abat corporate governance reforms+ memorandum of law in support of plaintiff’s motion for final ...

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------------------------------------x CARL BRAUN, derivatively on behalf of ADVANCED BATTERY TECHNOLOGIES, INC., Index No. 11 Civ. 4383 Plaintiff,

v.

ZHIGUO FU, GUOHUA WAN, GUOPENG GAO, HONGJUN SI, LIQUI BAI, JOHN MCFADDEN, YULIN HAO, NING LI, SHAOQIN XIA, SHIYAN YANG, COSIMO J. PATTI, and CHI YUAN XUE,

Defendants, and, ADVANCED BATTERY TECHNOLOGIES, INC., Nominal Defendant. -------------------------------------------------------------------x

MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFF’S MOTION FOR FINAL APPROVAL OF PROPOSED SETTLEMENT AND AWARD OF ATTORNEYS’

FEES AND EXPENSES AND CASE CONTRIBUTION AWARD

Case 1:11-cv-04383-CM Document 13-1 Filed 11/22/13 of 24

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TABLE OF CONTENTS

Contents

I. INTRODUCTION ..................................................................................................................... 1

II. FACTUAL AND PROCEDURAL BACKGROUND ............................................................... 2

A. Background Facts and Procedural History ............................................................................. 2

B. The Terms of the Settlement .................................................................................................. 5

III. ARGUMENT ......................................................................................................................... 6

A. The Court Should Grant Final Approval of the Settlement ................................................... 6

1. The Reasonableness of the Benefits Achieved In Light of the Potential Recovery at Trial ................................................................................................................................ 8

2. The Likelihood of Success Given the Risks Posed by Continued Litigation .................... 9

3. The Likely Duration and Cost of Continued Litigation ................................................... 10

4. The Lack of Shareholder Objections ................................................................................ 11

B. The Court Should Award Plaintiff’s Counsel’s Reasonable Request for Attorneys’ Fees and Reimbursement of Expenses ................................................................................. 11

1. The Substantial Benefits Achieved and Precedent Support the Requested Fee Award ... 11

2. Further Factors Supporting the Fee Award ...................................................................... 14

a. The Lack of Objections Supports the Fee Award ........................................................ 15

b. The Skill and Efficiency of Counsel Supports the Fee Award .................................... 15

c. The Complexity and Difficulty of the Action Supports the Fee Award ...................... 16

d. The Contingent Nature of Representation Supports the Fee Award ............................ 17

C. The Court Should Approve Plaintiffs’ Case Contribution Award ....................................... 18

IV. CONCLUSION ................................................................................................................ 19


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TABLE OF AUTHORITIES

Cases

Altman v. Liberty Equities Co., 54 F.R.D. 620 (S.D.N.Y.1972) ................................................................................................. 11

Amalgamated Clothing and Textile Workers Union v. Wal-Mart Stores, Inc., 54 F.3d 69 (2d Cir. 1995) ................................................................................................... 11, 12

Bacas v. Way, No. 4:07-CV-00456, 2008 WL 746825 (S.D. Tex. Apr. 1, 2008) ............................................ 14

Bell Atl. Corp. v. Bolger, 2 F.3d 1304 (3d Cir. 1993) ....................................................................................................... 12

Blevins v. Appelbaum, No. MER-C-26-08 (N.J. Super. Nov. 18, 2008) ....................................................................... 14

Boeing Co. v. Van Gemert, 444 U.S. 472 (1980) .................................................................................................................. 11

Citron v. Burns, 10 Del. J. Corp. L. 830 (Del. Ch. 1985) .................................................................................... 13

City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974) ................................................................................................. 7, 17

Clark v. Ecolab Inc., No. 07 Civ. 8623 (PAC), 2010 WL 1948198 (S.D.N.Y. May 11, 2010) ................................... 7

Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541 (1949) .................................................................................................................. 10

Cohn v. Nelson, 375 F. Supp. 2d 844 (E.D.Mo. 2005) ....................................................................................... 14

Cook v. Niedert, 142 F.3d 1004 (7th Cir. 1998) .................................................................................................. 18

Dornberger v. Metro. Life Ins. Co., 203 F.R.D. 118 (S.D.N.Y. 2001) .............................................................................................. 18

Emerald Partners v. Berlin, 787 A.2d 85 (Del. 2001) ........................................................................................................... 17

Granada Invs., Inc. v. DWG Corp., 962 F.2d 1203 (6th Cir. 1992) .................................................................................................. 16

Greenspun v. Bogan, 492 F.2d 375 (1st Cir. 1974) ............................................................................................... 11, 15

In re AOL Time Warner Shareholder Deriv. Litig., No. 02cv6302, 2006 WL 2572114 (S.D.N.Y. Sept. 6, 2008) ........................................... 6, 7, 10

In re Apple Computer Deriv. Litig., Case No. C 06-4128-JF (HRL) (N.D. Cal. Nov. 5, 2008) ........................................................ 14


iii

In re AT&T Corp., 455 F.3d 160 (3d Cir. 2006) ..................................................................................................... 15

In re Bristol-Meyers Squibb Deriv. Litig., Master File No. 02-CV-8571 (LAP) (S.D.N.Y. July 22, 2005) ................................................ 14

In re Caremark Int'l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996) .................................................................................................... 9

In re Metro. Life Deriv. Litig., 935 F. Supp. 286 (S.D.N.Y. 1996) ........................................................................................... 10

In re Pac. Enters. Sec. Litig., 47 F.3d 373 (9th Cir. 1995) ........................................................................................................ 9

In re Pfizer Inc. S’holder Der. Litig., 780 F. Supp. 2d 336 (S.D.N.Y. 2011) .................................................................................... 7, 8

In re Presidential Life Securities, 857 F. Supp. 331 (S.D.N.Y. 1994) ........................................................................................... 18

In re Rambus Inc. Deriv. Litig., No. 06–3513, 2009 WL 166689 (N.D. Cal. 2009) ................................................................... 14

In re Schering-Plough Corp. S’holders Deriv. Litig., No. 01-1412, 2008 WL 185809 (D.N.J. Jan. 14, 2008) ...................................................... 12, 14

In re SmithKline Beckman Corp. Sec. Litig., 751 F. Supp. 525 (E.D. Pa. 1990) ............................................................................................. 11

In re Walt Disney Co. Derivative Litig., 907 A.2d 693 (Del. Ch. 2005), aff'd 906 A.2d 27 (Del. Ch. 2006) ............................................................................................ 17

Karstedt v. Isenberg, No. 4:07-CV-00509 (S.D. Tex. May 14, 2008) ........................................................................ 14

Maher v. Zapata Corp., 714 F.2d 436 (5th Cir. 1983) ................................................................................................ 8, 12

McKittrick v. Gardner, 378 F.2d 872 (4th Cir. 1967) .................................................................................................... 17

Mills v. Elec. Auto-Lite Co., 396 U.S. 375 (1970) ........................................................................................................ 8, 12, 13

Newman v. Stein, 464 F.2d 689 (2d Cir. 1972) ....................................................................................................... 7

Rowe v. Fishman, No. 04-4576 (D. Minn. Sep. 6, 2007) ....................................................................................... 14

Seinfeld v. Robinson, 246 A.D.2d 291 (N.Y. App. 1st Dep’t 1998) ...................................................................... 12, 13

Shlensky v. Dorsey, 574 F.2d 131 (3d Cir. 1978) ..................................................................................................... 11


iv

Spear v. Conway, 800 N.Y.S.2d 357 (N.Y. Sup. 2003) ......................................................................................... 16

Strougo v. Bassini, 258 F. Supp. 2d 254 (S.D.N.Y. 2003) ........................................................................................ 7

Unite Nat’l Ret. Fund v. Watts, No. 04-3603, 2005 WL 2877899 (D.N.J. Oct. 28, 2005) ............................................. 12, 13, 14

Whittemore v. Sun Oil Co., et. al., 58 F.R.D. 624 (S.D.N.Y. 1973) .................................................................................... 11, 12, 15

Williams v. First Nat'l Bank, 216 U.S. 582 (1910) .................................................................................................................... 6

Woodford v. Mizel, et. al., Civil Action No. 11-00879-RGA (D. Del. March 8, 2012) ...................................................... 14

Other Authorities

Jessica Erickson, Corporate Governance in the Courtroom: An Empirical Analysis, 51 WM. & MARY L. REV. 1749 (Apr. 2010) ......................................................................................................................... 9

Lucian Arye Bebchuk, The Case for Increasing Shareholder Power, 118 Harv. L. Rev. 833 (2005) .......................... 13

Rules

Fed. R. Civ. P. 23 ............................................................................................................................ 6


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Pursuant to Fed. R. Civ. P. 23.1(c), plaintiff Carl Braun (“Plaintiff”) respectfully submits

this memorandum of law in support of his motion for final approval of: (1) the proposed

settlement (the “Settlement”) of this shareholder derivative (the “Action”) pursuant to the terms

set forth in the Stipulation of Settlement, dated August 8, 2013 (“Stipulation”); (2) Plaintiff’s

application for an aggregate award of attorneys’ fees and expenses in the amount of $55,000;1

and (3) Plaintiff’s application for an incentive award.

I. INTRODUCTION

As set forth herein and in the accompanying Declaration of Shannon L. Hopkins in

Support of Proposed Settlement and Plaintiff’s counsel’s Application for an Award of Attorney’s

Fees and Expenses and Case Contribution Award (“Hopkins Decl.” or “Hopkins Declaration”),

the Settlement is fair, reasonable, and adequate and the requested amount of attorneys’ fees and

expenses is reasonable compensation for the benefits achieved and the work performed on behalf

of Advanced Battery Technologies, Inc. (“ABAT” or the “Company”) and its shareholders.

The Settlement resolves all the claims asserted in this Action, as well as a related

shareholder derivative action pending in the New York State Supreme Court brought by Anthony

Blumka C/F Quintin Blumka UTMA (NY) (collectively with plaintiff Braun, “Plaintiffs”),

captioned Blumka v. Fu, et al., Index No. 651343/2011 (the “Blumka Action,” collectively, the

“Derivative Actions”). The Derivative Actions assert claims for breach of fiduciary duty on

behalf of ABAT against the Company’s board of directors (the “Board”) arising out of the

Board’s failure to maintain adequate internal controls over its business operations and financial

reporting.

The Settlement is the product of arm’s length negotiations among the parties to the

Derivative Actions. Pursuant to the terms of the Settlement, ABAT agreed to implement 1 Defendants do not oppose Plaintiff’s application for attorneys’ fees and expenses.


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corporate governance reforms designed to strengthen its internal controls, accounting and

reporting procedures as well as to enhance the independence and accountability of the

Company’s Board (collectively, the “Corporate Reforms”). It is undisputed that the initiation

and prosecution of the Derivative Actions were a substantial cause of the Company’s decision to

implement the Corporate Reforms, which the Defendants have agreed confer a substantial

benefit on ABAT and the Company’s shareholders. After negotiating the material terms of the

Settlement, the parties negotiated at arm’s length the amount of attorneys’ fees and expenses.

ABAT has agreed to pay Plaintiffs’ counsel $55,000 in recognition of the substantial benefits

conferred upon the Company, as well as a cash contribution award of $500 (to be paid from the

fees) to each of the two Plaintiffs in the Derivative Actions.

On October 18, 2013, the Court preliminarily approved this Settlement [Dkt. No. 11-1]

(the “Preliminary Order”), pursuant to which ABAT published and filed the required Notice. As

of the date of this motion, to Plaintiff’s knowledge, no objections to any aspect of the proposed

Settlement have been received or filed on the court’s docket, demonstrating ABAT shareholders’

overwhelming support for the Settlement.

For the reasons discussed below, the Settlement provides substantial benefits to ABAT

and, thus, is fair and warrants final approval.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. Background Facts and Procedural History

ABAT is incorporated under laws of the State of Delaware and headquartered in New York, New

York.2 The Company designs, manufactures, and markets rechargeable polymer litium-ion

batteries in the U.S., Europe, and Asia. (Complt., ¶¶ 14, 29). ABAT’s batteries are used in

2 See Plaintiff’s Verified Shareholder Derivative Complaint (“Complaint” or “Complt.”) ¶ 14. All references herein to “¶ __” are to paragraphs in Plaintiff’s Complaint.


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portable computers, personal digital assistants, and cellular phones. ABAT also manufactures

electric bicycles, electric scooters, and electric sport utility vehicles. (Id.).

On March 30, 2011, Varient View Research (“Varient”) published a report on ABAT

stating that the Company’s financial statements and management could not be relied upon.

(Complt.., ¶¶ 3, 75). Varient claimed ABAT’s stock was essentially worthless because: (1) the

Company’s Chairman, Zhiguo Fu (“Fu”), transferred ownership of the Company’s key

subsidiary to himself without explanation or compensation to the Company; (2) the Company

actually only produced cheap scooters and bicycles, not cutting-edge electric cars as it had

claimed in its public filings, and (3) several of the Company’s claimed distribution relationships

did not exist. (Id.). Upon this news, ABAT’s stock dropped nearly 48%, closing on March 30,

2011 at $2.01 per share on heavy trading volume. (Complt., ¶¶ 3, 76). Thereafter, several

ABAT shareholders brought suit against ABAT, Fu and the Company’s other officers in this

Court in various securities fraud class action lawsuits, which were consolidated under the caption

In re ABAT Technologies, Inc. Sec. Litig., 11 Civ. 2279 (S.D.N.Y.) (the “Securities Action”).

On June 28, 2011, Plaintiff commenced this shareholder derivative action alleging the

members of ABAT’s Board had breached their fiduciaries duty to the Company by allowing

defendant Fu to transfer ownership of ABATs key subsidiary to himself without adequate

compensation or justification and by causing or allowing the Company to publicly issue

materially false and misleading financial statements, filed with the Securities and Exchange

Commission (“SEC”), including: (a) that ABAT makes cutting-edge electric cars, when in fact it

produces cheap scooters and bicycles; (b) that ABAT increased revenue from $4.2 million to

$97.1 million from 2005 to 2010; (c) that ABAT has certain distribution relationships which

appear to be fake; (d) that ABAT spent $20 million to acquire a company linked to defendant Fu


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without disclosing the relationship; and (e) that ABAT issued 11 million shares to defendant Fu

and other individuals to repay a “loan” which was fabricated. (Complt. ¶¶ 2,4). Plaintiff also

alleged that the Board allowed the Company to founder because of inadequate internal controls,

and by exposing the Company to federal securities violations and damages actions that could

prove costly, if not destructive, to the Company. (Id., ¶ 8).

A related shareholder derivative action, the Blumka Action, had been filed on May 18,

2011 in the Supreme Court of the State of New York, County of New York (“State Court”),

asserting similar shareholder derivative claims against the ABAT Board. (Hopkins Decl. ¶ 3).

The parties in this Action and the related Blumka action agreed to coordinate their litigation

efforts to conserve judicial resources and avoid duplication of efforts and the risk of inconsistent

adjudication. (Hopkins Decl. ¶ 4).

Defendants made known early in this Action that they intended to move to dismiss the

Securities Action. Thus, the parties agreed to stay the Derivative Actions pending the outcome

of that motion. On July 29, 2011, this Court entered an order staying all proceedings in this

Action, including all obligations and deadlines, until 30 days after the entry of an Order

resolving Defendants’ anticipated motion to dismiss the Securities Action. [Dkt. No. 5] A

stipulation to the same effect was agreed upon in the Blumka action. (Hopkins Decl. ¶ 6).

On August 29, 2012, the Court denied the Defendants’ motion to dismiss in the Securities

Action as to all defendants except for the auditor defendants, who are not named as defendants in

the Derivative Actions. The parties in the Securities Action, except for the named auditor

defendants, thereafter entered into a Stipulation of Settlement, dated April 24, 2013 (the “Class

Stipulation”).


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At or about the same time, Plaintiffs in the Derivative Actions made demands on the

Defendants in the Derivative Actions to institute corporate governance reforms that Plaintiffs

deemed critical to ensuring the alleged misconduct was corrected and that there were controls in

place to prevent it from occurring again in the future.

The parties to the Derivative Actions thereafter engaged in arm’s length negotiations

regarding Plaintiffs’ demands and a potential resolution of the Derivative Actions based upon

Defendants’ agreement to institute certain corporate reforms. The parties reached an agreement

on the terms of a proposed settlement, which was memorialized in the Stipulation on August 8,

2013, as amended on October 10, 2013. [Dkt. No. 8-3]. A proposed Final Order and Judgment

is attached as Exhibit B to the Stipulation.

B. The Terms of the Settlement

Pursuant to the terms of the Settlement, the Company agreed to implement and maintain

the following Corporate Reforms:

A. ABAT and the Individual Defendants shall establish a Financial Reconciliation Committee whose function is to oversee and establish rules to ensure that the Company’s year-end, publicly filed financial statements, whether filed with regulators in the U.S. or China, are consistent with one another to the extent required under applicable accounting rules and regulations and/or identify any material discrepancies among such filings with sufficient information to determine the basis for such discrepancies. B. ABAT and the Individual Defendants shall establish a Related Transactions Committee to oversee and establish rules to ensure that any Company transaction is properly vetted for the purpose of identifying and disclosing any related parties. C. ABAT and the Individual Defendants shall adopt a policy that requires the Company’s substantive press releases to be reviewed by: (a) the Company’s CEO or the CEO’s designee, and; (b) the Company’s general counsel or outside counsel to the extent any person holds such position(s). D. All material litigation, SEC or government investigations, government enforcement actions, or threatened government enforcement actions


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involving the Company, its directors or officers, will be publicly disclosed within seven (7) days. E. ABAT and the Individual Defendants will set up a toll free voice mail box for anonymous complaints or comments from employees. The Company’s counsel shall monitor the mail box and report monthly, in writing, to the independent directors the substance of the messages and the status of the investigation of such messages.

Stipulation, ¶ 1.

ABAT and the Individual Defendants have acknowledged that the proposed Corporate

Reforms resulted from and address the issues raised by Plaintiffs in the Derivative Actions; that

the reforms represent a material benefit to the Company; that the Derivative Actions were filed

and maintained by Plaintiffs in good faith and in accordance with applicable rules and

authorities; and, that the claims asserted in the Derivative Actions are being settled voluntarily

after consultation with competent legal counsel. Stipulation, ¶ 1.

III. ARGUMENT

A. The Court Should Grant Final Approval of the Settlement

Under Rule 23.1(c), derivative actions “may be settled, voluntarily dismissed, or

compromised only with the court’s approval.” Fed. R. Civ. P. 23.1(c). Public policy strongly

favors resolution of litigation through settlement. See Williams v. First Nat'l Bank, 216 U.S.

582, 595 (1910) (“Compromises of disputed claims are favored by the courts”). Settlements of

shareholder derivative actions are particularly favored by courts because they are “notoriously

difficult and unpredictable.” In re AOL Time Warner Shareholder Deriv. Litig., No. 02cv6302,

2006 WL 2572114, at *3 (S.D.N.Y. Sept. 6, 2008). In determining whether to approve such

settlements, courts “must be satisfied that the compromise `fairly and adequately serves the

interests of the corporation on whose behalf the derivative action was instituted.’” Id. (citations

omitted). A court should not engage in mere “rubber stamp approval” of the settlement, yet it


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must “stop short of the detailed and thorough investigation that it would undertake if it were

actually trying the case.” City of Detroit v. Grinnell Corp., 495 F.2d 448, 462 (2d Cir. 1974).

As the Second Circuit has explained:

[T]he role of a court in passing upon the propriety of the settlement of a derivative or other class action is a delicate one. . . . [W]e recognized that since the very purpose of a compromise is to avoid the trial of sharply disputed issues and to dispense with wasteful litigation, the court must not turn the settlement hearing into a trial or a rehearsal of the trial.

Newman v. Stein, 464 F.2d 689, 691-92 (2d Cir. 1972) (citation and internal quotation marks

omitted). See also Strougo v. Bassini, 258 F. Supp. 2d 254, 257 (S.D.N.Y. 2003) (“There is a

strong initial presumption that a proposed settlement negotiated during the course of litigation is

fair and reasonable.”) (citation and internal quotation marks omitted); Clark v. Ecolab Inc., No.

07 Civ. 8623 (PAC), 2010 WL 1948198, at *4 (S.D.N.Y. May 11, 2010) (“Absent fraud or

collusion, [courts] should be hesitant to substitute [their] judgment for that of the parties who

negotiated the settlement”) (citation and internal quotation marks omitted).

Courts in the Second Circuit apply the following four Grinnell factors in order to assess a

derivative settlement’s fairness:

(1) the reasonableness of the benefits achieved by the settlement in light of the potential recovery at trial;

(2) the likelihood of success in light of the risks posed by continued litigation; (3) the likely duration and cost of continued litigation; and, (4) any shareholder objections to the settlement.

See In re Pfizer Inc. S’holder Der. Litig., 780 F. Supp. 2d 336, 340 (S.D.N.Y. 2011) (applying 4

Grinnell factors); AOL Time Warner, 2006 WL 2572114, at *3 (same).

As discussed below, each of the Grinnell factors supports final approval of the

Settlement.


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1. The Reasonableness of the Benefits Achieved In Light of the Potential Recovery at Trial

Courts have long recognized that in derivative cases, non-monetary benefits such as

material changes in corporate management or policies provide real and substantial benefits and

warrant approval. See Mills v. Elec. Auto-Lite Co., 396 U.S. 375, 395 (1970) (recognizing that

non-pecuniary relief as the result of a derivative action can provide a substantial benefit to a

corporation). As the Fifth Circuit cogently observed:

[W]here, as here, the derivative suit is largely an attack on past corporate management practices, as well as on some present officers and directors, the dollar amount of a possible judgment, which is essentially the sole goal in the class action damage suit, is not the sole, and may well not be the most important, matter to be considered, for the effects of the suit on the functioning of the corporation may have a substantially greater economic impact on it, both long- and short-term, than the dollar amount of any likely judgment in its favor in the particular action.

Maher v. Zapata Corp., 714 F.2d 436, 461 (5th Cir. 1983). Here, the Corporate Reforms

substantially benefit ABAT because they were designed to directly address the alleged

deficiencies that lead to the filed claims. See Pfizer, 780 F. Supp. 2d at 342 (“[T]he settlement is

likely to provide considerable corporate benefits to Pfizer and its shareholders, in the form of a

significantly improved institutional structure for detecting and rectifying the types of

wrongdoing that have, in recent years, caused extensive harm to the company.”). The benefits

are particularly reasonable when cast “in light of the potential recovery at trial” – given that the

claims are complex, difficult to win and brought against foreign nationals who may be judgment

proof. There is no question that the results obtained here are as good, if not better, than the

potential recovery that might be obtained after years of litigation, trial and appeal. Accordingly,

this factor support approval.


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2. The Likelihood of Success Given the Risks Posed by Continued Litigation

Derivative actions are notoriously difficult to prosecute and win. Not surprisingly,

derivative suits have much higher dismissal rates than general civil litigation. See Jessica

Erickson, Corporate Governance in the Courtroom: An Empirical Analysis, 51 WM. & MARY

L. REV. 1749, 1789-90 (Apr. 2010) (approximately 45% of derivative actions in federal court in

2005-2006 were involuntarily dismissed versus 20% for civil litigation in general). See

generally In re Pac. Enters. Sec. Litig., 47 F.3d 373, 378 (9th Cir. 1995) (affirming approval of

derivative action settlement, and noting that the “odds of winning [a] derivative lawsuit [are]

extremely small” because “derivative lawsuits are rarely successful”).

To prevail in this case, Plaintiffs would have had to first withstand an expected motion to

dismiss for not making a pre-suit demand on the Board. Assuming that such a motion was

defeated, the parties would then address Plaintiffs’ substantive claims. Delaware law, which

provides the substantive law in this case, categorizes the allegations as a “Caremark” claim for

alleged oversight failures by the Board. See In re Caremark Int'l Inc. Derivative Litig., 698 A.2d

959, 967 (Del. Ch. 1996) (“The claim is that the directors allowed a situation to develop and

continue which exposed the corporation to enormous legal liability and that in so doing they

violated a duty to be active monitors of corporate performance.”). A Caremark claim represents

“possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a

judgment.” Id. Satisfying this high standard is a formidable obstacle to success and litigating

these issues would have demanded lengthy discovery and motion practice, expert testimony, and

would likely have led to appeals. The burden and expense of pursuing this matter to an uncertain

conclusion must be taken into account in evaluating the desirability of the proposed settlement.

These general risks are magnified by the fact that the party on whose behalf this action is

brought – the Company – faced continued risk, distraction and uncertainty as a result of this


10

action’s continuance. Removing the specter of continued litigation is in the Company’s best

interest. See AOL Time Warner, Inc., 2006 WL 2572114, at *5 (“this litigation boasts numerous

defendants, multiple claims, and complex factual issues; the prosecution of this Action would

require the Company to incur substantial costs. Termination [now] … obviates the expenditure

of any future time and expense in connection with this action,” and allows the Company to

attend to its regular business). Accordingly, this factor support approval.

3. The Likely Duration and Cost of Continued Litigation

Because of their complexity, derivative actions such as this consume enormous time and

resources. Indeed, litigating this Action through summary judgment, trial and appeal would have

incurred millions of dollars in time and expenses. Thus, courts routinely find the settlement of

actions, which eliminate costly, protracted litigation, warrant approval. See, e.g., AOL Time

Warner, 2006 WL 2572114, at *5 (noting that “the prosecution of this action would require the

Company to incur substantial costs” and that approving the settlement “will allow the Company

to direct its full attention to its substantive business”); In re Metro. Life Deriv. Litig., 935 F.

Supp. 286, 294 (S.D.N.Y. 1996) (“In view of the effort and expense that would be required to

take this case to and through trial, settlement would undoubtedly be in the best interest of all the

parties . . . .”).

Moreover, a trial of a derivative action presents special complexities not found in a

regular trial, or even a trial of a class action, as it calls for a shareholder to step into the

corporation’s shoes. See Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 548 (1949)

(explaining nature of derivative suits).

Accordingly, this factor supports settlement approval.


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4. The Lack of Shareholder Objections

The lack of objections strongly weighs in favor of approving the Settlement. See, e.g.,

Greenspun v. Bogan, 492 F.2d 375, 380 (1st Cir. 1974); In re SmithKline Beckman Corp. Sec.

Litig., 751 F. Supp. 525, 529 (E.D. Pa. 1990) (“Both the utter absence of objections and the

nominal number of shareholders who have exercised their right to opt out of this litigation

militate strongly in favor of approval of the settlement.”). Indeed, courts have found that “[t]he

absence of any detailed opposition is a relevant, if not always [a] reliable, factor in assessing the

fairness of such a proposal.” Altman v. Liberty Equities Co., 54 F.R.D. 620 (S.D.N.Y.1972).

To Plaintiffs and their counsels’ knowledge, there have been no objections filed with the

Court challenging the proposed Settlement. Thus, this factor weighs heavily in favor of approval

of the proposed Settlement.

B. The Court Should Award Plaintiff’s Counsel’s Reasonable Request for Attorneys’ Fees and Reimbursement of Expenses

1. The Substantial Benefits Achieved and Precedent Support the Requested Fee Award

The Supreme Court has long recognized the entitlement of counsel to adequate

compensation for obtaining a “substantial benefit” in resolving a derivative claim. See Boeing

Co. v. Van Gemert, 444 U.S. 472, 478 (1980) (“[A] lawyer who recovers a [benefit for] persons

other than himself or his client is entitled to a reasonable attorney’s fee.”). The plaintiff in a

derivative action may recover their expenses, including attorneys’ fees, from the corporation on

whose behalf their action is taken “in cases where the litigation has conferred a substantial

benefit.” Amalgamated Clothing and Textile Workers Union v. Wal-Mart Stores, Inc., 54 F.3d

69, 71 (2d Cir. 1995); Whittemore v. Sun Oil Co., et. al., 58 F.R.D. 624, 626 (S.D.N.Y. 1973)

(same); Shlensky v. Dorsey, 574 F.2d 131, 149 (3d Cir. 1978) (attorneys’ fees in derivative action

may be awarded where “the corporation derives a benefit, which may be monetary or


12

nonmonetary, from their successful prosecution or settlement of the case.”). It is universally

recognized that the “substantial benefit” need not be pecuniary in nature. See, e.g., Mills v.

Electric Auto Lite Co., 396 U.S. 375, 395 (1970) (“[A] corporation may receive a ‘substantial

benefit’ from a derivative suit, justifying an award of counsel fees, regardless of whether the

benefit is pecuniary in nature.”).3 Rather, a court considers whether the settlement “corrects or

prevents an abuse which would be prejudicial to the rights and interests of the corporation.” Id.;

see also Shlensky, 574 F.2d at 147 (“The principal factor...is the extent of the benefit to be

derived from the proposed settlement by the corporation, the real party in interest.”). Thus,

derivative settlements resulting in strengthened corporate governance such as this are often held

to provide “substantial benefits” for which fees are awarded. See, e.g., Seinfeld v. Robinson, 246

A.D.2d 291, 298 (N.Y. App. 1st Dep’t 1998) (awarding fees in shareholder derivative action

which resulted in the corporation “implementing procedures that will prevent the exact sequence

of events from reoccurring, [therefore] plaintiffs have furnished a benefit to shareholders.”).4

As discussed above, the parties have stipulated that the Settlement confers “substantial

benefits” by way of a series of comprehensive corporate governance changes and enhancements,

which will benefit the Company and its shareholders both now and well into the future including,

3 See also, e.g., Amalgamated Clothing, 54 F.3d at 71; Whittemore, 58 F.R.D. at 626. 4 See also, e.g., Unite Nat’l Ret. Fund v. Watts, No. 04-3603, 2005 WL 2877899, at *5 (D.N.J. Oct. 28, 2005) (awarding fee of $9.2 million based solely on therapeutic benefit to corporation where the corporation would “adopt, implement and maintain a series of corporate governance principles for the benefit of [the company] and its shareholders,” which the court held “will serve to prevent and protect [the company] from the reoccurrence of certain alleged wrongdoings”); In re Schering-Plough Corp. S’holders Deriv. Litig., No. 01-1412, 2008 WL 185809, at *1 (D.N.J. Jan. 14, 2008) (corporate governance improvements conferred “substantial benefits” to the company); Bell Atl. Corp. v. Bolger, 2 F.3d 1304, 1311 (3d Cir. 1993) (awarding fees in derivative settlement for corporate governance reforms); Maher v. Zapata Corp., 714 F.2d 436, 469 (5th Cir.1983) (approving attorney’s fees in a therapeutic derivative settlement because “influencing the future conduct may serve the interest of the corporation as fully as a recovery for past misconduct.”).


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inter alia corporate governance reforms designed to: (a) strengthen Advanced Battery’s internal

controls and accounting and reporting procedures; (b) enhance the independence and

accountability of the Company’s board of directors; and (c) provide employees with a voice by

setting up a toll free voice mail box for anonymous complaints or comments. Courts have long

recognized that in derivative actions, non-monetary benefits such as material changes in

corporate management or policies, provide substantial benefits and settlements based on such

benefits warrant approval. See, e.g., Mills, 396 U.S. at 397-98; Citron v. Burns, 10 Del. J. Corp.

L. 830, 834 (Del. Ch. 1985) (approving settlement based on corporate governance enhancements

only). This is especially true where, as here, “the great benefit conferred upon [the company] as

a result of the new corporate governance principles provided for in the settlement agreement will

serve to prevent and protect [the company] from the reoccurrence of certain alleged

wrongdoings.” Unite, 2005 WL 2877899, at *5 (approving settlement). 5

In awarding fees, Delaware courts where a large majority of derivative claims are

prosecuted, focus on the result achieved in the Settlement rather than the hours expended by

Plaintiff’s counsel. Indeed, they look favorably upon counsel that are able to achieve substantial

benefits without unduly burdening the parties and the Court with time-consuming and costly

motion practice, discovery disputes, trials and appeals. See, e.g., Seinfeld v. Coker, 847 A.2d

330, 333 (Del. Ch. 2000) (citations omitted) (“One of the historic reasons Delaware judges have

5 See Lucian Arye Bebchuk, The Case for Increasing Shareholder Power, 118 Harv. L. Rev. 833, 850 (2005) (describing the importance of adequate corporate governance measures in helping maximize shareholder value: “management [] cannot be automatically counted on to take actions that would serve shareholder interests. As a result, agency costs that reduce shareholder value might arise. Without adequate constraints and incentives, management might divert resources through excessive pay [and otherwise]. Adequate governance arrangements, however, can provide constraints and incentives that reduce deviations from shareholder-value maximization.”).


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been so willing to award substantial attorneys’ fees, even for a relatively quick settlement of the

case, is that our fee awards are not structured to reward lawyers for needlessly prolonging

litigation. Put simply, the Court does not want to be in a position of encouraging the churning of

wheels and devoting unnecessary hours to litigation in order to be able to present larger numbers

to the Court.”). Moreover, as discussed below, courts recognize that counsel who represent

parties on a contingent basis are entitled to a premium for the risk they take in prosecuting the

litigation with no assurance of receiving compensation for their efforts. Id. at 334.

The modest requested Fee Award warrants approval as a result of the substantial benefit

achieved. The requested Fee Award is amply supported by precedent and is well below the

range of fees awarded in recent corporate governance-based settlements.6

2. Further Factors Supporting the Fee Award

Courts analyzing the terms of proposed settlements in similar derivative actions have

6 See, e.g., Karstedt v. Isenberg, No. 4:07-CV-00509 (S.D. Tex. May 14, 2008) (awarding $2.85 million fee where subject corporation received no direct monetary benefit in settlement and where company agreed, inter alia, to enhance Board independence and implement procedures designed to prevent future misconduct); Bacas v. Way, No. 4:07-CV-00456, 2008 WL 746825 (S.D. Tex. Apr. 1, 2008) ($3 million fee for corporate governance reforms); In re Rambus Inc. Deriv. Litig., No. 06–3513, 2009 WL 166689 (N.D. Cal. 2009) (corporate governance reforms of “significant value” to the company; granting $2 million fee); Schering-Plough, 2008 WL 185809, at *5 ($9.5 million fee for settlement based solely on corporate governance changes); In re Apple Computer Deriv. Litig., Case No. C 06-4128-JF (HRL) (N.D. Cal. Nov. 5, 2008) ($8.85 million fee); Cohn v. Nelson, et. al., No. 4:03-cv-177-CAS (E.D. Mo. 2005) ($2.25 million fees); Woodford v. Mizel, et. al., Civil Action No. 11-00879-RGA (D. Del. March 8, 2012) (awarding $1.1 million in attorneys' fees for similar corporate governance changes); Rowe v. Fishman, No. 04-4576 (D. Minn. Sep. 6, 2007) ($5.25 million fee). The final orders in these cases are attached as Exhibits D-K to the Hopkins Declaration. See also, e.g., Blevins v. Appelbaum, No. MER-C-26-08 (N.J. Super. Nov. 18, 2008) ($2 million fee); In re Bristol-Meyers Squibb Deriv. Litig., Master File No. 02-CV-8571 (LAP) (S.D.N.Y. July 22, 2005) (awarding $3.5 million fee for governance changes, with no direct financial benefit to corporation); Unite Nat’l, 2005 WL 2877899, at *5 ($9.2 million fee for “the great benefit conferred upon [the company] as a result of the new corporate governance principles provided for in the settlement agreement” that “will serve to prevent and protect [the company] from the reoccurrence of certain alleged wrongdoings”); Cohn, 375 F. Supp. 2d at 860 ($2.25 million fee where no direct monetary benefit to company).


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identified other relevant factors in determining the reasonableness of an agreed-to fee, such as:

(1) the extent of objections to the settlement and/or fees requested by counsel; (2) the skill and

efficiency of the attorneys involved; (3) the complexity of the litigation; and (4) the contingent

nature of the fee (risk of nonpayment). See Whittemore, 58 F.R.D. at 626 (citations omitted).

These factors should not be applied formulaically, as “in certain cases, one factor may outweigh

the rest,” along with “any other factors that are useful and relevant with respect to the particular

facts of the case.” In re AT&T Corp., 455 F.3d 160, 66 (3d Cir. 2006). An assessment of

relevant factors here fully supports the requested Fee Award.

a. The Lack of Objections Supports the Fee Award

As discussed above, to Plaintiff and his counsel's knowledge, there have been no

objections filed with the Court to Plaintiff's counsel seeking a Fee Award or the Settlement (and

the deadline for objections has passed). The lack of objections strongly weighs in favor of

approving the requested Fee Award. See, e.g., Greenspun, 492 F.2d at 380.

b. The Skill and Efficiency of Counsel Supports the Fee Award

Pursuing these complex claims in a manner that would result in substantial benefits to

ABAT and its shareholders required the devoted efforts of skilled attorneys with substantial

experience in complex actions such as this. The attorneys of Levi & Korsinsky, LLP (“LK”) and

Sarraf Gentile LLP (“Sarraf”) have extensive experience in New York courtrooms as trial

lawyers and a primary focus of these firms is complex litigation.7 The lawyers of Vianale &

Vianale LLP (“Vianale”) similarly have a long track record of successfully prosecuting

shareholder and securities actions such as this.8 All firms have a long history of successfully

prosecuting complex derivative and class actions and have receiving numerous judicial plaudits

7 See firm resumes of Levi & Korsinsky and Sarraf Gentile (Hopkins Aff., Exs. A.1, B.1). 8 See firm resume of Vianale & Vianale (Hopkins Aff., Ex. C.1).


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for the results they have achieved. The experience and ability necessary to favorably resolve this

complex litigation—against highly regarded opposing counsel who vigorously defended the

case—was instrumental in achieving the relief set forth in the Stipulation.

In successfully litigating and resolving the Derivative Actions, Plaintiffs’ counsel

collectively spent 200.65 hours for a total lodestar of $121,693.75 and incurred $1,756.70 in

unreimbursed expenses. (Hopkins Decl., ¶ 19.) The $55,000 agreed-upon fee represents a

negative multiplier of 2.21. (Id.) Plaintiffs’ counsel efficiently managed this complex case,

skillfully performing all the work done over the course of investigating and prosecuting the

claims in the Action, without over-burdening the Court. The efforts of Plaintiffs’ counsel

included, inter alia: (i) thoroughly investigating and researching the facts and law; (ii) reviewing

and analyzing the Company’s public filings; (iii) preparing the complaint; (iv) researching

corporate governance issues; (v) conducting several meetings with counsel for the Company; and

(vi) negotiating the Settlement.

The skill and efficient efforts of Plaintiffs’ counsel in prosecuting and settling the Action

supports approval of the requested Fee Award.

c. The Complexity and Difficulty of the Action Supports the Fee Award

As discussed above, derivative litigation such as this “is notoriously difficult and

unpredictable” and such actions face substantial hurdles. Granada Invs., Inc. v. DWG Corp., 962

F.2d 1203, 1205 (6th Cir. 1992); Spear v. Conway, 800 N.Y.S.2d 357 (N.Y. Sup. 2003). There

were substantial and novel risks regarding the further prosecution of the Action, and these risks

were difficult to account for. Plaintiff’s counsel chose to confront these risks by investing their

time and resources to prosecute the Action on ABAT’s behalf, and saw it through to a favorable

resolution.

Accordingly, this factor supports approval of the Fee Award.


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d. The Contingent Nature of Representation Supports the Fee Award

Courts have long recognized that, in reviewing fee agreements, compensation being

contingent upon recovery should be considered as a matter of fairness. As the Second Circuit in

its seminal Grinnell opinion stated, the “contingent risk of litigation” is an important factor to be

considered in making an appropriate fee award, because “[n]o one expects a lawyer whose

compensation is contingent upon his success to charge, when successful, as little as he would

charge a client who in advance had agreed to pay for his services, regardless of his success.”

Grinnell, 495 F.2d 448. Moreover, as the court in McKittrick v. Gardner, 378 F.2d 872, 875 (4th

Cir. 1967) explained, “[t]he effective lawyer will not win all of his cases, and any determination

of the reasonableness of his fees in those cases in which his client prevails must take account of

the lawyer’s risk of receiving nothing for his services.”

Here, Plaintiff’s counsel undertook prosecution of this complex matter on a wholly

contingent basis. Without any assurance of remuneration, Plaintiff’s counsel invested their

professional time, but thus far have received no compensation for any of the work they

performed, or in recognition of the substantial benefits ABAT and its shareholders received as

the result of their efforts.

The risk of non-payment in contingent-fee stockholder litigation is quite real. For

example, in the infamous (at least for stockholder plaintiffs) Disney action, the last executive

compensation case that went to trial, plaintiff’s counsel devoted thousands of hours, and incurred

millions of dollars in expenses, only to see judgment entered against them on all claims, and

affirmed on appeal. Id., 907 A.2d at 693, aff’d, 906 A.2d at 27. The opinions of the Delaware

Courts are replete with stockholder actions dismissed outright on motion practice, or ultimately


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ending in post-trial defeat,9 with no fee awarded in such cases. Thus, while Plaintiff’s counsel

succeeded in obtaining an excellent result for ABAT and its shareholders, it cannot be disputed

that they incurred substantial risk that the Derivative Actions would be unsuccessful and their

efforts go uncompensated. The Fee Award appropriately reflects the risk of expending

substantial time and effort, but receiving nothing. Given the substantial benefits achieved, risks

inherent in the Action, applicable precedent and the contingent nature of the undertaking, the

requested Fee Award should be approved.

C. The Court Should Approve Plaintiffs’ Case Contribution Award

The Court should authorize payment to each of the two Plaintiffs of $500 in recognition

of their effort and contribution to the Derivative Actions. Plaintiffs devoted time and energy to

the case, conferred with counsel regarding case strategy, and reviewed the terms of the

Settlement. In light of their contribution, such an award is reasonable and supported by the legal

precedent. See Dornberger v. Metro. Life Ins. Co., 203 F.R.D. 118, 125 (S.D.N.Y. 2001) (noting

court approved payments of between $2,500 and $85,000 to representative plaintiffs); Cook v.

Niedert, 142 F.3d 1004, 1016 (7th Cir. 1998) (approving $25,000 class representative award).

The requested payments are further supported by the fact that they will be made from any

attorneys’ fees approved by the Court. See In re Presidential Life Securities, 857 F. Supp. 331,

337 (S.D.N.Y. 1994) (awarding $2,000 to each of five class plaintiffs noting that such awards

“need not be subjected to intense scrutiny inasmuch as these funds will come out of the

attorney’s fees awarded to plaintiffs’ counsel”). The Notice to ABAT shareholders stated that the

Settlement will provide for a $500 payment to Plaintiffs. No shareholder has opposed these

payments.

9 See, e.g., Emerald Partners v. Berlin, 787 A.2d 85 (Del. 2001) (judgment for defendants on all claims after two trials).


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IV. CONCLUSION

For the foregoing reasons, the Court should grant final approval of the Settlement,

approve the fee and expense request, and approve the case contribution award to Plaintiffs.

Dated: New York, New York November 22, 2013

Respectfully submitted, LEVI & KORSINSKY, LLP /s/ Shannon L. Hopkins Shannon L. Hopkins 30 Broad Street, 24th Floor New York, New York 10004 Tel: (212) 363-7500 Fax: (212) 363-7171 E-mail: [email protected] Counsel for Plaintiff


abat corporate governance reforms+ memorandum of law in support of plaintiff’s motion for final ...

Documents

requested fee award

award of attorneys fees

support of plaintiffs

case contribution awardcase

table of contents contents

procedural background

lack of objections

cost of continued litigation