                                                                                                                           Opinions of the United
2009 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


2-13-2009

In Re: SFBC Internat
Precedential or Non-Precedential: Non-Precedential

Docket No. 08-2075




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                                                                NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                 ___________

                                       No. 08-2075
                                       ___________

                       IN RE: SFBC INTERNATIONAL INC.,
                     SECURITIES & DERIVATIVE LITIGATION


                                      JAMES J. HAYES,

                                          Appellant
                       ____________________________________

                     On Appeal from the United States District Court
                               for the District of New Jersey
                          (D.C. Civil Action No. 06-cv-00165)
                      District Judge: Honorable Stanley R. Chesler
                      ____________________________________

                    Submitted Pursuant to Third Circuit LAR 34.1(a)
                                  February 13, 2009

            Before: SLOVITER, AMBRO and STAPLETON, Circuit Judges

                            Opinion filed: February 13, 2009
                                      ___________

                                        OPINION
                                       ___________

PER CURIAM

       In this securities fraud class action, James J. Hayes appeals pro se from a Final

Judgment of the United States District Court for the District of New Jersey certifying the

Settlement Class, approving a $28.5 million settlement, and dismissing the class action
with prejudice. We will affirm.

         From August 4, 2003, through December 15, 2005, SFBC International, Inc., a

drug development services company, made various public statements that allegedly

misled investors about its business prospects and operations. Thereafter, a series of

securities class actions were filed against SFBC. The cases were transferred to the New

Jersey District Court, where they were consolidated. Arkansas Teacher Retirement

System (“ATRS”) was appointed to serve as lead plaintiff, and filed a complaint alleging

violations of sections 11, 12(a)(2), and 15 of the Securities Act of 1933, and section 20(a)

of the Securities Exchange Act of 1934. Settlement negotiations, which began in

December 2006, were conducted over several months with the assistance of an

experienced mediator. Almost a year later, ATRS filed in the District Court an

unopposed motion for preliminary approval of a settlement resolving all claims. By order

entered December 12, 2007, the District Court granted the motion and directed that notice

of the settlement be sent to class members.

         On February 26, 2007, Hayes filed a letter with the District Court objecting to the

settlement.1 He claimed that the settlement failed to reflect a “fair recovery of potential

fraud damages” and calculated the class period from an impermissibly early date. On

March 10, 2008, the District Court held a hearing concerning the settlement and Hayes’

objection. After providing detailed on-the-record factual and legal findings, the District



   1
       Hayes was the only class member to object to the settlement.

                                               2
Court certified the class, approved the settlement, and rejected Hayes’ objection. Hayes

appealed.

       We have jurisdiction under 28 U.S.C. § 1291. We will uphold a District Court’s

approval of a class action settlement unless there has been an abuse of discretion. See

Girsh v. Jepson, 521 F.2d 153, 156 (3d Cir. 1975). The District Court can approve a

settlement only if the compromise is “fair, adequate, and reasonable.” Eichenholtz v.

Brennan, 52 F.3d 478, 482 (3d Cir. 1995) (citations omitted). We have identified several

factors that a District Court must consider when evaluating the fairness, adequacy, and

reasonableness of a settlement.2 See Girsh, 521 F.2d at 157. To permit meaningful

appellate review, the District Court must explain on the record its reasons for approving

the settlement. See Eichenholtz, 52 F.3d at 488.

       After reviewing the record in this case and considering Hayes’ arguments on

appeal, we have no trouble concluding that the District Court properly exercised its

discretion in approving the settlement. The District Court examined the Girsh factors in

detail, exercised its own independent judgment, and made on-the-record findings in




   2
     “Factors relevant to determination of fairness of a class action settlement are (1)
complexity, expense and likely duration of the litigation; (2) reaction of the class to
settlement; (3) stage of the proceedings and amount of discovery completed; (4) risks of
establishing liability; (5) risks of establishing damages; (6) risks of maintaining the class
action through trial; (7) ability of the defendants to withstand greater judgment; (8) range
of reasonableness of settlement fund in light of best possible recovery; and (9) range of
reasonableness of settlement fund to possible recovery in light of all attendant risks of
litigation.” Girsh, 521 F.2d at 157.

                                              3
support of its approval of the settlement. For instance, the District Court found that the

case “appears to . . . be a substantially complex one which would have required extensive

and difficult economic analysis and litigation.” The District Court also concluded that the

reaction of the class to the settlement was “remarkably favorable;” that “sufficient

discovery was completed for the plaintiff in particular and the parties in general to make

an intelligent and knowledgeable decision about the propriety of settling the case;” that it

was “appropriate [to] try[] to settle the case early while there were still substantial

insurance proceeds which were available to settlement;” that the issues of “loss

causation” under the Supreme Court’s decision in Dura Pharm., Inc. v. Broudo, 544 U.S.

336 (2005), had the potential to significantly reduce damages even if the class succeeded

on the liability issues at trial; and that “the settlement amount is well within the range of

reasonableness in light of the best possible recovery here.”

       In addition, the District Court thoroughly addressed the issues raised in Hayes’

objection. Hayes argued that ATRS’s damage calculations underestimated the potential

recoverable damages. But Hayes provided no support for his claim, whereas ATRS

provided analyses prepared by experienced economic consultants that explained the class’

maximum potential damage recovery. Furthermore, a financial economist submitted an

affidavit stating that Hayes’ “simplified calculation [of damages] dramatically overstates”

potential damages and is “inconsistent and unreliable.” Given this evidence, the District

Court acted within its discretion in concluding that Hayes’ damage estimate was “a rather



                                               4
simple calculation which is not tested” and that “his objections appear to give no

calculation or weight to the issues of loss causation.”

       Hayes also claimed that the class period should have begun on April 27, 2004,

when SFBC’s stock price increased following allegedly fraudulent disclosures concerning

its largest testing facility, located in Miami, Florida (“the Miami Facility”). The District

Court properly rejected this argument, concluding that “there is more than adequate

demonstration in the complaint for the class period beginning” on August 4, 2003. On

that date, SFBC announced that it had acquired 100% of the common stock of Clinical

Pharmacology Associates (“CPA”), another clinical drug testing company, and had

entered into three-year employment agreements with “key members” of CPA’s

management. SFBC failed to disclose, however, that one of those “key members” was

married to the owner of an Independent Review Board that oversaw SFBC’s clinical tests.

During a conference call on August 5, 2003, SFBC stated that its Miami Facility was

“state-of-the-art” and that it would benefit financially by providing CPA with “additional

bed space” and “filling much more of our capacity in Miami.” At the time, however, the

Miami Facility exceeded its allowable occupancy and was in violation of applicable

safety regulations. Therefore, it was within the sound discretion of the District Court to

approve a class period that began on August 4, 2003.




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