonio v. Hotels.com , No. SA-06-CA-381, 2008 WL
2486043, at *9 (W.D. Tex. May 27, 2008) (“[T]he Court must consider whether the putative

class members would be able to rely on common or ‘generalized’ proof, as opposed to individual
proof, in prosecuting their claims.”).

1. The Texas Securities Act Claims Asserted in Provident

In the Provident litigation, plaintiffs asserted claims against Securities America and

Ameriprise for violation of the Texas Securities Act (TSA). The elements of the claim against

Securities America are: (1) whether untrue statements and omissions of fact existed in the PPMs

and brochures; (2) the materiality of the untrue statements and omissions; (3) whether Securities

America was a “seller” as defined by the statute; and (4) damages. Tex. Rev. Civ. Stat. art. 581,
§ 33(A)(2); see also Weatherly v. Deloitte & Touche, 905 S.W.2d 642, 650-51 (Tex. App. 1995),

abrogated on other grounds by Tracker Marine L.P. v. Ogle, 108 S.W.3d 349 (Tex. App. 2003).

Securities America may avoid liability if it can prove that either (1) the buyer knew of the

untruth or omission, or (2) Securities America did not know, and in the exercise of reasonable

care could not have known, of the untruth or omission. Tex. Rev. Civ. Stat. art. 581, § 33(A)(2).

To prove Ameriprise’s liability as a control person, plaintiffs must first establish


Securities America’s liability and then prove that Ameriprise directly or indirectly controlled

Securities America with respect to its sale of these investments. Tex. Rev. Civ. Stat. art. 581,

§ 33(F)(1). To prove control, plaintiffs must show that Ameriprise had actual power or influence

over Securities America and had the power to control or influence Securities America’s offer and

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sale of the securities. See Fernea v. Merrill Lynch Pierce Fenner & Smith, Inc., No. 03-09-0566-
CV, 2011 WL 56057, at *15 (Tex. App. Jan. 7, 2011). If Ameriprise can show that it “did not

know, and in the exercise of reasonable care could not have known, of the untruth or omission,”

it will not be liable. Tex. Rev. Civ. Stat. art. 581, § 33(F)(1); see also Fernea, 2011 WL 56057,

at *15-16.

The main focus of these claims is the alleged misstatements and omissions in the PPMs,
which “are not only significant but pivotal” to each class member’s case. Mullen, 186 F.3d at

626; see also Longden v. Sunderman, 123 F.R.D. 547, 553 (N.D. Tex. 1988) (“The class action
device is appropriate in securities fraud cases involving similar or identical misrepresentations,

even if they are issued at different times.”). Other issues that turn on common proof are the

materiality of the false and misleading statements and omissions to a reasonable person, whether

Securities America was a “seller” as defined by the securities laws, and whether SAFC and

Ameriprise are liable as control persons. See, e.g., Weatherly, 905 S.W.2d at 649 (“[T]he focus

under the Texas Securities Act is on the conduct of the seller or issuer of the securities, i.e.,

whether they made a material misrepresentation, not on the conduct of the individual buyers. A

misrepresentation that is material to one class member as a reasonable investor will be material
as to all class members.”).

2. The Federal Securities Act Claims Asserted In Provident and Medical


Capital
In both cases plaintiffs assert claims against Securities America for violations of section

12(a)(2) of the federal Securities Act, and against SAFC and Ameriprise for violations of section

15 of the Securities Act. 3 The elements of the section 12(a)(2) claim are virtually identical to the

elements of the Texas Securities Act claim: “(1) an offer or sale of a security, (2) by the use of a

means or instrumentality of interstate commerce, (3) by means of a prospectus or oral

communication, (4) that includes an untrue statement of material fact or omits to state a material

3
In Provident, the Securities Act claims are asserted against Securities America, SAFC and
Ameriprise in the Toomey case, which the Court stayed after it was transferred from the District
of Idaho. The Toomey claims will be released in the settlement. (Settlement Agreement, ¶ 20.)

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fact that is necessary to make the statements not misleading. Miller v. Thane Int’l, Inc., 519 F.3d

879, 885 (9th Cir. 2008). Securities America will not be held liable if it proves that it “did not

know, and in the exercise of reasonable care could not have known” about the untruths or

omissions. 15 U.S.C. § 77 l(a)(2).

To prove SAFC and Ameriprise’s liability as control persons under section 15, plaintiffs

must prove Securities America’s liability and then prove that SAFC and Ameriprise had power

or control over Securities America. See Howard v. Everex Systems, Inc., 228 F.3d 1057, 1065

(9th Cir. 2000);4 G.A. Thompson & Co. v. Partridge, 636 F.2d 945, 957-58 (5th Cir. 1981). As
with Texas law, SAFC and Ameriprise have a defense; they may avoid liability by showing that

they “had no knowledge of or reasonable ground to believe in the existence of the facts by reason

of which the liability of the controlled person is alleged to exist.” 15 U.S.C. § 77o(a). Because

the elements of and defenses to the Securities Act claims are virtually identical to the Texas

Securities Act claims, they will turn on the same class-wide issues and common proof.

3. The Breach of Fiduciary Duty Claim Asserted in Provident

Plaintiffs have asserted a breach of fiduciary claim against Securities America in the

Provident case. The elements of the fiduciary duty claim are whether (1) Securities America

owed a fiduciary duty to class members; (2) Securities America breached its fiduciary duty to

class members; and (3) class members are entitled to recover damages. See Plotkin v. Joekel,

304 S.W.3d 455, 479 (Tex. App. 2009). These issues are predominantly common to all class

members and will be proved using class-wide evidence. The existence and scope of Securities

America’s fiduciary duty to its clients is common to all class members because plaintiffs allege

that the duty arises from the same legal obligations and factual circumstances: Securities

America’s duty to all of its clients to reasonably investigate private placement securities it

recommends to clients. The issue of whether the defendants breached their fiduciary duty is

4 Howard addressed claims alleged under section 20 of the Exchange Act of 1934, but the Ninth
Circuit has instructed that “the controlling person analysis is the same” under section 15 of the
Securities Act and section 20 of the Exchange Act. Hollinger v. Titan Capital Corp., 914 F.2d
1564, 1578 (9th Cir. 1990) (en banc).

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also common to all class members because it focuses on Securities America’s conduct. Finally,

class members’ damages can be calculated using Securities America’s records. Certification of

the fiduciary duty claim is therefore appropriate. See, e.g., Pope v. Harvard Bancshares, Inc.,
240 F.R.D. 383, 391 (N.D. Ill. 2006) (certifying a class where “Plaintiffs’ claim of breach of

fiduciary duty primarily involves an inquiry into the conduct of the defendants, an issue that is
common to all putative class members”).

4. The Negligence Claim Asserted in Medical Capital


Like the TSA and breach of fiduciary duty claims, plaintiffs’ negligence claim in the

Medical Capital case focuses on Securities America’s conduct. Plaintiffs allege that Securities

America owed a duty to exercise due care when offering and selling the Medical Capital Notes to

its clients. This duty included performing a reasonable due diligence investigation of the

Medical Capital entities, ensuring that the Notes were suitable investments and that all material

risks were disclosed in the PPMs, and to comply with FINRA rules and regulations. The

negligence claim is therefore appropriate for certification. See Watson v. Shell Oil Co., 979 F.2d
1014 (5th Cir. 1992) (affirming the district court’s class certification of the plaintiffs’ negligence

claim as part of a trial plan that included a class-wide trial of the defendants’ liability); Mullen,
186 F.3d at 626 (affirming the district court’s certification of plaintiffs’ negligence claims

because the common issues related to the defendant’s liability were “pivotal” and predominated

over individual issues of causation, damages and contributory negligence); In re CertainTeed

Corp. Roofing Shingles Products Liability Litig., 269 F.R.D. 468 (E.D. Pa. 2010) (certifying
plaintiffs’ negligence claim for settlement purposes).

C. The Representative Plaintiffs’ Claims Are Typical

The typicality requirement is satisfied because the Representative Plaintiffs’ claims arise

from the same course of conduct as Settlement Class Members’ claims. See James v. City of

Dallas, 254 F.3d 551, 571 (5th Cir. 2001) (typicality requires only that “the class representative’s

claims have the same essential characteristics of those of the putative class”). “[T]he test for
typicality is not demanding” and “does not require a complete identity of claims.” Stirman v.

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Exxon Corp. 280 F.3d 554, 562 (5th Cir. 2002) (quoting James, 254 F.3d at 571). “The

prerequisite in the settlement context requires ‘proof that the interests of the class representatives

and the class are commonly held for purposes of receiving similar or overlapping benefits from a
settlement.’” DeHoyos v. Allstate Corp., 240 F.R.D. 269, 281 (W.D. Tex. 2007) (citation

omitted). The Representative Plaintiffs do not assert claims unique to themselves. Like every

Provident Settlement Class member, Representative Plaintiffs Joseph Billitteri’s and the Sharon

Kreindel Revocable Trust’s claims arise out of Securities America’s sale of Provident Securities.

Similarly, like all Medical Capital Settlement Class members, the claims of Representative
Plaintiffs Henry Mitchell, Alvin Sabroff and June Sabroff arise out of Securities America’s sale

of Medical Capital Notes. To succeed on the merits, Representative Plaintiffs and members of

each of the Settlement Classes would have to prove the same or similar facts about Securities

America’s conduct and the same or similar untrue statements and omissions of material fact.

D. The Representative Plaintiffs Adequately Represent the Classes


The adequacy requirement is met where (1) the named plaintiffs’ counsel will prosecute

the action zealously and competently; (2) the named plaintiffs possess a sufficient level of

knowledge about the litigation to be capable of taking an active role in and exerting control over

the prosecution of the litigation; and (3) there are no conflicts of interest between the named

plaintiffs and the absent class members. See Feder v. Electronic Data Systems Corp., 429 F.3d

125, 129-30 (5th Cir. 2005). The Representative Plaintiffs and their counsel have fairly and

adequately represented and protected the interests of all members of each Settlement Class. The

Representative Plaintiffs have demonstrated that they are capable of directing the prosecution of

the class claims. See Apx 494-509. There are no conflicts of interest between the Representative

Plaintiffs and the members of either Settlement Class because their interests are aligned. See In

re Corrugated Container Antitrust Litig., 643 F.2d 195, 208 (5th Cir. 1981) (concurring with the

district court that as long as “all class members are united in asserting a common right, such as

achieving the maximum possible recovery for the class, the class interests are not antagonistic
for representation purpose”); McNamara, 214 F.R.D. at 428-29 (finding no conflict between the

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named plaintiff and class members where both groups sought maximum recovery).

The Representative Plaintiffs have also retained counsel who are highly qualified to

pursue the litigation. See Fee Apx 5 19-36, 57-76. Plaintiffs’ counsel have committed significant

resources to representing the Settlement Classes and have zealously prosecuted their claims,
investigating the facts and law, retaining consultants, drafting and filing complaints, conducting

formal and informal discovery, consulting with regulatory authorities and other interested

parties, opposing motions to dismiss, communicating regularly with the Representative


Plaintiffs, and engaging in complex and demanding settlement negotiations. See Apx 1-29.

Settlement Class Counsel have thoroughly familiarized themselves with the relevant facts and
law and have prior experience in similar litigation. Apx 1-29; Fee Apx 19-36, 57-76. The

settlement was negotiated with the active participation of counsel for the PR Liquidating Trustee
and the Provident Receiver, and the Medical Capital Receiver was regularly briefed on the

progress of settlement discussions. See Apx 26, 230-232, 234.

E. A Class Action Is Superior


Rule 23(b)(3) requires a finding that common legal and factual issues predominate over
individual issues and that a class action is superior to other methods of addressing the plaintiffs’

claims. As discussed in section V.B. above, common issues predominate over any individual

issues. The superiority prong of Rule 23(b)(3) is also satisfied. A class action is superior when
it serves the primary goals of Rule 23, achieving “economies of time, effort, and expense,”

without sacrificing fairness. See Amchem, 521 U.S. at 615 (citation omitted). In determining

whether the superiority requirement is met, courts consider: (1) the interests of class members in
individually controlling the litigation of their own cases, (2) the extent and nature of other

litigation involving the same issues, (3) the desirability of concentrating the litigation in this

forum, and (4) any difficulties that may be encountered in managing a class action. Fed R. Civ.

P. 23(b)(3). Courts routinely find these factors favor class certification of securities claims. See,

5“Fee Apx” refers to the appendix filed in support of the concurrently filed Motion by Settlement
Class Counsel for Attorneys’ Fees and Reimbursement of Expenses.

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e.g., Longden, 123 F.R.D. at 559 (“the class action device is the superior method in this
[securities] case for achieving an efficient and fair adjudication of the matters in controversy”);

Shaw, 91 F. Supp. 2d at 958 (“Class certification in securities cases is practically routine”).

The first factor addresses class members’ interests in prosecuting their own cases. This
factor “matters mainly when absent class members have personal injury claims” because “[w]hen

only economic losses are at issue, the interest to personally control the litigation is small.”

Lehocky v. Tidel Technologies, Inc., 220 F.R.D. 491, 510 (S.D. Tex. 2004) (“As long as the

named plaintiffs seek to maximize the recovery for the class, little else matters.”). And
“[a]lthough such desires are pertinent to the analysis, they should be subordinated to the
advantages of having a defendant’s liability determined in one proceeding when virtually all

legal and factual issues are common to the class members.” Durrett v. John Deere Co., 150

F.R.D. 555, 559 (N.D. Tex. 1993). The Settling Defendants have entered into a separate

agreement with investors who initiated arbitration proceedings, so those individuals no longer

have an interest in prosecuting their own cases. Investors who wish to pursue individual

litigation or arbitration may opt out of the settlement.

The second factor considers other litigation that is already pending. Nearly all of the

pending arbitrations will be resolved as part of the negotiated global settlement. The PR
Liquidating Trust will participate in the settlement as a class member. Moreover, “even if a

number of similar suits already exist, a class action might prevent the initiation of further

litigation if class members who have not filed suit could have their rights adequately determined

by a representative in a class action.” Id. at 559-60.

The third factor addresses the benefits of litigating in this forum. With Judge Carter’s

transfer of the Medical Capital cases for settlement purposes, all of the pending class cases are

now before this Court. The coordination of the settlement negotiations has greatly facilitated the

settlement negotiations and led to a global resolution of the class, trust and arbitral claims.

Finally, courts certifying settlement classes do not need to consider the fourth factor,

which focuses on the manageability of a class action. As the Supreme Court noted in Amchem,

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when “[c]onfronted with a request for settlement-only class certification, a district court need not

inquire whether the case, if tried, would present intractable management problems for the

proposal is that there be no trial.” 521 U.S. at 620 (internal citation omitted); see also Schwartz,

2005 WL 3148350, at *16.

VI. THE COURT SHOULD APPOINT SETTLEMENT CLASS COUNSEL


Under Rule 23, “a court that certifies a class must appoint class counsel ... [who] must
fairly and adequately represent the interests of the class.” Fed. R. Civ. P. 23(g)(1)(A), (B). In

making this determination, the Court must consider counsel’s: (1) work in identifying or

investigating potential claims; (2) experience in handling class actions or other complex

litigation, and the types of claims asserted in the case; (3) knowledge of the applicable law; and

(4) resources committed to representing the class. Fed. R. Civ. P. 23(g)(1)(A). The Court

previously appointed the law firms of Girard Gibbs and Zwerling, Schachter to serve as Interim
Co-Lead Plaintiffs’ Counsel in the Billitteri action. The Girard Gibbs and Zwerling Schachter

firms were also appointed as Co-Lead Counsel under the PSLRA in the Toomey and McCoy

actions. As shown in the firms’ resumes, the firms have significant experience in litigating class

actions and securities cases and, over the last year, have diligently litigated both cases, dedicated

substantial resources to the investigation and prosecution of the claims, and demonstrated their

knowledge of the laws at issue. Apx 1-29; see also Fee Apx 19-36, 54-76. Girard Gibbs and

Zwerling, Schachter should be appointed Settlement Class Counsel under Rule 23(g).

VII. THE SETTLEMENT IS FAIR, REASONABLE AND ADEQUATE AND SHOULD


BE APPROVED
Courts have long favored “[c]ompromises of disputed claims.” Williams v. First Nat’l

Bank of Pauls Valley, 216 U.S. 582, 595 (1910); see also Miller v. Republic Nat’l Life Insurance

Co., 559 F.2d 426, 428 (5th Cir. 1977) (“Settlement agreements are ‘highly favored in the law

and will be upheld whenever possible because they are a means of amicably resolving doubts
and preventing lawsuits.”) (citation omitted). There is “an overriding public interest in favor of

settlement,” particularly in class actions. Cotton v. Hinton, 559 F.2d 1326, 1331 (5th Cir. 1977).

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Approval of a proposed settlement is within the sound discretion of the district court, and the

“cardinal rule is that the District Court must find that the settlement is fair, adequate and

reasonable and is not the product of collusion between the parties.” Id. at 1330.

To assess whether the settlement is fair, adequate and reasonable, the Fifth Circuit has

identified six factors (known as the “Reed factors”) for district courts to consider. See Reed v.

General Motors Corp., 703 F.2d 170, 172 (5th Cir. 1983); Ayers v. Thompson, 358 F.3d 356, 369

(5th Cir. 2004). The factors are:

(1) the existence of fraud or collusion behind the settlement;

(2) the complexity, expense and likely duration of the litigation;

(3) the stage of the proceedings and the amount of discovery completed;

(4) the probability of plaintiffs’ success on the merits;

(5) the range of possible recovery; and

(6) the opinions of the class counsel, class representatives, and absent class
members.
Reed, 703 F.2d at 172. “[I]n considering the six factors, there is a strong presumption in favor of
finding the settlement fair, adequate and reasonable.” DeHoyos, 240 F.R.D. at 287.
A. The Absence of Fraud and Collusion Weighs In Favor of Settlement

This settlement is the product of arm’s-length negotiations by experienced counsel. The


parties first negotiated separate settlements with Securities America and Ameriprise, a lengthy

process that resulted in the limited fund settlement the Court declined to preliminarily approve.

The Court heard and considered evidence and argument and ruled after a full day hearing that the

proposed settlement did not fall within the narrow parameters of the “limited fund” doctrine.

Apx 25-26, 170-181. Settlement Class Counsel then arranged for mediation with retired United

States District Judge James M. Rosenbaum and invited counsel for all interested arbitration
claimants, many of whom attended and negotiated a separate settlement for their clients. Apx

26. The PR Liquidating Trustee also participated in the negotiations that resulted in this

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settlement. Apx 27. Having actively supervised this litigation, the Court is ideally situated to

evaluate the fairness of the negotiations and resulting settlement. See, e.g., Reed, 703 F.2d at

172 (“That it is the trial judge who can best know how well the class was represented informs the
discretion given to him in reviewing proffered settlements under Rule 23.”); DeHoyos, 240

F.R.D. at 287 (“Based on the undisputed record and experience with counsel, the Court

determines the proposed settlement was the product of arms’ length negotiations, free of fraud or
collusion.”).

The absence of fraud and collusion is also shown by the support of the PR Liquidating
Trustee, the Provident Receiver and the Medical Capital Receiver, as well as arbitration

claimants who are part of the separate settlement with Securities America. Settlements like this

one, achieved through arm’s-length negotiations by experienced counsel and with the assistance

of a mediator, are presumptively fair and reasonable. See, e.g., Klein v. O’Neal, 705 F. Supp. 2d

632, 650 (N.D. Tex. 2010) (“[C]ourts are to adhere to a strong presumption that an arms-length

class action settlement is fair—especially when doing so will result in significant economies of

judicial resources—absent evidence weighing against approval.”); DeHoyos, 240 F.R.D. at 287

(citing numerous negotiating sessions, both in person and by telephone, by counsel with

significant class action experience ); Schwartz, 2005 WL 3148350, at *21 (approving settlement

where the negotiations involved highly regarded mediators and were “undertaken at arm’s length

by counsel on both sides who have substantial experience and expertise in representing parties in
securities class actions”).

The fairness of the settlement is also shown by the terms of the settlement itself. All

Settlement Class members will receive their pro rata share of the Settlement Fund, calculated by

the amount they invested less any returns they received on their investment. See Vaughn v.

American Honda Motor Co., 627 F. Supp. 2d 738, 748 (E.D. Tex. 2007). (“There was no bias,

collusion, or coercion in favor of any party or group of class members. This fact weighs heavily
in favor of approval.”).

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B. The Complexity, Expense and Likely Duration of the Litigation Weigh in


Favor of Approval
The complexity of the cases, as well as the expense and delay associated with continued

litigation, even if ultimately successful, also weigh in favor of approval of the settlement. See

Klein, 705 F. Supp. 2d at 653 (“Approval of the Settlement Agreement provides relief while

simultaneously freeing class members and defendants alike from the burdens and uncertainty
inherent in additional litigation.”). Securities litigation is “notoriously difficult and

unpredictable.” Maher v. Zapata Corp., 714 F.2d 436, 455 (5th Cir. 1983). According to NERA

Economic Consulting, nearly 40% of securities class actions filed since January 1996 were

dismissed on the merits. Apx 56.

The procedural aspects of this case have added to its complexity. The cases were
litigated in multiple jurisdictions, including this Court, the Central District of California, the
District of Idaho, and the Judicial Panel for Multidistrict Litigation. In litigating and settling

these cases, Settlement Class Counsel has coordinated with the Provident and Medical Receivers,
the PR Liquidating Trustee, multiple defense counsel and counsel for plaintiffs in related cases

and arbitrations. Because of the multifaceted nature of the cases, Settlement Class Counsel have

devoted significant time and resources to achieve this settlement. The costs of continuing the

litigation include the continued party and non-party discovery that would be required for
plaintiffs to prove their claims, as well expert fees and other usual costs of litigation.
Procedurally, “[a]dditional litigation would likely include: (1) contested class

certification proceedings; (2) [a request for] an appeal under Federal Rule of Procedure 23(f)

from any order granting class certification; (3) dispositive motions; (4) expert depositions

leading to Daubert challenges; (5) extensive pretrial filings; (6) a lengthy trial; (7) post-trial
proceedings in this District Court; and (8) further appeals.” DeHoyos, 240 F.R.D. at 291-92.

The case would undoubtedly be hard fought at each of these stages, as it has been to date, and
that will take time, even with a Court and parties who are committed to efficiently managing the

case. See Schwartz, 2005 WL 3148350, at *19 (“Ultimately, if Plaintiffs were to succeed at trial,

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they still could expect a vigorous appeal by Defendants and an accompanying delay in the
receipt of any relief.”).

C. The Stage of the Proceedings Weighs in Favor of Approval


This factor evaluates whether “the parties and the district court possess ample
information with which to evaluate the merits of the competing positions.” Ayers, 358 F.3d at

369. “The Court should consider all information which has been available to the parties.”

DeHoyos, 240 F.R.D. at 292. Plaintiffs conducted substantial written discovery in the Provident

litigation. In response to document requests and subpoenas, plaintiffs obtained and reviewed
more than 1,150,000 pages of documents produced by the defendants and 3,200,000 pages of

documents produced by non-parties. Apx 10, 13. The non-party discovery included Mick &

Associates, the law firm that Provident hired to conducted due diligence for brokers like

Securities America. Apx 11-12. Plaintiffs also deposed the Provident Chapter 11 Trustee
Dennis Roossien and Provident’s Chief Restructuring Officer David N. Phelps. Apx 13, 14. The

defendants deposed the class representatives. Apx 13-14.

Although formal discovery had not yet commenced in the Medical Capital litigation,

Settlement Class Counsel’s evaluation of the strengths and weaknesses of the case is informed by

the discovery in the Provident litigation. Securities America’s sale of Provident Securities

overlapped with its sale of Medical Capital Notes, so the company’s due diligence practices
during that time period are critical to both cases. Mick & Associates, who prepared the due

diligence reports for both the Provident offerings and the Medical Capital offerings, produced

more than 31,000 pages of documents in the Provident litigation. Apx 11, 12. The Medical
Capital Receiver’s monthly reports detailing the Receiver’s activities have also provided

adequate insight into Medical Capital’s business methods and practices. The proceedings in the

Massachusetts Securities Division’s administrative action were an additional source of

information about both Medical Capital and Securities America’s sale of the notes.

Moreover, “the lack of [formal discovery] does not compel the conclusion that

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insufficient discovery was conducted.” Cotton, 559 F.2d at 1332. Unless “the record points

unmistakably toward the conclusion that the settlement was the product of uneducated
guesswork,” the court “may legitimately presume that counsel’s judgment ‘that they had

achieved the desired quantum of information necessary to achieve a settlement is reliable.’” In

re Corrugated Container, 643 F.2d at 211 (quoting Cotton, 559 F.2d at 1332). In both cases,

Settlement Class Counsel thoroughly investigated the claims and entered into settlement

negotiations with a complete understanding of the risks and rewards involved in continued
litigation.

D. The Probability of Success on the Merits Weighs in Favor of Approval


Consideration of this factor “contains an internal tension” because courts must assess the

probability of plaintiffs’ success on the merits without “try[ing] the case in the settlement

hearings because ‘[t]he very purpose of the compromise is to avoid the delay and expense of
such a trial.’” Reed, 703 F.2d at 172 (quoting Young v. Katz, 447 F.2d 431, 433 (5th Cir. 1971));

see also Klein, 705 F. Supp. 2d at 654. “A proposed settlement need not obtain the largest

conceivable recovery for the class to be worthy of approval; it must simply be fair and adequate
considering all the relevant circumstances.” Klein, 705 F. Supp. 2d at 649; see also DeHoyos,

240 F.R.D. at 286 (“The proposed settlement is not required to ‘achieve some hypothetical

standard constructed by imagining every benefit that might someday be obtained in contested
litigation.’”) (citation omitted).

The probability of plaintiffs’ success on the merits hinges on their ability to prove several

layers of liability. Usually, the issuer of the securities is a defendant in a securities case, but both

Provident and Medical Capital are insolvent and not named as defendants. See, e.g., In re Enron

Corp. Securities, Derivative & “ERISA ” Litig., 586 F. Supp. 2d 732, 791 (S.D. Tex. 2008)
(describing the “exceptional obstacles to recovery,” including that “[i]ssuer and primary violator

Enron Corporation was in bankruptcy” and, as the plaintiffs’ expert explained, “securities class

actions are seldom filed when the issuer is bankrupt”). If litigation continues, plaintiffs will have

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to continue marshaling evidence about the underlying conduct of the Provident and Medical

Capital entities to prove that the PPMs contained materially untrue statements or material

omissions—evidence that Securities America will undoubtedly challenge. Securities America’s

liability then turns largely on whether they knew, or reasonably should have known, of the

untruths or omissions in the PPMs. Securities America contends that the company conducted

appropriate due diligence in accordance with the standard of care in the industry and had no

knowledge of the false and misleading statements in the PPMs.


There is a risk of plaintiffs recovering very little or nothing at all even if they obtain a

judgment against Securities America, depending on the company’s financial viability at the time.
Proving Ameriprise’s liability is therefore critical. Plaintiffs must show that Ameriprise—

Securities America’s ultimate parent company—had actual power or influence over Securities

America and the power to influence or control Securities America’s offer and sale of the

Provident and Medical Capital securities. See Fernea, 2011 WL 56057, at * 15; In re Charles

Schwab Corp. Sec. Litig., 257 F.R.D. 534, 550 (N.D. Cal. 2009). Plaintiffs must overcome

Ameriprise’s defense that it “had no knowledge of or reasonable ground to believe in the

existence of the facts by reason of which the liability of the controlled person is alleged to exist.”

15 U.S.C. § 77o(a); see also Tex. Rev. Civ. Stat. art. 581, § 33(F)(1). Ameriprise has responded

to requests for production of documents in both cases by asserting, in responses certified under

Rule 26(g), that, it has no internal documents referring to Provident or Medical Capital. Apx 30-

40. The absence of internal documents referring to Provident and Medical Capital at Ameriprise

suggests that proof of Ameriprise’s liability as a control person under the securities laws would
be challenging.

Procedural hurdles also stand in the path to success. Although securities claims are

considered to be well suited for class-wide treatment, class certification motions raise complex

procedural issues and are almost always highly contested by the defendants. See, e.g., DeHoyos,

240 F.R.D. at 290 (discussing the challenges of class certification, including choice of law). In

the Provident case, for example, plaintiffs’ class certification motion included a comprehensive

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choice-of-law analysis and comparison of the laws of the fifty states, as well as nearly 4,000

pages of evidentiary support. (See Billitteri Dkt. No. 118-131) Securities America and

Ameriprise will undoubtedly seek Fifth Circuit review under Rule 23(f) if the Court grants class
certification, and appeal any judgment in plaintiffs’ favor, creating additional risk and delay.

See, e.g. Schwartz, 2005 WL 3148350, at *32 n.3 (citing cases in which jury verdicts for

substantial damages in securities actions were reversed on appeal). This settlement “give[s] the
Plaintiffs hard cash, a bird in the hand.” In re Enron Corp. Securities, Derivative & “ERISA”

Litig., 228 F.R.D. 541, 566 (S.D. Tex. 2005).

E. The Range of Possible Recovery Weighs in Favor of Approval


The amount of the settlement is well within the range of reasonable recovery, which

weighs in favor of approval. Courts have used the median value of prior settlements as a
benchmark for analyzing this factor. See In re Education Testing Services Proaxis Principles of

Learning & Teaching: Grades 7-12 Litig., 447 F. Supp. 2d 612, 623-24 (E.D. La. 2006).

Empirical evidence of the amount of prior settlements in securities class action cases confirms

the reasonableness of this settlement. The data provided by several organizations that report

securities class action settlements shows that a recovery of $80 million on losses of $200 million

is in fact well above the range of reported outcomes in other securities cases:

• Cornerstone Research reports that in 2010, the median settlement amount for
securities class action settlements was $11.3 million. Apx 80. Cornerstone’s review of all

securities class actions filed since January 1, 1996 (when the PSLRA went into effect) shows that
more than half settled for less than $10 million and only 7% settled for more than $100 million.
Apx 81.

• NERA Economic Consulting has reached similar conclusions, reporting that the
median settlement amount in 2010 was $11.1 million—a number that NERA says is “an all-time
high” and “a strong indicator of trends in the typical settlement.” Apx 62.

• PricewaterhouseCoopers LLP recently reported that “[t]he overall number of

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settlements increased in 2010, while the total value of settlements fell.” Apx 123. Only 6% of

settlements in 2010 fell within the range of $50 million to $99 million, and another 6% settled
for $100 million or more. Apx 124.
• In 2009, NERA reported on SEC settlements in cases related to alleged Ponzi

schemes reached between July 31, 2002 and March 1, 2009. NERA discovered that of the

largest Ponzi scheme cases during this time period, “most have little or no SEC settlements to
date.” Apx 162-68.

NERA also reports that the average proportion of claimed damages investors have
received in securities class action settlements since 2002 ranges from 2.2% to 3.1%. In 2010 it

was 2.4%. Apx 68. The Settlement Class Members in this case will receive a gross recovery of

approximately 40% of their losses, which is significantly more than the average amount investors

recover in securities settlements. Although the settlement will not compensate class members for

all of their damages, “compromise is the essence of a settlement ...; inherent in compromise is a
yielding of absolutes and an abandoning of highest hopes.” Cotton, 559 F.2d at 1330 (citation

omitted). Given the insolvency of the issuers of the securities, Securities America’s limited
financial resources, and the challenge of proving Ameriprise’s liability as a control person, the

immediate benefit that Settlement Class Members will receive far “outweigh[s] the risk of an
uncertain, potentially protracted and costly litigation.” DeHoyos, 240 F.R.D. at 291.

F. The Opinions of Settlement Class Counsel, Class Representatives and Absent


Class Members
Courts give substantial weight to the opinion of the attorneys who prosecuted the case

and negotiated the settlement. See Reed, 703 F.2d at 175 (“[T]he value of the assessment of able

counsel negotiating at arm’s length cannot be gainsaid. Lawyers know their strengths and they

know where the bones are buried.”); see also Klein, 705 F. Supp. 2d at 649 (“The Fifth Circuit

has repeatedly stated that the opinion of class counsel should be accorded great weight.”).
“Class counsel’s opinion should be presumed reasonable because they are in the best position to

evaluate fairness due to an intimate familiarity with the lawsuit.” Turner v. Murphy Oil USA,

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Case 3:10-cv-01833-F Document 117 Filed 06/14/11 Page 31 of 32 PageID 2714

Inc., 472 F. Supp. 2d 830, 852 (E.D. La. 2007); see also Vaughn, 627 F. Supp. 2d at 748 (“The

counsel for the parties in this case are experienced in class action litigations, and their opinion

that the settlement should be approved and is fair to the class is entitled to weight.”).

Settlement Class Counsel strongly recommend the settlement and believe it is in the best

interest of all Settlement Class Members. Apx 28. The Representative Plaintiffs also support the

settlement. Apx 213-228. The Court should also consider the opinions of absent class members,

who have until June 24 to object to or comment on the settlement. While there will undoubtedly

be objections from investors who would prefer to recover more, “a settlement is not ‘a wish-list
of class members that the Defendants must fulfill.’” DeHoyos, 240 F.R.D. at 309 (citation

omitted); see also id. at 293 (“General objections without factual or legal substantiation do not
carry weight.”); In re AOL Time Warner, Inc. Securities & “ERISA ” Litig., No. MDL 1500,

2006 WL 903236, at *15 (S.D.N.Y. Apr. 6, 2006) (rejecting “unsupported” objections that failed
to “provide[] a legal or factual basis for the alleged insufficiency of the Settlement” or to

“consider the legal or factual context in which the Settlement was reached.”). And the Fifth

Circuit is “clear that a settlement can be approved despite opposition from class members,
including the named plaintiff.” Ayers, 358 F.3d at 373; see also Reed, 703 F.2d at 174-75

(affirming the district court’s approval of a settlement despite “the objections of twenty-three of

twenty-seven named plaintiffs and nearly forty percent of the 1,517 member class”); Cotton, 559

F.2d at 1331 (“A settlement can be fair notwithstanding a large number of class members who

oppose it.”).

VIII. CONCLUSION

Representative Plaintiffs respectfully request that the Court approve the settlement as fair,

adequate and reasonable settlement.

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Case 3:10-cv-01833-F Document 117 Filed 06/14/11 Page 32 of 32 PageID 2715

Dated: June 14, 2011 Respectfully submitted,

GIRARD GIBBS LLP

By: /s/ Daniel C. Girard

Daniel C. Girard
Amanda M. Steiner
Dena C. Sharp
601 California Street, 14th Floor
San Francisco, CA 94108
Tel: (415) 981-4800

Susan Salvetti
Sona R. Shah
ZWERLING, SCHACHTER &
ZWERLING, LLP
41 Madison Avenue
New York, NY 10010
Tel: (212) 223-3900

Dan Drachler
ZWERLING, SCHACHTER &
ZWERLING, LLP
1904 Third Avenue, Suite 1030
Seattle, WA 98101
Tel: (206) 223-2053

Interim Co-Lead Plaintiffs’ Counsel

Lewis T. LeClair
McKOOL SMITH P.C.
State Bar No. 12072500
300 Crescent Court, Suite 1500
Dallas TX 75201
Tel: 214.978.4984
Fax: 214.978.4044

Liaison Plaintiffs’ Counsel

Ari H. Jaffe
KOHRMAN JACKSON & KRANTZ, PLL
One Cleveland Center, 20th Floor
Cleveland, OH 44114
Tel: (216) 696-8700

Plaintiffs’ Counsel

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