UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT · IN RE XEROX CORPORATION ERISA LITIGATION...

UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT IN RE XEROX CORPORATION ERISA LITIGATION This Document Relates To: ALL ACTIONS.

Master File No. 02 CV-1138 (AWT) March 24, 2009

PLAINTIFFS’ MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR FINAL APPROVAL OF CLASS ACTION SETTLEMENT

Case 3:02-cv-01138-AWT Document 346-2 Filed 03/24/09 of 48

i

TABLE OF CONTENTS I. INTRODUCTION ............................................................................................................ 1

II. THE PROPOSED SETTLEMENT................................................................................... 2

III. BACKGROUND OF THE CONSOLIDATED ACTIONS ............................................. 3

A. Summary of the Action......................................................................................... 3

B. Settlement Negotiations and Related Proceedings ............................................... 5

C. Preliminary Approval and Notice to the Class ..................................................... 5

IV. ARGUMENT.................................................................................................................... 6

A. The Applicable Legal Standards........................................................................... 6

B. This Settlement Is the Product of a Rigorous and Adversarial Process .................................................................................................................. 7

C. The Settlement is Fair, Reasonable and Adequate Under the Grinnell Factors .................................................................................................... 8

1. Grinnell Factor One: The Complexity, Expense and Likely Duration of Litigation ............................................................................... 9

2. Grinnell Factor Two: The Class’s Reaction to the Settlement ............................................................................................... 12

3. Grinnell Factor Three: The Stage of the Proceedings and Extent of Discovery ................................................................................ 13

4. Grinnell Factors Four through Six: The Risks of Establishing Liability, Damages, and Maintaining the Class Action Through Trial .............................................................................. 15

a. Factor four: the risk of establishing liability............................... 15

b. Factor five: the risk of establishing damages............................. 18

c. Factor six: the risks of maintaining the class action through trial................................................................................. 21

5. Grinnell Factor Seven: The Ability of Defendants to Withstand a Greater Judgment................................................................ 21

6. Grinnell Factors Eight and Nine: The Reasonableness of the Settlement in Light of the Best Possible Recovery and the Attendant Risks of Litigation............................................................ 22


ii

V. THE SETTLEMENT CLASS SHOULD BE CERTIFIED............................................ 24

A. The Prerequisites of Rule 23(a) Are Satisfied .................................................... 25

1. The Settlement Class Satisfies the Numerosity Requirement................. 25

2. Common Questions of Law and Fact Exist ............................................ 25

3. Plaintiffs’ Claims Are Typical of the Claims of the Settlement Class...................................................................................... 26

4. Plaintiffs Will Adequately Protect the Interests of the Settlement Class...................................................................................... 27

B. The Settlement Class Satisfies the Requirements of Rule 23(b)(1).................... 28

C. The Requirements of Rule 23(g) Are Met .......................................................... 30

VI. THE FORMS AND METHODS OF NOTICE EMPLOYED SATISFY RULE 23 AND DUE PROCESS.................................................................................... 31

VII. THE PLAN OF ALLOCATION TREATS ALL CLASS MEMBERS FAIRLY AND SHOULD BE APPROVED................................................................... 33

VIII. CONCLUSION............................................................................................................... 37


iii

TABLE OF AUTHORITIES Cases

Alvidres v. Countrywide Fin. Corp., No. 07-5810, WL 1766927 (C.D. Cal. Apr. 16, 2008) ............................................................................................................................... 29

Amchem Prods. Inc. v. Windsor, 521 U.S. 591 (1997) ......................................................... 24, 25

Babcock v. Computer Assocs., Int’l, Inc., 212 F.R.D. 126 (E.D.N.Y. 2003).................. 26, 27, 30

Banyai v. Mazur, 205 F.R.D. 160 (S.D.N.Y. 2002).................................................................... 26

Bello v. Integrated Res., Inc., No. 88-1214, 1990 WL 200670 (S.D.N.Y. Dec. 4, 1990) ..................................................................................................................................... 21

Brieger v. Tellabs, Inc., 245 F.R.D. 345 (N.D. Ill. 2007)........................................................... 29

Chatelain v. Prudential-Bache Sec., Inc., 805 F. Supp. 209 (S.D.N.Y. 1992)............................. 8

City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974)........................................... passim

Coan v. Kaufman, 457 F.3d 250 (2d Cir. 2006) ......................................................................... 24

Consol. Rail Corp. v. Town of Hyde Park, 47 F.3d 473 (2d Cir. 1995) ..................................... 25

Curtiss-Wright Corp. v. Helfand, 687 F.2d 171 (7th Cir. 1982) ................................................ 34

D’Amato v. Deutsche Bank, 236 F.3d 78 (2d Cir. 2001) .......................................................... 7, 8

Donovan v. Bierwirth, 754 F.2d 1049 (2d Cir. 1985)................................................................. 18

Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410 (6th Cir. 1998)............................................ 24

Foe v. Cuomo, 700 F. Supp. 107 (E.D.N.Y. 1988), aff’d, 892 F.2d 196 (2d Cir. 1989), cert. denied, 498 U.S. 972 (1990).............................................................................. 33

Furstenau v. AT&T Corp., No. 02-5409, 2004 WL 5582592 (D.N.J. Sept. 3, 2004)................. 30

Gruby v. Brady, 838 F. Supp. 820 (S.D.N.Y. 1993)............................................................. 26, 29

Hicks v. Stanley, No. 01-10071, 2005 WL 2757792 (S.D.N.Y. Oct. 24, 2005) ........................... 8

In re “Agent Orange” Prod. Liab. Litig., 597 F. Supp. 740 (E.D.N.Y. 1984)........................... 23

In re “Agent Orange” Prod. Liab. Litig., 818 F.2d 179 (2d Cir. 1987) ..................................... 34

In re Am. Bank Note Holographics, Inc. Sec. Litig., 127 F. Supp. 2d 418 (S.D.N.Y. 2001) .................................................................................................................... 35


iv

In re Amsted Indus. Inc., Litig., 263 F. Supp. 2d 1126 (N.D. Ill. 2003) ..................................... 24

In re AOL Time Warner ERISA Litig., No. 02-8853, 2006 WL 2789862 (S.D.N.Y. Sept. 27, 2006) .................................................................................................................. 8, 29

In re AOL Time Warner, Inc. Sec. & ERISA Litig., No. 02-5575, 2006 WL 903236 (S.D.N.Y. Apr. 6, 2006).......................................................................................... 36

In re Charter Commc’ns, Inc. Sec. Litig., No. 02-1186, 2005 WL 4045741 (E.D. Mo. June 30, 2005) ............................................................................................................... 36

In re Chicken Antitrust Litig., 669 F.2d 228 (5th Cir. 1982) ...................................................... 34

In re CMS Energy ERISA Litig., 225 F.R.D. 539 (E.D. Mich. 2004)......................................... 30

In re Delphi ERISA Litig., 230 F.R.D. 496 (E.D. Mich. 2005)................................................... 29

In re Drexel Burnham Lambert Group, Inc., 960 F.2d 285 (2d Cir. 1992) ................................ 28

In re Enron Corp. Sec., Derivative & “ERISA” Litig., 228 F.R.D. 541 (S.D. Tex. 2005) ................................................................................................................................. 9, 23

In re Enron Corp. Sec., Derivative & “ERISA” Litig., No. 01-3913, 2006 WL 1662596 (S.D. Tex. June 7, 2006) ........................................................................................ 29

In re Equity Funding Corp. of Am. Sec. Litig., 603 F.2d 1353 (9th Cir. 1979) .......................... 34

In re Global Crossing Sec. & ERISA Litig., 225 F.R.D. 436 (S.D.N.Y. 2004) ................... passim

In re Ikon Office Solutions, Inc. Sec. Litig., 191 F.R.D. 457 (E.D. Pa. 2000) ................ 24, 28, 30

In re Ikon Office Solutions, Inc. Sec. Litig., 209 F.R.D. 94 (E.D. Pa. 2002) ................................ 9

In re Ikon Office Solutions, Inc., Sec. Litig., 194 F.R.D. 166 (E.D. Pa. 2000) ..................... 31, 34

In re Indep. Energy Holdings PLC Sec. Litig., No. 00-6689, 2003 WL 22244676 (S.D.N.Y. Sept. 29, 2003)....................................................................................................... 8

In re McKesson HBOC, Inc. ERISA Litig., No. 00-20030, 2002 WL 31431588 (N.D. Cal. Sept. 30, 2002) .................................................................................................... 20

In re Milken & Assocs. Sec. Litig., 150 F.R.D. 46 (S.D.N.Y. 1993) .............................. 20, 22, 34

In re NASDAQ Market-Makers Antitrust Litig., 169 F.R.D. 493 (S.D.N.Y. 1996).................... 24

In re Oracle Sec. Litig., No. 90-931, 1994 WL 502054 (N.D. Cal. Jun. 18, 1994) .................. 35

In re Oxford Health Plans, Inc., 191 F.R.D. 369 (S.D.N.Y. 2000) ............................................ 28

In re PaineWebber, Ltd. P’ships Litig., 171 F.R.D. 104 (S.D.N.Y. 1997)........................... 22, 34


v

In re Polaroid ERISA Litig., 240 F.R.D. 65 (S.D.N.Y. 2006) .............................................. 27, 29

In re Priceline.com, Inc. Sec. Litig., No. 00-1884, 2007 WL 2115592 (D. Conn. July 20, 2007).......................................................................................................................... 8

In re Providian Fin. Corp., No. 02-1001, 2003 WL 22005019 (N.D. Cal. June 30, 2003) ..................................................................................................................................... 24

In re Prudential Sec. Inc. Ltd. P’ships Litig., 164 F.R.D. 362 (S.D.N.Y. 1996).................. 31, 32

In re Qwest Sav. & Inv. Plan ERISA Litig., No. 02-464, 2004 U.S. Dist. LEXIS 24693 (D. Colo. Sept. 27, 2004) ........................................................................................... 30

In re Union Carbide Corp. Consumer Prods. Bus. Sec. Litig., 718 F. Supp. 1099 (S.D.N.Y. 1989) .................................................................................................................... 22

In re Warfarin Sodium Antitrust Litig., 212 F.R.D. 231 (D. Del. 2002)..................................... 31

In re Williams Cos. ERISA Litig., 231 F.R.D. 416 (N.D. Okla. 2005) ....................................... 30

In re WorldCom, Inc. ERISA Litig., No. 02-4816, 2004 WL 2211664 (S.D.N.Y. Oct. 4, 2004) ................................................................................................................... 27, 29

In re WorldCom, Inc. ERISA Litig., No. 02-4816, 2004 WL 2338151 (S.D.N.Y. Oct. 18, 2004) ................................................................................................................ passim

In re WorldCom, Inc. Sec. Litig., 219 F.R.D. 267 (S.D.N.Y. 2003)........................................... 25

In re Xerox Corp. ERISA Litig., 483 F. Supp. 2d 206 (D. Conn. 2007) ....................................... 3

In re Xerox Corp. ERISA Litig., No. 02-1138, 2008 WL 918539 (D. Conn. Mar. 31, 2008) ................................................................................................................................. 3

Int’l Union of Elec., Salaried, Mach., & Furniture Workers v. Unisys Corp., 858 F. Supp. 1243 (E.D.N.Y. 1994) .............................................................................................. 9

Kane v. United Indep. Union Welfare Fund, No. 97-1505, 1998 WL 78985 (E.D. Pa. Feb. 24, 1998) ................................................................................................................. 28

Kayes v. Pac. Lumber Co., 51 F.3d 1449 (9th Cir. 1995)........................................................... 24

Koch v. Dwyer, No. 98-5519, 2001 WL 289972 (S.D.N.Y. Mar. 23, 2001) .............................. 29

Kolar v. Rite Aid Corp., No. 01-1229, 2003 WL 1257272 (E.D. Pa. Mar. 11, 2003) ..................................................................................................................................... 30

LaRue v. DeWolff, Boberg & Assocs., Inc., 128 S. Ct. 1020 (2008) .......................................... 11

Law v. Nat’l Collegiate Athletic Ass’n, 108 F. Supp. 2d 1193 (D. Kan. 2000) .................... 34, 35


vi

Malchman v. Davis, 706 F.2d 426 (2d Cir. 1983) ........................................................................ 7

Maley v. Del Global Techs. Corp., 186 F. Supp. 2d 358 (S.D.N.Y. 2002) .......................... 35, 36

Marisol A. ex rel. Forbes v. Giuliani, 126 F.3d 372 (2d Cir. 1997) ........................................... 25

Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985)..................................................... 25, 28

Moore v. Simpson, No. 96-2971, 1997 U.S. Dist. LEXIS 13791 (N.D. Ill. Sept. 5, 1997). .................................................................................................................................... 26

Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306 (1950)........................................... 31

Piazza v. EBSCO Indus., Inc., 273 F.3d 1341 (11th Cir. 2001)............................................ 24, 28

Rankin v. Rots, 220 F.R.D. 511 (E.D. Mich. 2004) ........................................................ 24, 28, 30

Robidoux v. Celani, 987 F.2d 931 (2d Cir. 1993)....................................................................... 25

Schneider v. GE Capital Mortgage Servs., Inc., No. 09-4651, 1997 WL 272403 (S.D.N.Y. May 21, 1997)...................................................................................................... 33

Smith v. Aon Corp., 238 F.R.D. 609 (N.D. Ill. 2006) ........................................................... 27, 29

Spann v. AOL Time Warner, Inc., 02-8238, 2005 WL 1330937 (S.D.N.Y. June 7, 2005) ................................................................................................................................. 7, 33

Specialty Cabinets & Fixtures, Inc., v. Am. Equitable Life Ins. Co., 140 F.R.D. 474 (S.D. Ga. 1991) (same) .................................................................................................. 28

States of N.Y. & Md. v. Nintendo of Am., Inc., 775 F. Supp. 676 (S.D.N.Y. 1991)...................... 8

Strougo ex rel. Brazilian Equity Fund, Inc. v. Bassini, 258 F. Supp. 2d 254 (S.D.N.Y. 2003) .................................................................................................................... 12

Teachers’ Ret. Sys. of La. v. A.C.L.N., Ltd., No. 01-11814, 2004 WL 1087261 (S.D.N.Y. May 14, 2004)...................................................................................................... 15

Varity Corp. v. Howe, 516 U.S. 489 (1996) ............................................................................... 24

Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96 (2d Cir. 2005) ................................... 6, 8

Weigner v. City of New York, 852 F.2d 646 (2d Cir. 1988), cert. denied 488 U.S. 1005 (1989)........................................................................................................................... 32

Weinberger v. Kendrick, 698 F.2d 61 (2d Cir. 1982) ............................................................. 9, 24

White v. NFL, 822 F. Supp. 1389 (D. Minn. 1993), affd, 41 F.3d 402 (8th Cir. 1994) ..................................................................................................................................... 35


vii

Statutes

29 U.S.C. § 1109(a) .................................................................................................................... 27

ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2) ......................................................................... 24, 28

Rules

Fed. R. Civ. P. 23(a) ..................................................................................................................... 1

Fed. R. Civ. P. 23(a)(2)............................................................................................................... 25

Fed. R. Civ. P. 23(a)(3)............................................................................................................... 26

Fed. R. Civ. P. 23(b)(1)............................................................................................................. 1, 5

Fed. R. Civ. P. 23(b)(1)(A) ......................................................................................................... 28

Fed. R. Civ. P. 23(b)(1)(B) ................................................................................................... 28, 29

Fed. R. Civ. P. 23(c)(2)............................................................................................................... 32

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

Fed. R. Civ. P. 23(e) ..................................................................................................................... 6

Fed. R. Civ. P. 23(e)(1)............................................................................................................... 32

Fed. R. Civ. P. 23(g) ................................................................................................................... 30

Other Authorities

5 James Wm. Moore, et al., MOORE’S FEDERAL PRACTICE § 23.161 (3d ed. 2008)..................... 6

William B. Rubenstein, Alba Conte & Herbert B. Newberg, NEWBERG ON CLASS ACTIONS (4th ed. 2002 & Supp. 2008) ............................................................................. 6, 13


1

I. INTRODUCTION

Plaintiffs respectfully submit this Memorandum of Law in support of Plaintiffs’ Motion

for Final Approval of Class Action Settlement, which seeks approval of the $51 million cash

settlement (the “Settlement”) of this Consolidated ERISA class action.1 This is an excellent

result, especially so in light of the factual and legal risks to the Settlement Class associated with

continued litigation that are discussed in detail below. The Settlement more than satisfies all of

the factors set forth in City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974), and,

accordingly, should be approved as fair, reasonable and adequate.

When this case was filed, there was little case law addressing its central issue: ERISA

fiduciary liability associated with the acquisition or holding of employer stock by an ERISA

defined contribution plan. During the pendency of the litigation, there has been substantial

development of this area of the law, much of it favorable to the ERISA Plaintiffs here.

Nonetheless, the paucity of case law at the outset, the rapidity with which the law has been

developing, and the large number of issues as to which the law remains undeveloped or in flux

underscore the risk associated with continued litigation.

The Settlement was reached only after almost seven years of litigation, encompassing

vigorous motion practice, extensive document and deposition discovery and analysis of the

relevant facts and applicable law, and protracted arm’s-length negotiations, including four days

of formal mediation (plus a significant number of additional meetings and other

communications) conducted by Robert A. Meyer, Esq., of Loeb & Loeb LLP, a respected

mediator with extensive experience in settling complex class action cases. See Joint Declaration

of Lynn L. Sarko and Charles R. Watkins in Support of Motion for Final Approval of Class

1 Specifically Plaintiffs seek an order (a) granting final approval of the Settlement of this litigation; (b) granting final

approval of the proposed Settlement Class under Fed. R. Civ. P. 23(a) and (b)(1); (c) determining that the forms


2

Action Settlement, Plan of Allocation, and Request for Fees, Expenses and Case Contribution

Awards (“Joint Declaration”) at ¶¶ 6, 56, 57. For the reasons set forth below and in the Joint

Declaration, the Settlement is an excellent result, and Plaintiffs and their counsel wholeheartedly

recommend it to the Court for final approval.

II. THE PROPOSED SETTLEMENT

This is a global settlement with all Defendants that will bring this litigation to a close.

The principal terms of the Settlement are described in the Class Action Settlement Agreement2

previously filed with the Court and summarized in the Joint Declaration ¶ 62(1)-(5). Briefly, the

parties have agreed to settle all claims arising out of these actions for $51 million on behalf of a

class of participants in either of the two 401(k) pension plans sponsored by Xerox during the

Class Period – The Xerox Corporation Savings Plan (the “Salaried Plan”) and The Savings Plan

of Xerox Corporation and the Xerographic Division, UNITE HERE (formerly “The Savings Plan

of Xerox Corporation and the Xerographic Division, Union of Needletrades, Industrial and

Textile Employees, A.F.L.-C.I.O.-C.L.C.”) (the “Union Plan”; together the “Plans”). In

addition, the Settlement implements beneficial changes in the Plans relating to Plan

administration and the management of Plan assets.

The Settlement Agreement contemplates certification of the following Settlement Class:

all current and former participants and beneficiaries of the Plans for whose individual accounts the Plans purchased and/or held interests in the Xerox Stock Fund at any time during the period May 12, 1997 through and including June 28, 2002, excluding the Individual Defendants.

Settlement Agreement ¶ 1.34.

and methods of notice to the Class were appropriate and sufficient; and (d) approving the proposed Plan of Allocation of the settlement funds. The Parties’ [Proposed] Order and Final Judgment is submitted herewith.

2 All capitalized terms used herein and not otherwise defined have the meanings assigned to them in the Class Action Settlement Agreement, as dated January 26, 2009 (Docket No. 340), as amended by Stipulation and [Proposed] Order Regarding Clarifying Amendments to Settlement Agreement dated March 24, 2009 (Docket No. 345) (the “Settlement Agreement”).


3

III. BACKGROUND OF THE CONSOLIDATED ACTIONS

A. Summary of the Action

This action was commenced on July 1, 2002. On November 15, 2002, Plaintiffs filed

their Consolidated Amended Complaint, which combined the allegations of the initial four

complaints that had been filed independently. The Consolidated Amended Complaint alleged

that the Plans’ fiduciaries violated their fiduciary and co-fiduciary duties under ERISA by, inter

alia: (1) failing to prudently and loyally manage the Plans and the Plans’ assets; (2) failing to

properly monitor the performance of their fiduciary appointees, and to remove and replace those

whose performance was inadequate; (3) failing to provide participants with complete and

accurate information regarding the Xerox Stock Fund option of the Plans sufficient to advise

participants of the true risks of investing their retirement savings; and (4) failing to protect the

Plans and their participants and beneficiaries from Defendants’ conflict of interest. Plaintiffs

allege that Defendants knew or should have known that the Xerox stock was not a prudent

retirement investment for the Plans during the Class Period and that the Defendants acted

imprudently by allowing further investment in Xerox stock and not liquidating those holdings.

The Defendants vigorously contested the Plaintiffs’ allegations from the outset, and two

lengthy rounds of motion to dismiss briefing ensued, spanning more than five years and resulting

in two opinions from this Court largely denying Defendants’ efforts to do away with Plaintiffs’

claims: (1) In re Xerox Corp. ERISA Litig., 483 F. Supp. 2d 206 (D. Conn. 2007)3; and (2) In re

Xerox Corp. ERISA Litig., No. 02-1138, 2008 WL 918539 (D. Conn. Mar. 31, 2008).

3 Plaintiffs had previously withdrawn from the Consolidated Amended Complaint their claim alleging fiduciary

breaches arising from the purchase of Xerox stock at above fair market value and elected not to re-plead in the Second Consolidated Amended Complaint their claim for the failure to avoid conflicts of interest. Plaintiffs believe the essential claims of these former counts are encompassed within the prudence claim alleged in Count I of the Complaint. Joint Declaration ¶ 16 n.4.


4

During the course of the litigation, Plaintiffs’ Counsel conducted substantial discovery to

prepare this case for trial. Through service of multiple sets of informal and formal document

requests and third-party subpoenas, as well as interrogatories and requests for admissions,

Plaintiffs obtained tens of thousands of pages of documents and key information pertaining to the

ERISA-specific issues in this case. Furthermore, as part of the carefully negotiated discovery

coordination agreement between counsel in the ERISA and securities4 cases, the ERISA

Plaintiffs were provided with the more than 3.2 million pages of documents that were produced

during the SEC litigation. Through an organized and efficient document review program, the

ERISA Plaintiffs reviewed and abstracted these materials and prepared themselves to take more

than thirty depositions of Defendants and other key fact witnesses. When the Settlement was

reached, fifteen of these depositions had been completed and nineteen were to be completed

within a few weeks thereafter. In addition, throughout the discovery process the ERISA

Plaintiffs worked closely with a group of experts who were anticipated to testify at trial, and the

process of preparation of those experts’ report was well underway at the time of settlement.

Following their responses to extensive written discovery, the four proposed class

representatives sat for their depositions during 2008. Plaintiffs’ third and fully briefed motion

for class certification was pending at the time of settlement.

The lengthy record of the procedural history of the action, Co-Lead Counsel’s

investigation of claims, and their litigation and discovery efforts are set forth in greater detail in

the Joint Declaration5 and will not be repeated here. In short, Plaintiffs were committed to this

case and pursued their claims vigorously and successfully over a long period of time in the face

of strong and persistent opposition.

4 Carlson v. Xerox Corp., No. 00-1621 (D. Conn.). 5 See, e.g., Joint Declaration ¶¶ 7-51.


5

B. Settlement Negotiations and Related Proceedings

The Settlement was achieved as a result of hard-fought, arm’s-length negotiations,

mediated by Robert Meyer, Esq. In addition to participating in independent meetings with the

mediator during April 2008, the Parties engaged in formal mediation sessions on three separate

occasions over four days between May and September 2008, and continued discussions, by

phone and in writing, into December 2008. Id. at ¶¶ 57-61. Plaintiffs provided the mediator

with detailed submissions assessing their claims and the evidence supporting them, discovery,

damages, insurance coverage, and a variety of other issues. As a result of these efforts, the

Parties reached a settlement in principle on December 12, 2008 and on January 26, 2009,

executed the Settlement Agreement.6

C. Preliminary Approval and Notice to the Class

On January 28, 2009, this Court issued its Order Preliminarily Approving Settlement and

Confirming Final Settlement Hearing, which was amended by Order dated February 5, 2009

(together, the “Preliminary Approval Order”). In the Preliminary Approval Order, the Court

preliminarily approved the Settlement Agreement and scheduled the fairness hearing for April

14. That Order also set forth the required notice procedures. The forms of notice and the notice

procedures used here have been found more than adequate in similar ERISA cases. See, e.g., In

re WorldCom, Inc. ERISA Litig., No. 02-4816, 2004 WL 2338151, at *3 (S.D.N.Y. Oct. 18,

2004); In re Global Crossing Sec. & ERISA Litig., 225 F.R.D. 436, 448-50 (S.D.N.Y. 2004)

(noting that Fed. R. Civ. P. 23(c)(2)(A), which governs Fed. R. Civ. P. 23(b)(1) and (b) cases

such as this one, does not mandate a specific notice form or procedure). Notice has been

6 The Settlement Agreement was thereafter amended in order to clarify the intent of the Parties. The parties’

Stipulation and [Proposed] Order Regarding Clarifying Amendments to the Settlement Agreement was submitted to the Court on March 24, 2009.


6

provided according to the Order. Joint Declaration ¶¶ 63-66. To date only one objection has

been received.7

IV. ARGUMENT

A. The Applicable Legal Standards

Plaintiffs present this Settlement for review under Fed. R. Civ. P. 23(e), which requires

court approval of class action settlements, the issuance of notice in a reasonable manner to class

members who would be bound by the Settlement, and a finding by the court following a hearing

that the Settlement is reached through arm’s-length negotiations, and is fair, reasonable and

adequate.

Courts favor the settlement of complex class action litigation because it saves time and

money and enables the parties to resolve disputes on their own timetable and terms. Wal-Mart

Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 116 (2d Cir. 2005) (“We are mindful of the strong

judicial policy in favor of settlements, particularly in the class action context.”) (citation

omitted); WorldCom, 2004 WL 2338151, at *6 (“public policy favors settlement, especially in

the case of class actions.”). “There are weighty justifications, such as the reduction of litigation

and related expenses, for the general policy favoring the settlement of litigation.” William B.

Rubenstein, Alba Conte & Herbert B. Newberg, NEWBERG ON CLASS ACTIONS § 9.56 (4th ed.

2002 & Supp. 2008). Because settlement is a preferred means of dispute resolution, there is a

strong presumption in favor of settlement. 5 James Wm. Moore, et al., MOORE’S FEDERAL

PRACTICE § 23.161 (3d ed. 2008).

The time-honored standard for reviewing the proposed settlement of a class action in the

Second Circuit, as in other circuits, is whether the proposed settlement is “fair, reasonable and

adequate.” Wal-Mart Stores, Inc., 396 F.3d at 116; Spann v. AOL Time Warner, Inc., 02-8238,

7 The objection, submitted by Michael Petrison, fails to identify any substantive issue and is discussed in greater


7

2005 WL 1330937, at *9 (S.D.N.Y. June 7, 2005). In making that determination, the Court

should consider the “substantive terms of the settlement compared to the likely result of a trial.”

Malchman v. Davis, 706 F.2d 426, 433 (2d Cir. 1983) (citations omitted). Although the Court

should not “rubber stamp” a proposed settlement, it should “stop short of the detailed and

thorough investigation that it would undertake if it were actually trying the case,” Grinnell, 495

F.2d at 462, in applying the standards to evaluate procedural and substantive fairness discussed

below.

B. This Settlement Is the Product of a Rigorous and Adversarial Process

A district court’s consideration of a settlement’s fairness begins with an examination of

“the negotiating process leading up to the settlement as well as the settlement’s substantive

terms.” D’Amato v. Deutsche Bank, 236 F.3d 78, 85 (2d Cir. 2001). “A court must ensure that

the settlement resulted from ‘arm’s length negotiations’ and that plaintiff’s counsel engaged in

the discovery ‘necessary to effect representation of the class’s interest.’” WorldCom, 2004 WL

2338151, at *5 (quoting D’Amato, 236 F.3d at 85). The details of the arduous negotiation

process are described in the Joint Declaration ¶¶ 52-61.

Courts have noted that intensive pre-negotiation discovery and motion practice, the

presence of a knowledgeable mediator, and review and approval of a settlement by an

independent fiduciary all demonstrate the absence of fraud or collusion:

[A] court-appointed mediator’s involvement in pre-certification settlement negotiations helps to ensure that the proceedings were free of collusion and undue pressure. This Settlement is the product of multiple rounds of arms-length negotiations between experienced counsel, overseen and assisted by a court-appointed special master. Through discovery and motion practice, counsel were well-informed of the merits of the claims by the time the Settlement was reached. The imprimatur of the independent fiduciary is further evidence of the procedural fairness of the Settlement.

detail in § IV (C) (2) below.


8

In re AOL Time Warner ERISA Litig., No. 02-8853, 2006 WL 2789862, at * 5 (S.D.N.Y. Sept.

27, 2006) (citing D’Amato, 236 F.3d at 85 and Global Crossing, 225 F.R.D. at 462) (internal

citations and quotations omitted); see also In re Indep. Energy Holdings PLC Sec. Litig., No. 00-

6689, 2003 WL 22244676, at *4 (S.D.N.Y. Sept. 29, 2003) (same).

As indicated above and detailed in the Joint Declaration, this Settlement was the product

of protracted and vigorous negotiations by experienced counsel with the benefit of a substantial

litigation record, Joint Declaration ¶¶ 52-61 and 142-154, and therefore is entitled to a strong

presumption of fairness. See e.g. Chatelain v. Prudential-Bache Sec., Inc., 805 F. Supp. 209,

212 (S.D.N.Y. 1992); States of N.Y. & Md. v. Nintendo of Am., Inc., 775 F. Supp. 676, 680-81

(S.D.N.Y. 1991).

C. The Settlement is Fair, Reasonable and Adequate Under the Grinnell Factors

In City of Detroit v. Grinnell Corp., the Second Circuit identified the following nine

factors that courts should consider in deciding whether a proposed class action settlement is fair,

reasonable and adequate:

(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 fund to a possible recovery in light of all the attendant risks of litigation.

495 F.2d at 463 (citations omitted); see also Wal-Mart Stores, Inc., 396 F.3d at 117; In re

Priceline.com, Inc. Sec. Litig., No. 00-1884, 2007 WL 2115592, at *3 (D. Conn. July 20, 2007).

“To find the settlement fair, the Court need not find that every factor weighs in favor of

the settlement; the court [instead] ‘consider[s] the totality of these factors in light of the

particular circumstances.’” Hicks v. Stanley, No. 01-10071, 2005 WL 2757792, at *5 (S.D.N.Y.

Oct. 24, 2005) (citing Global, 225 F.R.D. at 456, internal quotations omitted). Similarly, the


9

court need not apply any “single, inflexible test.” Int’l Union of Elec., Salaried, Mach., &

Furniture Workers v. Unisys Corp., 858 F. Supp. 1243, 1265 (E.D.N.Y. 1994) (citation omitted).

Finally, in applying the Grinnell factors, a court should not substitute its judgment for that of the

parties who litigated the case and negotiated the settlement. Id. at 1266. The court need not

conduct a mini-trial of the merits; the purpose of settlement is to avoid a judicial resolution of

contested matters. Weinberger v. Kendrick, 698 F.2d 61, 74 (2d Cir. 1982).

For the reasons set forth below, the proposed Settlement satisfies all of the Grinnell

factors.

1. Grinnell Factor One: The Complexity, Expense and Likely Duration of Litigation

Many courts have recognized the complexity of ERISA breach of fiduciary duty

company stock claims. In WorldCom, upon consideration of a proposed settlement, Judge Cote

noted that there is a “general risk inherent in litigating complex claims such as these to their

conclusion.” WorldCom, 2004 WL 2338151, at *6 (approving settlement); see also In re Enron

Corp. Sec., Derivative & “ERISA” Litig., 228 F.R.D. 541, 565 (S.D. Tex. 2005) (finding that the

“complexity, expense and likely duration of the litigation…are self evident and exceptional….”);

In re Ikon Office Solutions, Inc. Sec. Litig., 209 F.R.D. 94, 104-07 (E.D. Pa. 2002) (noting the

complexity of similar breach of fiduciary duty claims, as well as the expense of litigation and

risks of establishing liability and damages). Similarly, in Global Crossing, Judge Lynch

explained with respect to similar ERISA claims:

The ERISA cases would pose additional factual and legal issues. Fiduciary status, the scope of fiduciary responsibility, the appropriate fiduciary response to the Plans’ concentration in company stock and [company] business practices would be issues for proof, and numerous legal issues concerning fiduciary liability in connection with company stock in 401(k) plans remain unresolved. These uncertainties would substantially increase the ERISA cases’ complexity, duration, and expense – and thus militate in favor of settlement approval.

225 F.R.D. at 456.


10

This case, even more than many other ERISA class action cases, was both enormous in

scope and enormously complicated. In addition to involving scores of witnesses, more than

40,000 participants in Xerox’s two 401(k) Plans, millions of pages of documents, and tens of

millions of dollars, it presented complex factual and legal issues against the backdrop of a fast-

developing and hotly disputed area of the law.

Plaintiffs’ claims raise a host of contested legal and factual issues, each of which would

require extensive lay and expert discovery and testimony to resolve. This was true of both the

ERISA issues and the extraordinarily complicated underlying issues surrounding Xerox’s alleged

accounting improprieties, which rendered Xerox’s reported 1997 to 2002 financial results

materially inaccurate. The issues contributing to the complexity of the case include the

following:

• Complex and innovative legal theories. ERISA is a highly-specialized and complex area of the law, and the type of claims brought here – involving alleged breaches of duty by the Plans’ fiduciaries – are especially so. The law is developing, there are significant conflicts between the approaches adopted by different trial and appellate courts, and much of the law in this area was decided after this case was filed. The length and number of the Parties’ briefs on the dismissal motions bear witness to the complexity and the evolving nature of ERISA jurisprudence. Plaintiffs’ Counsel believe the claims in this case are solidly grounded in ERISA law, but it is beyond debate that the issues are complex.

• Lack of established case values. Because this was one of the first company stock cases filed, there was no formal “track record” to guide Plaintiffs’ Counsel’s development of the case, or provide any assurance that it would result in a victory for the class.

• Complexity of establishing liability and losses. A finding of liability would require careful presentation and analysis of lengthy and detailed Plan documents, complex corporate financial and accounting matters, and sophisticated judgments about the investment decisions the Defendants had made, or not made, as much as eleven years ago. In addition, damage assessments by the finder of fact often result in a battle of experts. In this case, the Defendants argued that even if the imprudence of Xerox stock as a Plan investment could be established, it did not occur until so late in the proposed class period that Plaintiffs’ damages would be minimal. One of the principal challenges Plaintiffs’ Counsel faced was showing that Xerox was an imprudent Plan investment early in the Class Period.


11

• Risk of an unforeseen change in the law. ERISA jurisprudence presents an ever changing legal landscape, and there is a constant risk that the law will change before judgment. While many recent decisions have upheld claims similar to those asserted here, there was no assurance a change in the law would not have affected, or negated, the claims in this lawsuit. The possibility that the law might materially and adversely change during the course of the litigation – as Defendants argued it did with, inter alia, the Supreme Court’s decision last year in LaRue v. DeWolff, Boberg & Assocs., Inc., 128 S. Ct. 1020 (2008) – meant that Plaintiffs needed to structure their arguments and proofs to present multiple avenues to recovery. The necessity of avoiding an approach which placed all of Plaintiffs’ “eggs in one basket” greatly magnified the complexity of the Plaintiffs’ task.

• Vigorous defense. Further contributing to the complexity of this case were the quality of Defendants’ skilled and tenacious attorneys, and the virtually unlimited resources with which they were able to present their defenses through dismissal motions, and the anticipated summary judgment motions, trial, post-trial motions and appeals.

• Decision tree. Applying a standard “decision tree” analysis to this case only underscores its magnitude and complexity. Defendants asserted numerous factual and legal defenses to this suit, any one of which, if successful, could have resulted either in a judgment in Defendants’ favor, or a very small recovery for the Class. The innumerable forks-in-the-road leading to liability and damage findings all had to be considered by Plaintiffs’ Counsel and factored into their overall litigation strategy. The possibility of a loss at any of these forks in the road – from the motion to dismiss, through summary judgment, trial and appeal – had to be factored into the Plaintiffs’ analysis, and consequently bears on the Court’s evaluation of the Settlement.

Joint Declaration ¶¶ 69-70.

Even though we had completed a tremendous amount of the work necessary to prepare

the case for trial, as noted above, the work was far from done. Among the myriad tasks facing us

were the completion of fact discovery, including the nineteen depositions for which Plaintiffs

were in various stages of preparation, expert discovery, summary judgment briefing, a likely

interlocutory appeal of the Court’s class certification ruling, trial preparation, and ultimately

trial. If Plaintiffs were to obtain a judgment at trial, the additional delay through trial, post-trial

motions, and the appellate process could deny the Class any actual recovery for years, further

reducing the case’s value. See Strougo ex rel. Brazilian Equity Fund, Inc. v. Bassini, 258 F.


12

Supp. 2d 254, 261 (S.D.N.Y. 2003) (“[E]ven if a shareholder or class member was willing to

assume all the risks of pursuing the actions through further litigation…the passage of time would

introduce yet more risks…and would, in light of the time value of money, make future recoveries

less valuable than this current recovery.”). See also Joint Declaration ¶ 71.

Plaintiffs’ Counsel briefed two rounds of dismissal motions (including numerous

submissions of supplemental authority), submitted three sets of motions and briefs on class

certification, obtained and reviewed an enormous number of documents, retained and consulted

with eight experts, and traveled across the United States in connection with discovery and

settlement negotiations. The complexity, expense and duration of this litigation cannot be

overstated and surely weigh heavily in favor of approving the Settlement. Joint Declaration ¶ 72.

2. Grinnell Factor Two: The Class’s Reaction to the Settlement

The Named Plaintiffs have been kept informed of the settlement negotiations with the

Defendants throughout the negotiating process. They all support the Settlement without

qualification.

Pursuant to the notice plan approved by the Court in the Preliminary Approval Order, on

February 18, 2009, notice was mailed to more than 40,000 class members at the last known

addresses provided by Defendants. In addition, the summary notice was published in The New

York Times, the Rochester Democrat & Chronicle, the Connecticut Post and the Norwalk Hour

on February 23, 2009, and over the Business Wire on February 25, 2009. The notice program

was appropriate under the circumstances, consistent with notice programs recently employed in

similar class action litigation and fully complied with Rule 23, Fed. R. Civ. P. and Due Process.

See Affidavit of Ashley Barr re: A) Mailing of the Notice of Proposed Settlement of ERISA

Class Action Litigation and B) Publication of the Summary Notice, attached as Exhibit B to the

Joint Declaration.


13

The single objection Plaintiffs have received to date is from Michael Petrison, who fails

to identify any substantive legal issue and appears to misapprehend entirely the nature of this

litigation. Mr. Petrison expresses grave concerns over the financial struggles Xerox faces in the

global market and the Settlement’s effect on Xerox’s ability to succeed in the current

marketplace. Mr. Petrison does not, however, call into question the adequacy or fairness of the

settlement. And his concern about Xerox’s financial position identifies a risk associated with

continued litigation and reinforces the conclusion that the Settlement is a good one. A copy of

Mr. Petrison’s objection is attached as Exhibit C to the Joint Declaration.

Under the provisions of the Preliminary Approval Order and the Notice, the deadline for

filing and service of objections is March 31, 2009. Plaintiffs will respond to additional

objections, if any, that are filed and served before this deadline on or before April 7, 2009, as set

forth in paragraph 9 the Preliminary Approval Order.

3. Grinnell Factor Three: The Stage of the Proceedings and Extent of Discovery

There is no litmus test for determining how much work needs to be done in a case for the

Court to evaluate a settlement and ensure that counsel were in a position to make an intelligent

assessment of their prospects before settling. But whatever the measure, it is amply satisfied.

See William B. Rubenstein, Alba Conte & Herbert B. Newberg, NEWBERG ON CLASS ACTIONS

§ 11:45 (4th ed. 2002 & Supp. 2008).

Here, Plaintiffs developed a comprehensive understanding of the key legal and factual

issues in the case through extensive motion practice and discovery and through the efforts they

devoted to expert reports, and preparing for summary judgment and trial.

Specifically:

• As detailed in the Joint Declaration, Plaintiffs’ Counsel conducted informal discovery and issued numerous discovery requests to Defendants, including multiple sets of document requests, interrogatories, and requests for admissions,


14

and served multiple third parties with subpoenas. Joint Declaration ¶¶ 28-40. We thereafter laboriously reviewed and analyzed the more than three million pages ERISA and non-ERISA specific documents and transcripts that the document discovery process yielded. Joint Declaration ¶¶ 32-40.

• Once document discovery was well underway, Plaintiffs’ Counsel embarked on an extensive deposition program. We deposed fifteen key witnesses8 over eighteen days,9 and the remaining nineteen fact witness depositions were scheduled or in the process of being scheduled to be taken during the balance of December 2008 or January 2009, when we reached an agreement to settle on December 12. Exhibit A summarizes the witnesses who were deposed and whose depositions were scheduled or in the process of being scheduled at the time of settlement. The witnesses who were deposed included two former Chief Executive Officers of Xerox, Paul Allaire and Richard Thoman, former Chief Financial Officer Barry Romeril, former Audit Committee chair Thomas Theobald, outside auditor Michael Conway, and various Xerox personnel who were involved in the finance, accounting and/or Plan administration functions – many of whom had not been deposed in either the Carlson case or by the SEC. The witnesses scheduled at the time of settlement included Defendant Anne Mulcahy, Xerox’s current CEO, who also had not been deposed previously, KPMG partners Paul Knopp and Ronald Saffran and PriceWaterhouseCoopers partners Harvey Kelly and Vincent Colman, and several Xerox finance and legal executives and additional plan administrative personnel. Because the remaining depositions were to be taken in a little over a month, much of the preparation work for those depositions was completed when we reached agreement to settle on December 12. Joint Declaration ¶¶ 41-43.

• Plaintiffs’ Counsel consulted with and made extensive use of experts early on and obtained reports from them in order to reply to Defendants’ arguments in opposition to class certification and in connection with the marathon mediation sessions that occurred. By the time of settlement, we were well versed in the facts pertaining to the key issues upon which our experts would opine, including fiduciary responsibility, accounting and regulatory reporting issues, the nature and scope of the underlying misconduct, and the measurement of loss to the Plans. Joint Declaration ¶¶ 44-47.

• The mediation process added valuable insight about the strengths and potential weaknesses of the case. Plaintiffs prepared and submitted to the mediator detailed papers in which they assessed key issues including the elements of their claims, defenses, discovery, recent case law developments, damages, and class certification. In effect, the mediation was a summary trial, addressing in

8 With the exception of certain 30(b)(6) questioning that occurred during the deposition of Sheri London, Xerox’s

Senior Benefits Counsel, who responded to a series of questions on behalf of Xerox during her full-day deposition on factual issues, these depositions did not include 30(b)(6) or document custodian depositions, as information of that nature was acquired through other efficient means, including interrogatories negotiated with Defendants.

9 One of these depositions, that of former Xerox assistant treasurer James Bingham, was taken in tandem with the Carlson Plaintiffs. The balance were taken after the Carlson settlement.


15

microcosm every issue likely to arise at the real trial. The Parties responded to the mediator’s concerns, briefed issues as they arose, and submitted expert “reports” on particularly important issues.

By all measures, plaintiffs have “a clear view of the strengths and weaknesses of their

cases.” Teachers’ Ret. Sys. of La. v. A.C.L.N., Ltd., No. 01-11814, 2004 WL 1087261, at *3

(S.D.N.Y. May 14, 2004) (quotation omitted), and are keenly aware of the range of possible

outcomes at trial. The stage of the litigation and the amount of discovery completed weigh

heavily in favor of the Settlement.

4. Grinnell Factors Four through Six: The Risks of Establishing Liability, Damages, and Maintaining the Class Action Through Trial

The fairness and adequacy of the Settlement are further underscored by taking into

account the obstacles to ultimate success on the merits that the Plaintiffs faced. The Settlement

is reasonable in light of the many hurdles and risks that the Settlement Class would have to

overcome in order to achieve and maintain class certification, defeat summary judgment, and

prove liability and damages at trial and on appeal.

a. Factor four: the risk of establishing liability.

In assessing a proposed settlement, the Court should balance the benefits it provides to

the Class, including the immediacy and certainty of a recovery, against the continuing risks of

litigation. See Grinnell, 495 F.2d at 463.

Plaintiffs believe strongly in their claims and are optimistic regarding their chances for

ultimate success. In Plaintiffs’ view, the Defendants were Plan fiduciaries who as a result of

their inattention and disloyalty, failed to protect the participants from preventable losses.

Nonetheless, this case was fraught with risk at every turn.

First, ERISA company stock cases involving 401(k) plans are quite new. The first

pioneering cases were not filed until the late 1990s, only a few years before this case was

commenced, and the case law remains exceptionally thin today. Although there are now a few


16

treatises and periodicals on ERISA fiduciary litigation, they are of recent vintage and ERISA

academics interested in fiduciary litigation are few. Indeed, the types of ERISA claims asserted

by Plaintiffs here have been described as implicating “a rapidly developing, and somewhat

esoteric, area of law.” Global Crossing, 225 F.R.D. at 459 n.13 (finding that plaintiffs’

significant legal and factual obstacles to proving their case, when viewed against the substantial

and certain benefits of settlement, supported settlement approval). The nascent state of the

applicable law is evidenced by the fact that whenever a significant motion was pending in this

case, the Court was virtually bombarded with supplemental filings highlighting relevant new

decisions. The new and unsettled nature of the law exponentially increased the risk of

establishing liability.

Second, Defendants have raised a host of defenses, any one of which, if successful, might

end Plaintiffs’ case. They maintained at length and with great vigor, for example, that Xerox

stock was “hardwired” into Xerox’s 401(k) plans as a matter of plan design, required to be

offered as an investment alternative, and that because the Defendant fiduciaries had no power to

remove or restrict it, they could have no liability. Defendants further claimed that removing

Company stock as a plan investment or selling Xerox stock out of the Plans would have violated

laws against insider trading and that § 404(c) of ERISA, 29 U.S.C. § 1104(c), which places the

responsibility for investments on the participants under certain circumstances, was an absolute

defense.

It is true of course that some of the ERISA Defendants had settled with the SEC, paying

what were then considered large fines, and that Xerox had restated its financials. Defendants

maintained, however, that Xerox’s well-documented accounting difficulties at issue in Carlson

proved little of relevance to the fiduciary duty claims in this ERISA case. In Defendants’ view,

proving that Xerox had misstated its financials was the beginning, rather than the end, of what


17

the ERISA Plaintiffs needed to prove. Defendants argued that unless the difficulties masked by

accounting irregularities were so severe as to have jeopardized the future of the company, they

were irrelevant, and that there was no proof the company was ever in jeopardy in the class

period. In other words, unless Plaintiffs could show Xerox was on the verge of bankruptcy

throughout the class period, it would be impossible for them to prevail. They also denied that

there was evidence that any of the Defendant fiduciaries ever thought, or had any reason to think,

that Xerox’s accounting was incorrect in any way given that KPMG had allegedly “blessed” it

along the way.

Plaintiffs’ response to these contentions is beyond the scope of this Memorandum, but it

is in their briefs to this Court, and was discussed and briefed at length in the mediation. Suffice

it to say, the Defendants were unpersuaded and intended to press all of these arguments in Court.

Plaintiffs, of course, disagreed with the Defendants’ analyses, but each of the Defendants’

arguments raised the level of risk this case presented. And, despite the Court’s rulings on the

motions to dismiss, Defendants maintained right up until the time of Settlement that each was a

live issue in the case.

Third, Plaintiffs were presented with the host of risks presented in any contingent

litigation. These include, among others, the risk that witnesses will testify in unexpected ways,

that documents may turn out not to mean what they seem to say, the risk of an adverse change in

the law, and the risk that the court may apply the law differently than we envision. One also

cannot overlook the risks posed by summary judgment, trial, post-trial motions, appeals, and

even a petition for a writ of certiorari, or the risks inherent in the delays such proceedings

occasioned. The Court need accept only one of the Defendants’ merits-based arguments for the

case to be lost.


18

While Plaintiffs are confident that they ultimately would have been able to prove the

claims asserted, the risks of the case being lost, delayed, or its value diminished, when weighed

against the substantial immediate benefits of Settlement, compel the conclusion that the

Settlement is in the best interest of the Class.

b. Factor five: the risk of establishing damages

Establishing – and quantifying – damages would have presented significant challenges

for Plaintiffs in this litigation. No ERISA company stock case has been tried to a successful

conclusion, and, accordingly, no court has definitively applied a damage measure to a case such

as this after trial. This void, coupled with the Defendants’ vigorous and creative defense of the

damage aspects of the case, created risk for the Plaintiffs.

Under Donovan v. Bierwirth, 754 F.2d 1049 (2d Cir. 1985), ERISA requires breaching

fiduciaries to make good to the plan the difference between the returns of prudent plan

alternatives and the challenged imprudent investment. “Where several alternative investment

strategies were equally plausible, the court should presume that the funds would have been used

in the most profitable of these.” Id. at 1056. Damage calculations under Donovan are computer-

and expert-intensive. The proof requires a computer model of the plans, tracking the plans’

holdings of company stock, often on a daily basis, and the returns those holdings generate. This

data is then compared with the performance of alternative investments on specified breach dates,

subject to various additional factors and assumptions, such as the size of the plans’ holdings

compared to the market as a whole. The expert must create the model, test it, use it, and

effectively explain it. In addition, in making these calculations, complex determinations need to

be made about the precise period during which the investment in employer stock was imprudent,

and the proper investment alternative to use as a comparison. Id. at 1057. Defendants raised


19

heated challenges regarding all aspects of Plaintiffs’ damage methodology. Although Plaintiffs

disagreed with Defendants’ position, they recognized that these challenges presented a risk.

In addition to challenging Plaintiffs’ methodology of computation, Defendants’ position,

more fundamentally, was that there were no damages attributable to them in this case.

According to Defendants, the Plans’ losses were attributable not to any misconduct on their part,

but to the downturn in the stock markets at the end of the 1990s stock “bubble” or to Class

members’ own purportedly independent decisions to invest in Xerox stock. The Defendants also

argued that even if the imprudence of Xerox stock as a Plan investment could be established, the

“breach date,” or date when the Defendants knew or should have known that they were acting

imprudently by offering Company stock as a retirement investment, did not occur until so late in

the proposed class period that Plaintiffs’ damages would be minimal. One of the principal

challenges Plaintiffs’ Counsel faced was showing that Xerox was – and that Defendants knew it

was – an imprudent Plan investment early in the Class Period.

Plaintiffs allege Xerox stock was an imprudent investment for the Plans from the

beginning of the Class Period through its end, and, thus, assert that losses to the Plans should be

calculated from May 12, 1997 to June 28, 2002. Defendants maintained that even assuming

Plaintiffs could establish Xerox stock became an imprudent investment, they would not be able

to show that that occurred until 2000 at the earliest, and that any damages associated with such a

late breach date were minimal. Indeed, Defendants maintained that from the end of 2000 on,

Xerox stock was actually the best performing investment in the Plans’ portfolio, and that if the

breach date was during or after late 2000, Plaintiffs’ damages were actually negative. Likewise,

establishing the proper investment alternative for computation of damages in the instant case was

particularly critical, as the choice would have a dramatic impact on calculation of damages.


20

Another argument that could significantly reduce damages is the “holder” argument. The

ERISA defense bar often disputes the availability of relief for “holder” losses because, in their

view, the securities laws would have prevented them from divesting the plans of the stock

without first publicly disclosing the adverse information, and had such disclosure been made, the

stock would have dropped, and the plans would have suffered the same loss that occurred when

the allegedly improper practices came to light. See, e.g., In re McKesson HBOC, Inc. ERISA

Litig., No. 00-20030, 2002 WL 31431588, at *7 (N.D. Cal. Sept. 30, 2002). Plaintiffs strongly

disagree with this analysis as it presumes that ERISA (and the securities laws) countenance the

Plans’ fiduciaries taking no action to protect the Plans in the face of imprudent conduct by the

fiduciaries themselves. Nonetheless, Plaintiffs recognize that holder damages are sharply

attacked by the defense bar, and the law is unsettled in this area.

Additionally, Plaintiffs faced arguments that their potential recovery could be reduced or

eliminated based on: (1) the possibility, if the case did not settle, that the price of Xerox stock

would increase before the time of final judgment, causing the Plans’ losses to decrease

accordingly; and (2) an argument that damages should be measured using an alternative to the

Donovan measure - one based on the “price inflation” of Xerox stock in the Class period,

arguing that to apply the Donovan measure in this case would be punitive, or bestow a windfall

on the Plaintiffs.

Plaintiffs cannot overemphasize how strongly they dispute the Defendants’ positions on

damages, and would resist any effort to decrease their recovery in this case, yet must recognize

that their ability to recover all of their maximum claimed damages in this case is far from certain.

“In short, the legal and factual complexities and uncertainties of [proving] the ERISA damages

case also militate in favor of settlement.” Global Crossing, 225 F.R.D. at 460; see also In re

Milken & Assocs. Sec. Litig., 150 F.R.D. 46, 54 (S.D.N.Y. 1993) (approving settlement equal to


21

a small percentage of the total damages sought because the magnitude of damages often becomes

a “battle of experts…with no guarantee of the outcome”).

c. Factor six: the risks of maintaining the class action through trial.

Plaintiffs’ Counsel strongly believe this case is appropriate for class certification, as set

forth in their briefs on the pending motion for class certification, and indeed believe that it could

have proceeded on behalf of the Plans even without class certification. See Plaintiffs’ Motion for

Class Certification (Dkt. no. 290), Reply Memorandum (Dkt. No. 317) and Notice of

Supplemental Authority (Dkt. No. 332). However, Defendants mounted vigorous opposition to

class certification, and the Plaintiffs’ motion was pending at the time of Settlement.

While Plaintiffs believe Defendants’ arguments, such as those regarding “intra-class

conflicts” among class members or the unsuitability of Plaintiffs’ nondisclosure claims for class

treatment, are not compelling, the risks of failing to obtain class certification, or of obtaining it

but failing to maintain the class through trial, also weigh in favor of this Settlement.

5. Grinnell Factor Seven: The Ability of Defendants to Withstand a Greater Judgment

The Defendants’ ability to withstand a greater judgment at trial is a factor in determining

whether a settlement is reasonable. Bello v. Integrated Res., Inc., No. 88-1214, 1990 WL

200670, at *2 (S.D.N.Y. Dec. 4, 1990) (risk that plaintiffs would be unable to recover even if

victorious is a strong argument supporting settlement). Xerox never claimed it was in financial

jeopardy. However, Plaintiffs had concerns in light of present economic conditions regarding

what Xerox’s financial condition might be over the months or years it would take to litigate this

matter to a conclusion. During the Class Period, Xerox faced significant economic challenges,

and there is no assurance that had this litigation continued, Xerox would not have done so again,

imperiling its ability to pay a significant judgment.


22

6. Grinnell Factors Eight and Nine: The Reasonableness of the Settlement in Light of the Best Possible Recovery and the Attendant Risks of Litigation.

The last two Grinnell factors consider whether the settlement is within a range of

reasonableness compared to a “possible recovery in light of all the attendant risks of litigation.”

495 F.2d at 463. The $51 million Settlement fund is well within the range of reasonableness

contemplated by Grinnell. Coming after almost seven years of hard-fought litigation, the

Settlement provides for the payment of $51 million in cash, plus implementation of important

provisions relating to ongoing Plan administration and management of Plan assets.

By the standards of this type of litigation, the recovery here is very sizeable: it is one of

only seven ERISA company stock case settlements that exceed $50 million. Judged by any

standard, however, this is a significant achievement in these trying economic times, especially in

the face of such hard-fought opposition.

In evaluating a settlement, a court is not required to engage in a trial on the merits to

determine the prospects of success. Milken & Assocs., 150 F.R.D. at 54 “[T]he settlement

amount’s ratio to the maximum potential recovery need not be the sole, or even the dominant,

consideration when assessing the settlement’s fairness.” Global Crossing, 225 F.R.D. at 460-61.

Here, the Court need only determine whether the Settlement falls within a “range of

reasonableness” in order to approve it. In re PaineWebber, Ltd. P’ships Litig., 171 F.R.D. 104,

130 (S.D.N.Y. 1997) (citations omitted). “The fact that a proposed settlement may only amount

to a fraction of the potential recovery does not, in and of itself, mean that the proposed settlement

is grossly inadequate and should be disapproved.” Grinnell, 495 F.2d at 455; see also In re

Union Carbide Corp. Consumer Prods. Bus. Sec. Litig., 718 F. Supp. 1099, 1103 (S.D.N.Y.

1989) (The adequacy of the amount offered in settlement must be judged “not in comparison

with the possible recovery in the best of all possible worlds, but rather in light of the strengths


23

and weaknesses of plaintiffs’ case.”) (citing In re “Agent Orange” Prod. Liab. Litig., 597 F.

Supp. 740, 762 (E.D.N.Y. 1984)).

The range of potentially recoverable damages in this case would have been driven by,

among other factors, the Court’s determination of the “breach” date, discussed above, i.e., when

the Defendants knew or should have known company stock was an imprudent investment for

participants’ retirement assets. If the Court were to accept Plaintiffs’ proposed breach dates, thus

giving Plaintiffs a total victory on this aspect of damage calculation, damages in this case could

have been a significant multiple of the Settlement amount. If, however, Plaintiffs were unable to

establish a breach date until later in the Class Period, the maximum potential recovery could

decrease very significantly. This is partly because the price of Xerox stock declined so

precipitously in 1999 and 2000.

Considering the time value of money, the probability of lengthy litigation in the absence

of a settlement, the risks of establishing liability presented by this case, the range of possible

recoveries at trial, and the potential that significant amounts of the applicable fiduciary liability

insurance would be spent in further litigation, the Settlement is well within the range of

reasonableness. As Judge Harmon aptly put it when approving one of the settlements in the

Enron ERISA Litigation: “The settlement at this point would save great expense and would give

the Plaintiffs hard cash, a bird in the hand.” Enron, 228 F.R.D. at 566. See also Global

Crossing, 225 F.R.D. at 461 (“The prompt, guaranteed payment of the settlement money

increases the settlement’s value in comparison to some speculative payment of a hypothetically

larger amount years down the road.”) (citation omitted). This Settlement is a classic “bird in the

hand” and more than fair, reasonable and adequate under the circumstances.


24

V. THE SETTLEMENT CLASS SHOULD BE CERTIFIED

In its Preliminary Approval Order, this Court conditionally certified the following

Settlement Class:

all current and former participants and beneficiaries of the Plans for whose individual accounts the Plans purchased and/or held interests in the Xerox Stock Fund at any time during the period May 12, 1997 through and including June 28, 2002, excluding the Individual Defendants.

Preliminary Approval Order ¶ 3.

While the parties have stipulated to conditional certification of the Class for settlement

purposes, it is, of course, subject to review and, ultimately, final certification by the Court.

Weinberger, 698 F.2d at 73. The Court should assure itself that certification is proper under

Rules 23(a) and (b). In re NASDAQ Market-Makers Antitrust Litig., 169 F.R.D. 493, 504

(S.D.N.Y. 1996). A district court “confronted with a request for settlement-only class

certification,…need not inquire whether the case, if tried, would present…problems, for the

proposal is that there be no trial.” Global Crossing, 225 F.R.D. at 451 (quoting Amchem Prods.

Inc. v. Windsor, 521 U.S. 591, 620 (1997)).

Plaintiffs’ ERISA claims10 are particularly well-suited for class action treatment. The

ERISA claims charge the Defendants with breaches of fiduciary duty which are exactly the kinds

of claims that lie at the core of Rule 23 jurisprudence. See, e.g., Global Crossing, 225 F.R.D. at

452-53; Rankin v. Rots, 220 F.R.D. 511 (E.D. Mich. 2004) (certifying for class treatment

10 ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2) allows any plan participant or beneficiary to sue for breach of

fiduciary duties “in a representative capacity on behalf of the plan as a whole.” Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 142 n. 9 (1985); Varity Corp. v. Howe, 516 U.S. 489, 510 (1996). Courts have exercised discretion to certify ERISA claims for plan-wide relief under § 502(a)(2). Class certification under Rule 23 ensures that there is a court-approved voice for the class and court involvement in case management. See, e.g., Coan v. Kaufman, 457 F.3d 250, 261 (2d Cir. 2006); Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410 (6th Cir. 1998) (discussing the certification of a § 502(a)(2) class in terms of Rule 23); Piazza v. EBSCO Indus., Inc., 273 F.3d 1341 (11th Cir. 2001) (same); Kayes v. Pac. Lumber Co., 51 F.3d 1449, 1461-63 (9th Cir. 1995) (same); Rankin v. Rots, 220 F.R.D. 511 (E.D. Mich. 2004) (same); In re Providian Fin. Corp., No. 02-1001, 2003 WL 22005019 (N.D. Cal. June 30, 2003) (same); In re Amsted Indus. Inc., Litig., 263 F. Supp. 2d 1126, 1129 (N.D. Ill. 2003) (same); In re Ikon Office Solutions, Inc. Sec. Litig., 191 F.R.D. 457 (E.D. Pa. 2000) (same).


25

virtually identical ERISA claims). Indeed, the Advisory Committee Notes to the 1996

Amendment of Fed. R. Civ. P. 23 (b)(1)(B) specifically state that certification under Rule 23 is

especially appropriate in cases charging breach of trust by a fiduciary to a large class of

beneficiaries. Moreover, Congress specifically embraced the principle that ERISA claims should

be brought in a representative capacity. Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 142

n.9 (1985) (noting that Congress expressed intent that ERISA “actions for breach of fiduciary

duty be brought in a representative capacity on behalf of the plan as a whole”).

A. The Prerequisites of Rule 23(a) Are Satisfied

To proceed as a class action, the litigation must satisfy the four prerequisites of Rule

23(a) – numerosity, commonality, typicality and adequacy – and at least one of the three

requirements of Rule 23(b). See Amchem Prods, 521 U.S. at 614. Here, the prerequisites of

Rule 23(a) and (b)(1) are easily satisfied.

1. The Settlement Class Satisfies the Numerosity Requirement

To demonstrate numerosity, “plaintiffs must show that joinder is ‘impracticable,’ not that

it is ‘impossible.’” In re WorldCom, Inc. Sec. Litig., 219 F.R.D. 267, 279 (S.D.N.Y. 2003)

(citing Robidoux v. Celani, 987 F.2d 931, 935 (2d Cir. 1993)); Global Crossing, 225 F.R.D. at

451. “Numerosity is presumed at a level of 40 members.” Consol. Rail Corp. v. Town of Hyde

Park, 47 F.3d 473, 483 (2d Cir. 1995). The proposed Settlement Class is comprised of more

than 40,000 members, easily meeting the numerosity threshold.

2. Common Questions of Law and Fact Exist

The commonality test is whether there are any questions of fact or law that are common

to the class. Fed. R. Civ. P. 23(a)(2). A common nucleus of operative facts is usually sufficient

to satisfy the commonality requirement. Marisol A. ex rel. Forbes v. Giuliani, 126 F.3d 372, 376

(2d Cir. 1997). Commonality is easily satisfied in ERISA class actions which, by their very


26

nature, present common questions of law and fact, and are frequently certified as class actions.

Banyai v. Mazur, 205 F.R.D. 160, 163 (S.D.N.Y. 2002) (“In general, the question of defendants’

liability of ERISA violations is common to all class members because a breach of fiduciary duty

affects all participants and beneficiaries.”) (citing Gruby v. Brady, 838 F. Supp. 820, 828

(S.D.N.Y. 1993); see also Babcock v. Computer Assocs., Int’l, Inc., 212 F.R.D. 126, 130

(E.D.N.Y. 2003) (common questions include “whether the defendants failed to provide class

members with the proper investment options under the Plan” and “whether the defendants failed

to diversify the assets of the Plan”); WorldCom, 2004 WL 2338151, at *7-8 (same).

Here, there are numerous questions of law and fact common to the proposed Settlement

Class. They include: (a) whether Defendants were fiduciaries of the Plans and/or the

Participants; (b) whether Defendants breached their fiduciary duties; (c) whether the Plans and

the Participants were injured by such breaches; and (d) whether the Class is entitled to the return

of lost investment capital and opportunities, damages and/or injunctive relief.

Because these questions concern the common issues of fiduciary responsibilities owed to

the Plans’ participants, “[a]ll of these questions are sufficient to satisfy plaintiffs’ burden under

Rule 23(a)(2).” Moore v. Simpson, No. 96-2971, 1997 U.S. Dist. LEXIS 13791, at *9-10 (N.D.

Ill. Sept. 5, 1997).

3. Plaintiffs’ Claims Are Typical of the Claims of the Settlement Class

Under Rule 23(a)(3), Plaintiffs must show 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).

In Global Crossing, Judge Lynch held that typicality was met for the ERISA claims because “the

class representatives and class members’ claims arise from the same alleged course of conduct

and are based on the same legal theories.” 225 F.R.D. at 452.


27

The claims asserted here – that Defendants breached their duties to the Plans and all Plan

participants whose accounts held Company Stock – are by definition typical because they are the

same unitary claim on behalf of the same Plans. Further, Plaintiffs are entitled under ERISA to

bring a claim for plan-wide relief. 29 U.S.C. § 1109(a) (liability for breach of fiduciary duty

goes to the plan). Plaintiffs and the absent Settlement Class members seek the same relief for the

same wrongs by the same Defendants. Accordingly, Plaintiffs’ claims are typical of the claims

of the Class within the meaning of Rule 23(a)(3).11

4. Plaintiffs Will Adequately Protect the Interests of the Settlement Class

Adequacy of representation involves a two part inquiry: (1) do the class representatives

have common interests with unnamed class members and (2) will they vigorously prosecute the

litigation using qualified counsel? In re Polaroid ERISA Litig., 240 F.R.D. 65, 77 (S.D.N.Y.

2006).

Plaintiffs have protected, and will continue to fairly and adequately protect the interests

of the Class under Rule 23(a)(4). First, the claims and interests are congruent with those of the

other Settlement Class members and Plaintiffs have no interests antagonistic to those of the other

Class members. Plaintiffs and Settlement Class members alike seek to prove Defendants’

liability on the basis of common facts underlying those claims. Second, as discussed more fully

in the Joint Declaration, Plaintiffs have retained counsel highly experienced in this type of

litigation and eminently able to conduct this litigation to protect the interests of the Settlement

Class. Joint Declaration ¶¶ 142-154. The adequacy element is therefore satisfied. See Global

11 See, e.g., Babcock, 212 F.R.D. at 130-31 (common conduct of ERISA fiduciaries toward all plan participants

satisfied typicality requirement); In re WorldCom Inc. ERISA Litig., No. 02-4816, 2004 WL 2211664, at *3 (S.D.N.Y. Oct. 4, 2004) (rejecting defendant’s argument regarding commonality, adequacy and typicality on same grounds, i.e., that the “claims belonging to the class are united by, among other things, the class members’ purchase of WorldCom stock and WorldCom’s own relationship to each of the plans”); Smith v. Aon Corp., 238 F.R.D. 609, 617 (N.D. Ill. 2006) (“no question” that proposed class representatives’ claims were typical where they were “pursuing the same legal theory against Defendants: that Defendants breached their fiduciary duties


28

Crossing, 225 F.R.D. at 453 (citing In re Oxford Health Plans, Inc., 191 F.R.D. 369, 376

(S.D.N.Y. 2000)); In re Drexel Burnham Lambert Group, Inc., 960 F.2d 285, 291 (2d Cir. 1992).

B. The Settlement Class Satisfies the Requirements of Rule 23(b)(1)

To proceed as a class action under Rule 23(b)(1), the proponent of class certification

must satisfy each of the requirements of Rule 23(a) and, in addition, demonstrate that the

prosecution of separate actions creates the risk of “inconsistent or varying adjudications with

respect to individual class members,” Fed. R. Civ. P. 23(b)(1)(A), or the risk of “adjudications

with respect to individual class members that, as a practical matter, would be dispositive of the

interests of the other members not parties to the individual adjudications or would substantially

impair or impede their ability to protect their interests.” Fed. R. Civ. P. 23(b)(1)(B).

One Participant’s claim in this case would, as a practical matter, be dispositive of the

interests of fellow members of the Plan because § 502(a)(2) claims must be brought in a

representative capacity on behalf of the entire Plan and the relief granted by the Court to remedy

a breach of fiduciary duty would “inure[ ] to the benefit of the plan as a whole” rather than to the

individual plaintiff. Russell, 473 U.S. at 134, 140. See also Rankin, 220 F.R.D. at 523; In re

Ikon, 191 F.R.D. at 466 (“given the nature of an ERISA claim which authorizes plan-wide relief,

there is a risk that failure to certify the class would leave future plaintiffs without relief’);

Piazza v. EBSCO Indus., Inc., 273 F.3d 1341, 1352-53 (11th Cir. 2001) (district court abused its

discretion by certifying a § 502(a)(2) class under Rule 23(b)(3) instead of 23(b)(1)); Kane v.

United Indep. Union Welfare Fund, No. 97-1505, 1998 WL 78985, at *9 (E.D. Pa. Feb. 24,

1998) (certifying class under Rule 23(b)(1)), (citing Russell, 473 U.S. at 140); Specialty Cabinets

& Fixtures, Inc., v. Am. Equitable Life Ins. Co., 140 F.R.D. 474, 478 (S.D. Ga. 1991) (same).

with regard to investments of Plan assets in Aon stock during the Class Period, thereby causing the Plan as a whole to lose value”).


29

Courts considering ERISA breach of fiduciary duty claims for class certification have

consistently followed the reasoning of the drafters of the Federal Rules of Civil Procedure in

concluding that subsection 23(b)(1)(B) is the most appropriate basis for class certification. See

Fed. R. Civ. P. 23(b)(1)(B) (Advisory Committee Note, 1966 Amendment) (stating that

certification under 23(b)(1)(B) is appropriate in cases charging breach of trust by a fiduciary to a

large class of beneficiaries). See also AOL Time Warner, 2006 WL 2789862, at *5; Global

Crossing, 225 F.R.D. at 453; In re WorldCom, Inc. ERISA Litig., No. 02-4816, 2004 WL

2211664, at *3 (S.D.N.Y. Oct. 4, 2004); Koch v. Dwyer, No. 98-5519, 2001 WL 289972, at *5

(S.D.N.Y. Mar. 23, 2001); Gruby, 838 F. Supp. at 828. Certification of the Class as a non-opt-

out class under Rule 23(b)(1)(B) is therefore appropriate.12

Certification is also appropriate under 23(b)(1)(A). See, e.g., Alvidres v. Countrywide

Fin. Corp., No. 07-5810, WL 1766927 (C.D. Cal. Apr. 16, 2008) (certifying class under Rule

23(b)(1)(A)); In re Delphi ERISA Litig., 230 F.R.D. 496 (E.D. Mich. 2005) (finding certification

of settlement class proper under Rule 23(b)(1)(A) and (1)(B) and (b)(2)); Brieger v. Tellabs, Inc.,

245 F.R.D. 345 (N.D. Ill. 2007) (certifying class under Rule 23(b)(1)); Smith v. Aon Corp., 238

F.R.D. 609 (N.D. Ill. 2006) (certifying class under Rule 23(b)(1)(A), (b)(1)(B), and (b)(2));

Polaroid, 240 F.R.D. 65 (certifying class under Rule 23(b)(1)); In re Enron Corp. Sec.,

Derivative & “ERISA” Litig., No. 01-3913, 2006 WL 1662596 (S.D. Tex. June 7, 2006)

(certifying class under Rule 23(b)(1)(A) and (B)); In re Williams Cos. ERISA Litig., 231 F.R.D.

12 ERISA breach of fiduciary duty cases outside this district in which courts have granted class certification under

subsection (b)(1)(B) include: In re Broadwing, Inc. ERISA Litig., No. 02-Civ-00857, 2006 WL 3831382, (S.D. Ohio Oct. 5, 2006); In re CMS Energy ERISA Litig., 225 F.R.D. 539, 545-576 (E.D. Mich. 2004); Rogers v. Baxter Int’l. Inc., No. 04-6476, 2006 WL 794734, at *840 (N.D. Ill. Mar. 22, 2006); Rankin, 220 F.R.D. at 522; Kolar, 2003 WL 1257272, at *3; Koch, 2001 WL 289972 (S.D.N.Y. Mar. 23, 2001); Thomas v. SmithKline Beecham Corp., 201 F.R.D. 386 (E.D. Pa. 2001); In re IKON, 191 F.R.D. 457 (E.D. Pa. 2000); Bunnion v. Consolidated Rail Corp., No. 97-4877, 1998 WL 372644 (E.D. Pa. May 14, 1998); Kane v. United Independent Union Welfare Fund, No. 97-1505, 1998 WL 78985 (E.D. Pa. Feb. 24, 1998); Feret v. Corestates Fin. Corp., No. 97-6759, 1998 WL 512933 (E.D. Pa. 1998); Gruby, 838 F. Supp. 820 (S.D.N.Y. 1993); and Specialty Cabinets & Fixtures, Inc. v. American Equitable Life Ins. Co., 140 F.R.D. 474 (S.D. Ga. 1991).


30

416 (N.D. Okla. 2005) (certifying class under Rule 23(b)(1)(A), (b)(1)(B) and (b)(2)); In re CMS

Energy ERISA Litig., 225 F.R.D. 539 (E.D. Mich. 2004) (certifying class under Rule 23(b)(1)(A)

and (B)); In re Qwest Sav. & Inv. Plan ERISA Litig., No. 02-464, 2004 U.S. Dist. LEXIS 24693

(D. Colo. Sept. 27, 2004) (certifying class under Rule 23(b)(1)); Furstenau v. AT&T Corp., No.

02-5409, 2004 WL 5582592 (D.N.J. Sept. 3, 2004) (certifying class under Rule 23(b)(1));

Rankin, 220 F.R.D. 511 (certifying class under Rule 23(b)(1)(A) and (B)); Kolar v. Rite Aid

Corp., No. 01-1229, 2003 WL 1257272 (E.D. Pa. Mar. 11, 2003) (confirming certification of

class under Rule 23(b)(1)); Babcock, 212 F.R.D. 126 (certifying class under Rule 23(b)(1) and

(b)(3)); In re Ikon Office Solutions, Inc. Sec. Litig., 191 F.R.D. 457 (E.D. Pa. 2000) (certifying

class under Rule 23(b)(1)).

Accordingly, class action treatment under Rule 23(b)(1) is the best way to manage this

litigation and ensure that the rights of all Plan Participants are protected. See Rankin, 220 F.R.D.

at 522-23; Ikon, 191 F.R.D. at 466 (recognizing the difficulty imposed by contradictory

dispositions and observing that “contradictory rulings as to whether Ikon had itself acted as a

fiduciary, whether the individual defendants had, in this context, acted as fiduciaries, or whether

the alleged misrepresentations were material would create difficulties in implementing such

decisions”); Kolar v. Rite Aid Corp., No. 01-Civ-1229, 2003 WL 1257272, at *3 (E.D. Pa.

Mar. 11, 2003) (“Palpably, inconsistent or varying adjudications would be intolerable for the

employees of the same employee benefit plans”) (citations omitted).

C. The Requirements of Rule 23(g) Are Met

Finally, Fed. R. Civ. P. 23(g) requires the Court to examine the capabilities and resources

of counsel to determine whether they will provide adequate representation to the class. Here, the

Settlement was achieved by Plaintiffs’ Counsel who include some of the preeminent ERISA

class action attorneys in the country with years of experience in ERISA law and in prosecuting


31

and trying complex actions. Plaintiffs’ Counsel’s experience and skill were demonstrated by the

effective prosecution of this action, including their identification, investigation, and prosecution

of the claims in this action, and by the substantial Settlement entered into with Defendants. Joint

Declaration ¶¶ 105-107, 142 - 154.

The result achieved is the clearest reflection of counsel’s skill and expertise. See In re

Warfarin Sodium Antitrust Litig., 212 F.R.D. 231, 261 (D. Del. 2002) (class counsel “showed

their effectiveness through the favorable cash settlement they were able to obtain”); In re Ikon

Office Solutions, Inc., Sec. Litig., 194 F.R.D. 166, 194 (E.D. Pa. 2000) (“the most significant

factor in this case is the quality of representation, as measured by the `quality of the result

achieved, the difficulties faced, the speed and efficiency of the recovery, the standing, experience

and expertise of the counsel, the skill and professionalism with which counsel prosecuted the

case and the performance and quality of opposing counsel”). Plaintiffs’ Counsel’s extensive

efforts in successfully prosecuting this case further confirm that they satisfy Rule 23(g).

VI. THE FORMS AND METHODS OF NOTICE EMPLOYED SATISFY RULE 23 AND DUE PROCESS

In accordance with the Preliminary Approval Order, the Settlement Class has been

provided with ample and sufficient notice of this Settlement, including an appropriate

opportunity to voice objections. The notice plan fully informed Settlement Class members of the

lawsuit and the proposed Settlement, and enabled them to make informed decisions about their

rights.

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.” In re Prudential Sec. Inc. Ltd. P’ships Litig., 164 F.R.D.

362, 368 (S.D.N.Y. 1996) (quoting Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306,

314 (1950)). “It is widely recognized that for the due process standard to be met it is not


32

necessary that every class member receive actual notice, so long as class counsel acted

reasonably in selecting means likely to inform persons affected.” Prudential, 164 F.R.D. at 368;

see also Weigner v. City of New York, 852 F.2d 646, 649 (2d Cir. 1988), cert. denied, 488 U.S.

1005 (1989).

To satisfy Rule 23, “[f]or non-opt out cases, such as the ERISA Actions, [all that is

required is] such unspecified ‘appropriate notice’ as ‘the court may direct. . . .’” Global

Crossing, 225 F.R.D. at 448 (quoting Fed. R. Civ. P. 23(c)(2)(A)).

Here, the forms and methods of notice of proposed Settlement that were agreed to by the

Parties and provided pursuant to the Preliminary Approval Order satisfy all due process

considerations and meet the requirements of Fed. R. Civ. P. 23(c)(2) & (e)(1).

The Parties’ notice plan, as approved by the Court and implemented by Co-Lead

Counsel, consisted of: (1) mailing of the Class Notice on February 18, 2009 to more than 40,000

class members at their last known addresses provided by Defendants; (2) publishing the

Summary Notice in The New York Times, the Rochester Democrat & Chronicle, the

Connecticut Post and the Norwalk Hour on February 23, 2009, and over the Business Wire on

February 25, 2009; and (3) creating a dedicated website administered by Class Counsel to

provide information to Settlement Class members and providing as a toll-free telephone number

that participants may call (and in fact, have called) to obtain information regarding the

Settlement. See Joint Declaration ¶¶ 63-66 and Affidavit of Ashley Barr re A) Mailing of the

Notice of Proposed Settlement of ERISA Class Action Litigation and B) Publication of the

Summary Notice, attached as Exhibit B thereto.

The mailed class notice provided detailed information about the Settlement, including:

(1) a comprehensive summary of its terms; (2) notice of Plaintiffs’ Counsel’s intent to request

attorneys’ fees, reimbursement of expenses, and case contribution awards for the Named


33

Plaintiffs; and (3) detailed information about the Released Claims. In addition, the notice

provided information about the Fairness Hearing date, Settlement Class members’ rights to

object (and deadlines and procedures for objecting), and the procedure to receive additional

information. The mailed class notice provided Class members with contact information for

Plaintiffs’ Counsel, information on the toll-free phone number and an e-mail address for

inquiries, and a website address for further information. The summary notice summarized the

above information for purposes of publication.

The notice forms and methods employed here are substantially similar to those

successfully used in many other ERISA class settlements and “fairly, accurately, and neutrally

describe the claims and parties in the litigation[,]…the terms of the proposed settlement and the

identity of persons entitled to participate in it.” Foe v. Cuomo, 700 F. Supp. 107, 113 (E.D.N.Y.

1988), aff’d, 892 F.2d 196 (2d Cir. 1989), cert. denied, 498 U.S. 972 (1990); WorldCom, 2004

WL 2338151, at *3-4; Global Crossing, 225 F.R.D. at 448-49 (noting that a notice plan similar

to the one proposed here “went well beyond the requirements for the non-opt out ERISA

classes”). Similar dissemination procedures have been approved by courts in myriad other cases.

See, e.g., Spann v. AOL Time Warner Inc., No. 02-8238, 2005 WL 1330937, at *5-6 (S.D.N.Y.

June 7, 2005); Schneider v. GE Capital Mortgage Servs., Inc., No. 09-4651, 1997 WL 272403, at

*2 (S.D.N.Y. May 21, 1997). Accordingly, the notice provided to the Settlement Class satisfies

the requirements of due process and Fed. R. Civ. P. 23.

VII. THE PLAN OF ALLOCATION TREATS ALL CLASS MEMBERS FAIRLY AND SHOULD BE APPROVED

In connection with final approval of the Settlement, Plaintiffs request the Court also to

approve their proposed Plan of Allocation for the Settlement Fund. The Plan of Allocation was

previously attached as Exhibit C to the Settlement Agreement and, is submitted here, as

Exhibit 2 to the [Proposed] Order and Final Judgment.


34

A District Court has broad supervisory powers with respect to allocating a class action

settlement and wide latitude in determining what to consider in approving a settlement

allocation. In re “Agent Orange” Prod. Liab. Litig., 818 F.2d 179, 181 (2d Cir. 1987); In re

Equity Funding Corp. of Am. Sec. Litig., 603 F.2d 1353, 1363 (9th Cir. 1979). The Court has

discretion in allocating settlement funds, and an allocation will be upheld unless there has been

an abuse of discretion. Curtiss-Wright Corp. v. Helfand, 687 F.2d 171, 175 (7th Cir. 1982).

This is because allocation of a fixed settlement fund

among competing complainants is a traditional equitable function, using ‘equity’ to denote not a particular type of remedy, procedure, or jurisdiction but a mode of judgment based on broad ethical principles rather than narrow rules.

Curtiss-Wright, 687 F.2d at 174 (citations omitted).

Like the Settlement itself, the Plan of Allocation should be fair, reasonable and adequate.

In re Chicken Antitrust Litig., 669 F.2d 228, 240 (5th Cir. 1982). A fair, reasonable and adequate

plan of allocation has two principal features — it should not be overly complex, and, it should be

responsive to class members’ interests in the litigation. Thus, “a plan of allocation that

reimburses class members based on the type and extent of their injuries is [generally]

reasonable.” In re Ikon Office Solutions, Inc., Sec. Litig., 194 F.R.D. 166, 184 (E.D. Pa. 2000);

PaineWebber, 171 F.R.D. at 133 (“as a general rule, the adequacy of an allocation plan turns on

whether counsel has properly apprised itself of the merits of all claims, and whether the proposed

apportionment is fair and reasonable in light of that information”); Global Crossing, 225 F.R.D.

at 462 n.14 (“nothing requires a settlement to benefit all class members equally. Such a rule

would itself result in an inequitable windfall to certain class members, to the detriment of

others”). Courts give “substantial weight” to the opinions of experienced counsel regarding the

fairness of an allocation. Law v. Nat’l Collegiate Athletic Ass’n, 108 F. Supp. 2d 1193, 1196 (D.

Kan. 2000); Milken & Assocs., 150 F.R.D. at 54. “When formulated by competent and


35

experienced class counsel, an allocation plan need have only a ‘reasonable, rational basis.’”

Global Crossing, 225 F.R.D. at 462, citing In re Am. Bank Note Holographics, Inc. Sec. Litig.,

127 F. Supp. 2d 418, 429-30 (S.D.N.Y. 2001); Law, 108 F. Supp. 2d at 1196 (internal citations

omitted); see also Maley v. Del Global Techs. Corp., 186 F. Supp. 2d 358, 367 (S.D.N.Y. 2002)

(citing White v. NFL, 822 F. Supp. 1389, 1420-24 (D. Minn. 1993), affd, 41 F.3d 402 (8th Cir.

1994)); In re Oracle Sec. Litig., No. 90-931, 1994 WL 502054, at *1 (N.D. Cal. Jun. 18, 1994)

(“A plan of allocation that reimburses class members based on the extent of their injuries is

generally reasonable.”).

Here, the Plan of Allocation was designed by experienced Class Counsel who have

prepared similar plans for numerous other cases. The Plan of Allocation reflects Class Counsel’s

informed consideration of the relevant legal and factual matters pertaining to the Settlement

Class members’ claims. The Plan of Allocation provides recovery to Class members, net of

administrative expenses and net of attorneys’ fees and expenses that the Court may choose to

award, on a pro rata basis according to their recognized claims of damages. No Class member

or group of Class members is singled out for either disproportionately favorable or unfavorable

treatment; all participate in recoveries pursuant to the plan of allocation in the same manner.

Furthermore, Defendants had no role in formulating the Plan, nor do funds “revert” to

Defendants as a result of the Plan.

The Plan of Allocation was described in the Notice of Class Action Settlement approved

by the Court on January 28, 2009 and mailed to Class members on February 18, 2009,

pursuant to the Preliminary Approval Order. As stated in that notice, the Net Proceeds will be

allocated to Class members on a pro rata basis such that the amount received by each Class

member will depend on his or her calculated loss, relative to the losses of other Class members,

related to the Plans’ investments in Xerox common stock. Because the Net Proceeds are less


36

than the total losses alleged to be suffered in this action, each Class member’s proportionate

recovery will be less than his or her alleged loss.

Payments will be made by crediting the accounts of active Plan participants with the

appropriate amount and by creating or re-creating an account for Class members who are no

longer active participants, and then crediting their accounts in the same manner. This is

substantially the same methodology approved and used in other company stock ERISA cases,

and which has been approved by the U. S. Department of Labor. See, e.g., In re AOL Time

Warner, Inc. Sec. & ERISA Litig., No. 02-5575, 2006 WL 903236, at *17 (S.D.N.Y. Apr. 6,

2006) (plan of allocation provided “recovery to damaged investors on a pro rata basis according

to their recognized claims of damages”); In re Charter Commc’ns, Inc. Sec. Litig., No. 02-1186,

2005 WL 4045741, at *10 (E.D. Mo. June 30, 2005) (plan of allocation approved as fair and

reasonable where some shareholders could “benefit more from the Settlement than others

depending upon when they purchased [the] shares, and if and when they sold those shares”);

Global Crossing, 225 F.R.D. at 463 (S.D.N.Y. 2004) (ERISA company stock case plan of

allocation approved as fair and reasonable where it allocated “the settlement amount among plan

participants based on their losses”); WorldCom, 2004 WL 2338151, at *8 (plan of allocation

approved as fair, adequate and reasonable where it was based on the “proportional share of the

loss of each participant”); Maley, 186 F. Supp. 2d at 367 (approving Plan of Allocation as fair,

adequate, and reasonable when it was devised by experienced class counsel familiar with the

strengths and weaknesses of the potential claims of class members and proportionately

reimbursed class members based on the extent of their injuries).

Plaintiffs’ Counsel have received no objections to the proposed Plan of Allocation.

Plaintiffs’ Counsel believe the proposed Plan of Allocation is fair, reasonable and not

unduly complicated or expensive and accordingly urge the Court to adopt and approve it.


37

VIII. CONCLUSION

For the reasons set forth above, Plaintiffs’ Counsel respectfully request that the Court

enter an order (a) granting final approval of the Settlement of this litigation; (b) granting

certification of the proposed Settlement Class under Fed. R. Civ. P. 23(a) and (b)(1);

(c) determining that the forms and methods of notice to the Class were appropriate and

sufficient; and (d) approving the proposed Plan of Allocation of the settlement funds.

Respectfully submitted this 24th day of March, 2009.

Submitted By /s/Elizabeth A. Leland KELLER ROHRBACK L.L.P. Lynn Lincoln Sarko [email protected] Gary A. Gotto [email protected] Elizabeth A. Leland [email protected] 1201 Third Avenue, Suite 3200 Seattle, WA 98101 Telephone: (206) 623-1900 Facsimile: (206) 623-3384 Co-Lead Counsel FUTTERMAN HOWARD WATKINS WYLIE & ASHLEY, CHTD. Charles R. Watkins [email protected] John R. Wylie [email protected] 122 S. Michigan Avenue, Suite 1850 Chicago, Illinois 60603 Telephone: (312) 427-3600 Facsimile: (312) 427-1850 Co-Lead Counsel LAW OFFICES OF DANIEL M. HARRIS Daniel M. Harris [email protected] 150 North Wacker Drive, Suite 3000


38

Chicago, Illinois 60606 Telephone: (312) 960-1802 Facsimile: (312) 960-1936 Steering Committee Counsel BERGER & MONTAGUE, P.C. Sherrie R. Savett [email protected] Joy Clairmont [email protected] 1622 Locust Street Philadelphia, PA 19103-6365 Telephone: (215) 875-3000 Facsimile: (215) 875-4503 Steering Committee Counsel BARROWAY TOPAZ KESSLER, MELZTER & CHECK LLP Marc A. Topaz [email protected] Joseph H. Meltzer [email protected] 280 King of Prussia Road Radnor, PA 19087 Telephone: (610) 667-7706 Facsimile: (610) 667-7056 Steering Committee Counsel STEMBER FEINSTEIN DOYLE & PAYNE, LLC Ellen M. Doyle [email protected] The Allegheny Building, 17th floor 429 Forbes Avenue Pittsburgh PA 15219 Telephone: (412) 281-8400 Facsimile: (412) 232-3730 Steering Committee Counsel for the Union Plan MCTIGUE & VEIS LLP Brian McTigue [email protected] 5301 Wisconsin Avenue, N.W. Ste. 350 Washington, DC 20015 Telephone: (202) 364-6900 Facsimile: (202) 364-9960 Steering Committee Counsel for the Union Plan


39

GOODMAN ROSENTHAL & MCKENNA PC John F. McKenna, Esq. - ct00104 [email protected] 977 Farmington Avenue, Suite 200 West Hartford, Connecticut 06107 Telephone: (860) 231-2800 Facsimile: (860) 523-9235 Liaison Counsel


40

UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT In re XEROX CORPORATION ERISA LITIGATION, This Document Relates to: ALL ACTIONS

Master File No. 02-CV-1138 (AWT) CLASS ACTION CERTIFICATE OF SERVICE

I hereby certify that on March 24, 2009, a copy of foregoing PLAINTIFFS’

MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR FINAL APPROVAL OF

CLASS ACTION SETTLEMENT was filed electronically and served by mail on anyone unable

to accept electronic filing. Notice of this filing will be sent by e-mail to all parties by operation

of the court's electronic filing system or by mail to anyone unable to accept electronic filing as

indicated on the Notice of Electronic Filing. Parties may access this filing through the court's

CM/ECF System.

/s/ Elizabeth A. Leland (phv01338) Keller Rohrback L.L.P. 1201 Third Avenue, Suite 3200 Seattle, WA 98101 (206) 623-1900 / Fax (206) 623-3384 [email protected]


UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT · IN RE XEROX CORPORATION ERISA LITIGATION...

Documents

Transcript of UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT · IN RE XEROX CORPORATION ERISA LITIGATION...