Case 2:04-cv-02619-LDW-ETB Document 98 Filed 07/31/2007 Page 1 of 3 Case 2:04-cv-02619-LDW-ETB Document 98 Filed 07/31/2007 Page 2 of 3 Case 2:04-cv-02619-LDW-ETB Document 98 Filed 07/31/2007 Page 3 of 3 Case 2:04-cv-02619-LDW-ETB Document 98-2 Filed 07/31/2007 Page 1 of 25 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK x In re NBTY, INC. SECURITIES : Master File No. 2:04-cv-02619-LDW(ETB) LITIGATION : : ELECTRONICALLY FILED : CLASS ACTION This Document Relates To: : : Judge Wexler ALL ACTIONS. : Magistrate Judge Boyle x LEAD PLAINTIFF’S MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR FINAL APPROVAL OF SETTLEMENT AND PLAN OF ALLOCATION OF SETTLEMENT PROCEEDS Case 2:04-cv-02619-LDW-ETB Document 98-2 Filed 07/31/2007 Page 2 of 25 TABLE OF CONTENTS Page I. PRELIMINARY STATEMENT.........................................................................................1 II. HISTORY AND BACKGROUND OF THE ACTION......................................................3 III. THE TERMS OF THE SETTLEMENT..............................................................................3 IV. THE PROPOSED SETTLEMENT IS FAIR, REASONABLE AND ADEQUATE AND SHOULD BE APPROVED BY THE COURT..........................................................4 A. The Law Favors and Encourages Settlements.........................................................4 B. The Settlement Is Procedurally Fair........................................................................5 C. The Second Circuit’s Standards Governing the Substantive Fairness of Class Action Settlements.........................................................................................6 D. The Settlement Satisfies the Second Circuit Criteria for Approval.........................7 1. The Complexity, Expense and Likely Duration of the Litigation Justifies the Settlement................................................................................7 2. The Reaction of the Class to the Settlement................................................8 3. The Stage of the Proceedings and Discovery Completed............................9 4. The Risk of Establishing Liability.............................................................11 5. The Considerable Risk of Establishing Damages......................................14 6. The Risks of Maintaining the Class Action Through Trial........................16 7. The Reasonableness of the Settlement in Light of the Best Possible Recovery and the Attendant Risks of Litigation........................................16 8. The Ability of the Defendants to Withstand a Greater Judgment..............17 V. THE PLAN OF ALLOCATION OF THE SETTLEMENT FUND IS FAIR AND REASONABLE AND SHOULD BE APPROVED BY THE COURT............................18 VI. CONCLUSION..................................................................................................................19 - i - Case 2:04-cv-02619-LDW-ETB Document 98-2 Filed 07/31/2007 Page 3 of 25 TABLE OF AUTHORITIES Page CASES Berger v. Compaq Computer Corp., 257 F.3d 475 (5th Cir. 2001).............................................................................................16 Carpe v. Aquila, Inc., No. 02-0388-CV-W-FJG (W.D. Mo. Mar. 23, 2005)........................................................15 Chatelain v. Prudential-Bache Sec., 805 F. Supp. 209 (S.D.N.Y. 1992).....................................................................................16 Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974).................................................................................5, 7, 11, 17 Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005)...........................................................................................................14 Emergent Capital Inv. Mgmt., LLC v. Stonepath Group, Inc., 343 F.3d 189 (2d Cir. 2003)...............................................................................................13 Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976)...........................................................................................................12 Heyer v. N.Y. City Hous. Auth., 80 Civ. 1196 (RWS), 2006 U.S. Dist. LEXIS 25089 (S.D.N.Y. Apr. 28, 2006)...................................................................................................11 Hicks v. Morgan Stanley & Co., 01 Civ. 10071 (RJH), 2005 U.S. Dist. LEXIS 24890 (S.D.N.Y. Oct. 24, 2005).....................................................................................................8 In re “Agent Orange” Prod. Liab. Litig., 597 F. Supp. 740 (E.D.N.Y. 1984)....................................................................................16 In re Alloy, Inc. Sec. Litig., 03 Civ. 1597 (WHP), 2004 U.S. Dist. LEXIS 24129 (S.D.N.Y. Dec. 2, 2004).......................................................................................................5 In re AOL Time Warner, Inc. Sec. & “ERISA” Litig., MDL No. 1500, 2006 U.S. Dist. LEXIS 17588 (S.D.N.Y. Apr. 6, 2006).....................................................................................................16 - ii - Case 2:04-cv-02619-LDW-ETB Document 98-2 Filed 07/31/2007 Page 4 of 25 Page In re Ashanti Goldfields Sec. Litig., No. CV-00-717 (DGT), 2005 U.S. Dist. LEXIS 28431 (E.D.N.Y. Nov. 15, 2005)....................................................................................................4 In re Austrian & German Bank Holocaust Litig., 80 F. Supp. 2d 164 (S.D.N.Y. 2000), aff’d sub nom. D’Amato v. Deutsche Bank, 236 F.3d 78 (2d Cir. 2001)...........................................................................................4, 5, 9 In re Cendant Corp. Litig., 264 F.3d 201 (3d Cir. 2001)...............................................................................................15 In re Global Crossing Sec. & ERISA Litig., 225 F.R.D. 436 (S.D.N.Y. 2004)...............................................................................7, 9, 18 In re Indep. Energy Holdings PLC Sec. Litig., No. 00 Civ. 6689 (SAS), 2003 U.S. Dist. LEXIS 17090 (S.D.N.Y. Sept. 29, 2003)..........................................................................................passim In re Luxottica Group S.p.A. Sec. Litig., 233 F.R.D. 306 (E.D.N.Y. 2006)...............................................................................passim In re Michael Milken & Assocs. Sec. Litig., 150 F.R.D. 46 (S.D.N.Y. 1993).....................................................................................6, 11 In re PaineWebber Ltd. P’ships Litig., 171 F.R.D. 104 (S.D.N.Y.), aff’d, 117 F.3d 721 (2d Cir. 1997).............................................................................passim In re Time Warner Inc. Sec. Litig., 9 F.3d 259 (2d Cir. 1993)..................................................................................................14 In re Warfarin Sodium Antitrust Litig., 391 F.3d 516 (3d Cir. 2004)...............................................................................................17 In re Warner Commc’ns Sec. Litig., 618 F. Supp. 735 (S.D.N.Y. 1985), aff’d, 798 F.2d 35 (2d Cir. 1986).......................................................................................15 Joel A. v. Giuliani, 218 F.3d 132 (2d Cir. 2000).................................................................................................4 - iii - Case 2:04-cv-02619-LDW-ETB Document 98-2 Filed 07/31/2007 Page 5 of 25 Page Kaufman v. Motorola, Inc., No. 95 C 1069, 2000 U.S. Dist. LEXIS 14627 (N.D. Ill. Sept. 21, 2000)...................................................................................................15 Lewis v. Newman, 59 F.R.D. 525 (S.D.N.Y. 1973).........................................................................................11 Maley v. Del Global Techs. Corp., 186 F. Supp. 2d 358 (S.D.N.Y. 2002)................................................................................17 Milstein v. Huck, 600 F. Supp. 254 (E.D.N.Y. 1984)......................................................................................7 Newman v. Stein, 464 F.2d 689 (2d Cir. 1972).......................................................................................5, 6, 16 Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000)...............................................................................................12 Plummer v. Chem. Bank, 668 F.2d 654 (2d Cir. 1982).................................................................................................9 Strougo v. Bassini, 258 F. Supp. 2d 254 (S.D.N.Y. 2003)..............................................................................7, 8 Taft v. Ackermans, 02 Civ. 7951 (PKL), 2007 U.S. Dist. LEXIS 9144 (S.D.N.Y. Jan. 31, 2007)................................................................................................4, 18 Teachers’ Ret. Sys. of La. v. A.C.L.N., Ltd., No. 01-CV-11814 (MP), 2004 U.S. Dist. LEXIS 8608 (S.D.N.Y. May 14, 2004)...................................................................................................11 Trief v. Dun & Bradstreet Corp., 840 F. Supp. 277 (S.D.N.Y. 1993).......................................................................................8 TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (1976)...........................................................................................................14 United States v. 412.93 Acres of Land, 455 F.2d 1242 (3d Cir. 1972).............................................................................................15 Wal-Mart Stores, Inc. v. VISA U.S.A. Inc., 396 F.3d 96 (2d Cir. 2005)...................................................................................................4 - iv - Case 2:04-cv-02619-LDW-ETB Document 98-2 Filed 07/31/2007 Page 6 of 25 Page Weinberger v. Kendrick, 698 F.2d 61 (2d Cir. 1982)...............................................................................................4, 6 Whalen v. Hibernia Foods PLC, 04 Civ. 3182, 2005 U.S. Dist. LEXIS 15489 (S.D.N.Y. Aug. 1, 2005)....................................................................................................12 Zerkle v. Cleveland-Cliffs Iron Co., 52 F.R.D. 151 (S.D.N.Y. 1971).........................................................................................11 STATUTES, RULES AND REGULATIONS 15 U.S.C. §78j(b)................................................................................................................................12 Federal Rules of Civil Procedure Rule 23(b)(3)........................................................................................................................1 Rule 23(e).........................................................................................................................1, 4 17 C.F.R. §240.10b-5.........................................................................................................................12 SECONDARY AUTHORITY 4 Alba Conte, Herbert B. Newberg, Newberg on Class Actions (4th ed. 2002) §11.45...................................................................................................................................9 - v - Case 2:04-cv-02619-LDW-ETB Document 98-2 Filed 07/31/2007 Page 7 of 25 Pursuant to Rules 23(b)(3) and 23(e) of the Federal Rules of Civil Procedure, Lead Plaintiff, Communications Workers of America Plan for Employees’ Pensions and Death Benefits (“Lead Plaintiff”), by and through its counsel (“Lead Counsel”), respectfully move this Court for an order approving the proposed settlement of the above-captioned class action (the “Action”), and approving the proposed Plan of Allocation of settlement proceeds, each of which this Court preliminarily approved by its Order Preliminarily Approving Settlement and Providing for Notice, filed May 2, 2007 (the “Preliminary Approval Order”). I. PRELIMINARY STATEMENT Under the terms of the proposed settlement (the “Settlement”), as set forth in the Stipulation and Agreement of Settlement dated as of April 4, 2007 (the “Stipulation”), the Defendants have caused to be paid Sixteen Million Dollars ($16,000,000) in cash (the “Settlement Fund”) into an interest-bearing escrow account maintained on behalf of the Class, in exchange for the dismissal of all claims brought against the Defendants in this Action and a full release of claims. See paragraph 3 of the Declaration of Robert M. Rothman in Support of (1) Final Approval of Settlement and Plan of Allocation of Settlement Proceeds; and (2) Award of Attorneys’ Fees and Expenses (“Rothman Decl.”), submitted herewith. Lead Counsel respectfully submits that this Settlement represents an excellent recovery for the Class, reached by Lead Counsel and Lead Plaintiff without the assistance of any concurrent governmental investigation or any restatement of NBTY’s financial results, particularly when viewed in light of the considerable expense, delay and risks posed by continued litigation, the dangers of getting past summary judgment, trial, including establishing liability and damages, and the inevitable post-trial appeals. As fully discussed below and in the Rothman Declaration, the significant risks involved in taking this Action further in litigation, and possibly on to trial, when measured against the immediate benefit of the Settlement, justify this Settlement. - 1 -