Preview
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NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
)
ERIE COUNTY EMPLOYEES’ RETIREMENT ) Index No. 656462/2019
SYSTEM, Individually and on Behalf of All )
Others Similarly Situated, ) (Borrok, J.)
)
Plaintiff, ) Part 53
)
vs. Motion Sequence No. 6
)
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NN, INC., RICHARD D. HOLDER, THOMAS
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C. BURWELL, JR., ROBERT E. BRUNNER,
)
WILLIAM DRIES, DAVID K. FLOYD, DAVID
)
L. PUGH, STEVEN T. WARSHAW, J.P.
)
MORGAN SECURITIES LLC, ROBERT W.
)
BAIRD & CO. INCORPORATED, KEYBANC
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CAPITAL MARKETS INC., SUNTRUST
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ROBINSON HUMPHREY, INC., LAKE
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STREET CAPITAL MARKETS, LLC,
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STEPHENS INC., WILLIAM BLAIR &
)
COMPANY, L.L.C., CJS SECURITIES, INC.,
)
and REGIONS SECURITIES LLC,
)
Defendants. )
)
[REFILED] AFFIRMATION OF DEBORAH CLARK-WEINTRAUB IN SUPPORT OF
MOTION FOR FINAL APPROVAL OF THE SETTLEMENT AND PLAN OF
ALLOCATION, AND AWARD OF ATTORNEYS’ FEES AND EXPENSES TO
PLAINTIFF’S COUNSEL AND SERVICE AWARD TO PLAINTIFF
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I, DEBORAH CLARK-WEINTRAUB, hereby affirm as follows:
1. I am an attorney duly licensed to practice law in the State of New York and am a
partner of the law firm Scott+Scott Attorneys at Law LLP (“Scott+Scott”). Scott+Scott serves as
counsel (“Plaintiff’s Counsel”) for Plaintiff Erie County Employees’ Retirement System (“Erie
County” or “Plaintiff”), in the above-captioned action (the “Action”). 1 I am familiar with the
proceedings in this Action and have personal knowledge of the matters set forth herein based upon
my firm’s and my own participation in this Action. If called as a witness, I could and would testify
competently thereto.
2. I submit this affirmation pursuant to CPLR Article 9 in support of the
accompanying Motion for Final Approval of the Settlement and Plan of Allocation, and Award of
Attorneys’ Fees and Expenses to Plaintiff’s Counsel and Service Award to Plaintiff. The purpose
of this affirmation is to set forth the reasons Plaintiff and Plaintiff’s Counsel believe: (i) the
Settlement is fair, reasonable, and adequate and should be approved by this Court; (ii) the proposed
Plan of Allocation is fair and reasonable and should be approved; and (iii) the requested attorneys’
fees and expenses and service award to Plaintiff should be granted.
3. This is the first request the parties have made for Final Approval of the parties’
proposed Settlement of this Action.
4. On July 25, 2022, the parties requested Preliminary Approval of the parties’
proposed Settlement. On September 1, 2022, the Court issued an Order Preliminarily Approving
the Settlement and Providing for Notice and setting a Settlement Fairness Hearing for December
1, 2022, at 2:00 p.m.
1
Capitalized terms not otherwise defined herein have the meanings given to them in the
Stipulation of Settlement (“Stipulation”), filed with this Court on July 25, 2022. NYSCEF No.
116.
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I. INTRODUCTION
5. After over two and a half years of hard-fought litigation, Plaintiff and Plaintiff’s
Counsel have succeeded in obtaining a substantial recovery for the Settlement Class of $9,500,000
in cash.
6. Plaintiff and Plaintiff’s Counsel respectfully submit that this is an outstanding
result. As explained herein and in the accompanying memorandum, despite significant litigation
risk, Plaintiff and its Counsel have achieved an above-average recovery of investor losses for a
case of this type based on objective data. Assuming Plaintiff “ran the table” on all liability issues
at trial and any subsequent appeal, Plaintiff’s expert estimated that maximum theoretically
recoverable statutory damages applying the damages formula in Section 11(e) of the Securities
Act were approximately $93 million, but that reasonably recoverable damages were closer to $47.6
million, and perhaps less, based on Defendants’ likely negative causation arguments. Accordingly,
the $9,500,000 Settlement represents the recovery, in a complex and high-risk case, of
approximately 10% of the maximum theoretically recoverable statutory damages and 20% of
Plaintiff’s best estimate of reasonably recoverable damages. This compares very favorably to
settlements in other securities class action cases. For example, NERA Economic Consulting’s
most recent annual survey of trends and recoveries in securities class action litigation reported that
from December 2012 to December 2021, the median settlement value as a percentage of NERA-
defined investor losses2 was 5.2% and 4.2% in securities class-action cases with NERA-defined
investor losses of $20 million to $49 million and $50 million to $99 million, respectively. See J.
McIntosh & S. Starykh, Recent Trends in Securities Class Action Litigation: 2021 Full-Year
2
NERA-Defined Investor Losses is a proprietary variable constructed by NERA assuming
that investors had invested in stocks during the class period whose performance was comparable
to that of the S&P 500 Index.
2
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Review, NERA ECONOMIC CONSULTING, at 23 (Jan. 25, 2022)
(https://www.nera.com/content/dam/nera/publications/2022/PUB_2021_Full-Year_Trends_0120
22.pdf). The total Settlement Amount also represents an above-average recovery in absolute
terms. See Laarni T. Bulan & Laura E. Simmons, Securities Class Action Settlements 2021 Review
and Analysis, CORNERSTONE RESEARCH, at 7 (listing $8.9 million as the median Securities
Act settlement from 2012 through 2021) (https://www.cornerstone.com/wp-
content/uploads/2022/03/Securities-Class-Action-Settlements-2021-Review-and-Analysis.pdf).
7. Importantly, at the time the Settlement was agreed to, Plaintiff and its Counsel had
a clear understanding of the strengths and weaknesses of the claims and the defenses thereto. By
the time the Settlement was reached, Plaintiff’s motion for class certification was fully briefed and
scheduled to be heard, the Appellate Division, First Department had denied Defendants’ appeal of
this Court’s Decision and Order denying Defendants’ motion to dismiss, merits discovery was
complete, and the Parties had retained and designated testifying experts.
8. The Settlement was accomplished through hard-fought and extensive arm’s-length
settlement discussions facilitated by a highly skilled and experienced mediator, Gregory P.
Lindstrom, Esq. of Phillips ADR. After exchanging mediation statements, the Parties and NN
Inc.’s D&O carriers attended a mediation via video conference on March 29, 2022, but did not
reach agreement. Thereafter, Mr. Lindstrom continued to engage with the Parties as merits
discovery proceeded. Following the First Department’s ruling and the completion of merits
discovery, Mr. Lindstrom made a mediator’s proposal that the Action be settled for a non-recourse
cash payment of $9,500,000, which the Parties accepted.
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9. The Settlement has the full support of Plaintiff. Erie County Aff., ¶8. 3
10. Pursuant to the Order Preliminarily Approving Settlement and Providing for Notice
(“Preliminary Approval Order”), dated September 1, 2022 (NYSCEF No. 119), the Notice and the
Proof of Claim form (the “Notice Packet”) were mailed to potential Settlement Class Members
who could be identified with reasonable effort; the Notice Packet was posted on the Internet at
www.NNIncSecuritiesLitigation.com; and the Summary Notice was published once over a
national newswire service. See Affirmation of Justin R. Hughes Regarding Notice Dissemination,
Publication, and Requests for Exclusion Received to Date (“Hughes Aff.”), submitted herewith.
11. The Court-ordered deadline for filing objections to the Settlement or requesting
exclusion from the Settlement Class is November 15, 2022. To date, no objections to any aspect
of the Settlement have been filed by Settlement Class Members nor have any Settlement Class
Members requested exclusion from the Settlement Class. 4
12. For all of the reasons set forth herein, and in light of the excellent result obtained,
notwithstanding the significant risks of the litigation detailed below, Plaintiff and Plaintiff’s
Counsel respectfully submit that the proposed Settlement is fair, reasonable, and adequate in all
respects and that the Court should grant final approval.
13. In addition to seeking final approval of the Settlement, Plaintiff also seeks approval
of the proposed Plan of Allocation, which is consistent with allocation plans that courts have
approved in similar cases. The Plan of Allocation was developed by Plaintiff’s expert Scott D.
3
“Erie County Aff.” refers to the Affirmation of Dr. Kyle Foust on behalf of Erie County
Employees’ Retirement System in Support of Motions for: (1) Final Settlement Approval; (2)
Attorneys’ Fees and Payment of Litigation Expenses; and (3) Plaintiff’s Service Award, dated
November 1, 2022, submitted herewith.
4
Plaintiff will address any objection(s) and/or request(s) for exclusion in its Reply Brief In
Support of Final Approval of the Settlement to be filed by November 23, 2022.
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Hakala of ValueScope, Inc. and provides for the fair and equitable distribution of the Net
Settlement Fund to Settlement Class Members who submit valid Claim Forms and, therefore, is
fair and reasonable.
14. Plaintiff’s Counsel seek an award of attorneys’ fees of 33 and 1/3% of the
Settlement Amount (or $3,166,666.67) and payment of their litigation expenses for costs necessary
to prosecute the Action totaling $170,217.76 with interest on both amounts earned at the same rate
earned on the Settlement Fund. See accompanying Affirmation of Daryl F. Scott Filed on Behalf
of Scott+Scott Attorneys at Law LLP in Support of Application for Award of Attorneys’ Fees and
Expenses (“Scott+Scott Aff.”), ¶5. As discussed below, Plaintiff’s Counsel’s requested fees
amount to a modest 1.1 multiple of Plaintiff’s Counsel’s “lodestar” (i.e., Plaintiff’s Counsel’s
hourly rates multiplied by the hours spent on prosecuting and settling this Action). Id. Plaintiff’s
Counsel respectfully submits that the requested fee is fair and reasonable given the excellent result
obtained here and the extensive work performed by Plaintiff’s Counsel. As set forth in the
accompanying Memorandum, it is also consistent with awards in similar securities class action
cases under both the percentage and lodestar methodologies. Memorandum of Law in Support of
Motion for Final Approval of Settlement and Plan of Allocation and Award of Attorneys’ Fees
and Expenses to Plaintiff’s Counsel and Service Award to Plaintiff (“Memo.”) at §§IV.A, IV.B.
Again, Plaintiff supports this request.
15. In addition, Plaintiff requests an award in the amount of $15,000 for its time and
expenses representing and serving the best interests of the Settlement Class, an amount within the
range typically granted to plaintiffs in securities and other similar class actions. Memo. at §IV.D.
II. BACKGROUND
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A. NN & the SPO
16. This is an action for violation of Sections 11, 12(a)(2), and 15 of the Securities Act
of 1933 arising out of alleged material, untrue statements, and omissions in the Registration
Statement and Prospectus (the “Offering Documents”) issued in connection with NN, Inc.’s (“NN”
or the “Company”) September 14, 2018 secondary public offering (the “Offering” or “SPO”). NN
sold 14.375 million shares in the SPO at a price of $16 per share for gross proceeds of $230 million
to repay a $200 million second-lien credit facility that had been utilized to acquire Paragon Medical
(“Paragon”) in May 2018, a portion of the more than $1 billion in debt NN had accumulated in
completing several strategic acquisitions between 2014 and 2018. Following these acquisitions,
NN reorganized itself into three business segments focused on discreet end markets – Mobile
Solutions (general industrial and automotive), Life Sciences (medical), and Power Solutions
(electrical, aerospace, and defense). ¶¶3, 35-36, 40. 5
17. The Action, which was filed on November 1, 2019, alleged that the stated goal of
the acquisitions and the reorganization was to diversify NN’s business away from its focus on the
cyclical automotive end market and transform the Company into a global diversified industrial
business that was less vulnerable to a downturn in any one geographic or product market and
accelerate growth by creating multiple revenue streams across a global series of end markets. Id.
Plaintiff alleged that the Offering Documents for the SPO touted this purported transformation,
describing the Company as a “diversified industrial business with a comprehensive geographic
footprint in attractive high-growth market segments” that possessed a “[l]ong-term blue-chip
customer base” of predominantly non-retail customers that “limit[ed] volatility” and “provide[d]
enhanced sales visibility.” ¶¶59-61. Additionally, Plaintiff alleged that the Offering Documents
5
All “¶_” and “¶¶__” references are to the Amended Complaint for Violations of the
Securities Act of 1933 (“Amended Complaint”) (Jan. 24, 2020), attached hereto as Exhibit 1.
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emphasized NN’s “significant exposure to emerging markets in Asia” with “significant growth
potential” and assured investors that “[t]he diverse nature, size and reach of [its] customer base
[has] provide[d] resistance to localized market and geographic fluctuations and help[ed] stabilize[]
overall product demand.” ¶¶60-61.
18. Plaintiff alleged that in fact, NN’s revenue remained volatile, unpredictable, and
sensitive to changes in individual geographic and product markets in particular, China’s
automotive market. ¶6. Specifically, Plaintiff alleged that NN’s Mobile Solutions business
segment, which accounted for 40% of the Company’s revenue, was being adversely impacted by
a downturn in China’s automotive market, including due to increased regulation of the peer-to-
peer (“P2P”) lending that had helped fuel the spectacular growth in auto sales in that country.
¶¶42, 45-50. Additionally, Plaintiff alleged that at the same time, Power Solutions’ earnings were
also stagnating throughout 2018 due to a loss of orders from two large customers. ¶¶6, 55. Plaintiff
alleged that by the time of the SPO, which occurred just two weeks before the end of the third
quarter of 2018, these undisclosed events were already adversely impacting NN’s financial results.
¶7.
19. The SPO closed on September 18, 2018, just 12 days before the end of NN’s third
quarter. ¶57. Shortly thereafter, on November 7, 2018, the Company revealed deeply
disappointing revenue and adjusted earnings per share, both below analysts’ consensus
expectations and at the low-end of the Company’s own guidance range, driven by lower-than-
expected sales in Mobile and Power Solutions. ¶69. NN also lowered its full year 2018 guidance
for every financial metric, including revenue, adjusted operating margin, adjusted EBITDA
margin, adjusted diluted EPS, and free cash flow (“FCF”). Id.
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20. On the next trading day, November 8, 2018, NN’s stock price fell sharply, closing
at $8.07 per share, a 35% drop against the closing price from the previous day before the
disappointing earnings were released. ¶73.
B. Procedural History
1. Plaintiff’s Pre-Filing Investigation and Preparation of the Complaints
21. Plaintiff’s Counsel undertook an extensive investigation before filing the initial
complaint and the Amended Complaint that included a review of U.S. Securities and Exchange
Commission (“SEC”) filings made by NN, analyst and media reports about the Company, and
Company press releases. In addition, Plaintiff’s Counsel conducted research with respect to
China’s automotive market, including relevant trends in monthly production and sales, and factors
influencing these metrics, including recent developments with respect to the country’s P2P lending
platforms. Further, Plaintiff’s Counsel identified, located, and interviewed persons having
knowledge of the Company’s operations.
22. Plaintiff’s Counsel also reviewed and researched the relevant legal precedents
concerning Plaintiff’s claims. All of the foregoing culminated in Plaintiff’s filing of the initial
complaint on November 1, 2019, and then an even more detailed operative Amended Complaint
on January 24, 2020. See NYSCEF Nos. 7, 18.
2. Plaintiff Successfully Opposed Defendants’ Motion to Dismiss
23. On May 4, 2020, Defendants filed a motion to dismiss the Amended Complaint
arguing, among other things, that Plaintiff had failed to state a claim for relief because (i) the
Offering Documents had warned of the very risks Plaintiff claimed had materialized; (ii) the
alleged untrue statements and omissions were not actionable; (iii) Plaintiff failed to allege
sufficient facts to establish that it purchased NN shares from any Defendant in the Offering and,
therefore, lacked standing to assert a claim under Section 12(a)(2) of the Securities Act; (iv)
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Plaintiff failed to allege loss causation; (v) Plaintiff failed to allege that Defendants had an
affirmative duty to disclose under Items 105 and 303 of Regulation S-K; and (vi) Plaintiff could
not assert control person liability under Section 15 of the Securities Act against any Defendant
because its underlying Section 11 and 12(a)(2) claims failed. NYSCEF Nos. 20-30. In addition,
notwithstanding earlier decisions of this Court rejecting the argument, Defendants also argued that
the Securities Act claims pled in the Amended Complaint were subject to the heightened pleading
standard of CPLR 3016(b).
24. On May 22, 2020, Plaintiff filed an opposition to the motion to dismiss. NYSCEF
No. 31. As an initial matter, citing prior decisions of this Court, Plaintiff responded that the
Securities Act claims at issue in the Action were subject to notice pleading because they were
based on an alleged breach of duty. In addition, Plaintiff argued that NN had a clear duty to
disclose the omitted facts with respect to Mobile and Power Solutions’ businesses because
Defendants had chosen to speak with respect to these topics and the Offering Documents were
materially misleading absent disclosure. Plaintiff further argued that the market reaction in
response to disclosure of the omitted information was persuasive evidence of its materiality and
contradicted Defendants’ arguments that the alleged untrue statements and omissions were
puffery, inactionable opinions, or protected by the PSLRA safe harbor. Plaintiff also argued that
the risk warnings in the Offering Documents cited by Defendants were themselves false and
misleading because the relevant risks had already occurred. Further, Plaintiff argued that
Defendants had an independent duty to disclose the downturn in China’s automotive market and
the loss of orders from Power Solutions customers under Items 105 and 303 of Regulation S-K
because they were known uncertainties that existed at the time of the SPO. Plaintiff also argued
that it had no duty to plead or prove loss causation with respect to the Securities Act claims asserted
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and that it had sufficiently alleged the Defendants were statutory sellers under Section 12(a)(2).
Finally, Plaintiff argued that it had adequately alleged control person liability under Section 15,
having properly pleaded violations of Sections 11 and 12(a)(2). However, in the event the Court
agreed that the Action should be dismissed, Plaintiff requested leave to amend pursuant to CPLR
3025(b).
25. Defendants filed a reply in support of their motion to dismiss on June 22, 2020,
reiterating the arguments made in their opening brief. NYSCEF No. 32.
26. On May 14, 2021, the Court denied Defendants’ motion to dismiss in its entirety
holding that (i) the heightened pleading standard of CPLR 3016(b) did not apply, but even if it did,
the Amended Complaint satisfied that standard; (ii) there was “no question” Defendants had a duty
to disclose the omitted facts concerning the Mobile and Power Solutions businesses because
Defendants’ affirmative statements on these topics had triggered a duty to disclose the “whole
truth” with respect to these issues; (iii) the alleged misstatements were not immaterial puffery; (iv)
the Offering Documents’ risk disclosures were generic in nature and did not warn investors of the
risks Plaintiff claimed materialized; (v) the Amended Complaint adequately alleged that
Defendants were statutory sellers of the common stock sold in the SPO; and (vi) Plaintiff
adequately alleged control person liability because the Amended Complaint alleged primary
violations of the Securities Act. NYSCEF No. 41.
3. Plaintiff Successfully Opposed Defendants’ Appeal of This Court’s
Decision and Order
27. Thereafter, on June 9, 2021, Defendants filed a notice of appeal in the First
Department (NYSCEF No. 45) and perfected the appeal from this Court’s Decision and Order on
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September 7, 2021 (App.-Div. NYSCEF No. 7). 6 Defendants’ appellate brief continued to press
the argument that Plaintiff’s Securities Act claims were subject to CPLR 3016(b)’s heightened
pleading standard notwithstanding an intervening decision of the First Department which had held,
consistent with this Court’s prior rulings, that Securities Act claims were subject to notice
pleading. In addition, Defendants argued that this Court’s Decision and Order was erroneous
because it(i) relied on “unpled allegations” of knowledge with respect to the business issues
allegedly impacting Mobile and Power Solutions, (ii) treated inactionable puffery and forward-
looking statements as actionable misrepresentations of fact, (iii) misinterpreted SEC regulations,
(iv) relied on “conclusory” control person allegations, and (v) wrongly decided that the complaint
had adequately alleged that Plaintiff purchased securities in the SPO from Defendants.
28. On October 6, 2021, Plaintiff filed a brief in response to Defendants’ appeal. App.-
Div. NYSCEF No. 8. As an initial matter, Plaintiff argued that the First Department had already
held that CPLR 3016(b)’s heightened pleading standard did not apply to the Securities Act claims
in the Action because fraud was not an element of the claims, and Defendants had presented no
compelling circumstances to depart from that ruling. In addition, Plaintiff argued that the alleged
omissions concerning Mobile and Power Solutions’ businesses were material and required to be
disclosed in order to make the statements in the Offering Documents not misleading. Addressing
Defendants’ contention that this Court had relied on unpled allegations of knowledge, Plaintiff
argued that it was not required to plead knowledge on the part of Defendants, only the existence
of the undisclosed facts at the time of the SPO, which it had, and that even if required, Defendants’
knowledge of the undisclosed facts could be inferred from the surrounding circumstances.
6
All references to “App.-Div. NYSCEF No. _” are to filings on the Appellate Division
docket for this case, Case No. 2021-02102.
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Plaintiff also argued that the alleged misstatements were not puffery or protected forward-looking
statements and that the risk warnings cited by Defendants did not adequately apprise investors of
the omitted events adversely impacting Mobile and Power Solutions at the time of the SPO.
Further, Plaintiff argued that this Court had correctly interpreted Items 105 and 303 in holding that
the Offering Documents omitted disclosures required by these provisions. Finally, Plaintiff argued
that this Court had correctly concluded that the Amended Complaint adequately alleged Section
12(a)(2) claims and control person liability.
29. On November 12, 2021, Defendants filed a reply in support of their appeal,
repeating the arguments in their opening brief. App.-Div. NYSCEF No. 12.
30. The First Department heard oral argument on Defendants’ appeal on May 10, 2022.
On May 31, 2022, the First Department issued an order unanimously affirming this Court’s
Decision and Order denying Defendants’ motion to dismiss. App.-Div. NYSCEF No. 22.
31. Following this Court’s denial of Defendant’s motion to dismiss, on June 17, 2021,
Defendants filed answers denying the allegations in the Amended Complaint and asserting, in the
aggregate, 70 affirmative defenses. NYSCEF Nos. 53-54.
4. Plaintiff Completed Merits Discovery
32. On July 9, 2021, Plaintiff served its First Request for Production of Documents to
the NN Defendants and its First Request for Production of Documents to the Underwriter
Defendants. Defendants served their responses and objections on July 30, 2021. Thereafter, the
Parties negotiated search terms and custodians to be used to locate responsive electronically stored
documents, as well as a Confidentiality Stipulation and Protective Order and ESI Protocol.
Collectively, Defendants produced approximately 34,000 documents (totaling approximately
170,000 pages) in response to Plaintiff’s initial and later follow-on requests for production.
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33. Defendants also served initial requests for production on Plaintiff and Plaintiff filed
responses and objections thereto on July 30, 2021. Plaintiff’s Counsel identified and collected
responsive documents using search terms and custodians agreed to by the Parties. In total, Plaintiff
produced 61 documents (totaling over 3,300 pages) in response to Defendants’ requests for
production.
34. After conducting a thorough review of Defendants’ production, between May 4,
2022 and June 15, 2022, Plaintiff deposed nine current and former NN officers, directors, and
employees, including Defendants Richard D. Holder, NN’s former CEO, Thomas Burwell, NN’s
former CFO, and Robert E. Brunner, the Chairman of NN’s Board of Directors at the time of the
SPO. Plaintiff also deposed a representative from J.P. Morgan Securities LLC (“JPM”), the lead
underwriter of the SPO.
35. Plaintiff’s representative, Dr. Kyle Foust, the Erie County, Pennsylvania controller
responsible for the administration of the Erie County Employees’ Retirement System, was deposed
by Defendants on January 20, 2022.
36. On May 12, 2022, Plaintiff served its First Set of Interrogatories on Defendants.
Defendants served Responses and Objections on June 1, 2022. On May 18, 2022, Defendants
served their First Set of Interrogatories on Plaintiff. Plaintiff served its Responses and Objections
thereto on May 7, 2022.
37. The documents and depositions discussed above provided Plaintiff and Plaintiff’s
Counsel with a strong foundation from which to assess the risks and strengths of the claims.
5. Plaintiff’s Contested Motion for Class Certification
38. On November 15, 2021, Plaintiff filed its Motion for Class Certification, arguing
that the Action’s strict liability claims under the Securities Act easily satisfied the prerequisites for
class certification under CPLR §§901 and 902. NYSCEF No. 64. On February 7, 2022,
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Defendants opposed the motion arguing that (i) the proposed Class definition improperly included
persons who suffered no damages because it did not contain a temporal limitation tied to corrective
disclosures; (ii) Plaintiff was atypical because its investment advisers had complete authority to
make investment decisions on its behalf; (iii) Plaintiff was subject to a unique defense because it
did not purchase NN stock directly from any Defendant and, therefore, did not have standing to
bring a claim under Section 12(a)(2); and (iv) Plaintiff was an inadequate class representative
because “it [was] little more than a figurehead” and had a portfolio monitoring agreement with
Plaintiff’s Counsel. NYSCEF No. 72.
39. On April 15, 2022, Plaintiff filed its Reply Brief in further support of its motion
for class certification. NYSCEF No. 82. Plaintiff argued that the proposed Class definition was
standard in Securities Act cases and that Defendants’ demand for a temporal limitation tied to
corrective disclosures was contrary to the statutory damages formula contained in Section 11(e),
which presumes that any diminution in the value of an offered security between the offering date
and the date a Section 11 case is filed resulted from the alleged untrue statements and omissions,
subject to a defendants’ heavy burden to show negative causation. See Akerman v. Oryx Commc’ns
Inc., 810 F.2d 336, 341 (2d Cir. 1987). In addition, Plaintiff strenuously rejected Defendants’
attack on its typicality, arguing that pension funds routinely rely on outside investment advisers to
make investment decisions but are nonetheless routinely appointed as class representatives in
securities class action cases such as this. Further, Plaintiff demonstrated that discovery had
substantiated that it purchased shares in the SPO directly from lead underwriter JPM at the SPO
price without paying a commission. Finally, Plaintiff argued that it was an adequate class
representative as demonstrated by its high level of involvement in the Action and that courts have
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routinely rejected the contention that a portfolio monitoring agreement with counsel renders
institutional investors like Plaintiff inadequate to serve as a class representative.
40. Plaintiff’s motion for class certification was scheduled for oral argument on August
9, 2022.
6. Plaintiff Participated in Arm’s Length Mediation Culminating in the
Proposed Settlement
41. Following the completion of briefing in the First Department, the Parties agreed
that it would be productive to engage a mediator to explore the possibility of reaching a negotiated
resolution of the Action. To that end, in February 2022, the Parties engaged Mr. Lindstrom, a
nationally recognized mediator who has successfully mediated numerous securities class action
cases.
42. The parties exchanged detailed opening and reply mediation statements (and
voluminous exhibits thereto) in advance of the mediation highlighting the factual and legal issues
in dispute. In advance of the mediation, Plaintiff’s Counsel also consulted extensively with their
expert, Mr. Hakala, to critically evaluate estimated recoverable damages and to test anticipated
assertions by Defendants regarding the same.
43. On March 29, 2022, the parties attended a formal mediation
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FILED: NEW YORK COUNTY CLERK 11/01/2022 02:09 PM INDEX NO. 656462/2019 NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ) ERIE COUNTY EMPLOYEES’ RETIREMENT ) Index No. 656462/2019 SYSTEM, Individually and on Behalf of All ) Others Similarly Situated, ) (Borrok, J.) ) Plaintiff, ) Part 53 ) vs. Motion Sequence No. 6 ) ) NN, INC., RICHARD D. HOLDER, THOMAS ) C. BURWELL, JR., ROBERT E. BRUNNER, ) WILLIAM DRIES, DAVID K. FLOYD, DAVID ) L. PUGH, STEVEN T. WARSHAW, J.P. ) MORGAN SECURITIES LLC, ROBERT W. ) BAIRD & CO. INCORPORATED, KEYBANC ) CAPITAL MARKETS INC., SUNTRUST ) ROBINSON HUMPHREY, INC., LAKE ) STREET CAPITAL MARKETS, LLC, ) STEPHENS INC., WILLIAM BLAIR & ) COMPANY, L.L.C., CJS SECURITIES, INC., ) and REGIONS SECURITIES LLC, ) Defendants. ) ) [REFILED] AFFIRMATION OF DEBORAH CLARK-WEINTRAUB IN SUPPORT OF MOTION FOR FINAL APPROVAL OF THE SETTLEMENT AND PLAN OF ALLOCATION, AND AWARD OF ATTORNEYS’ FEES AND EXPENSES TO PLAINTIFF’S COUNSEL AND SERVICE AWARD TO PLAINTIFF 1 of 31 FILED: NEW YORK COUNTY CLERK 11/01/2022 02:09 PM INDEX NO. 656462/2019 NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022 I, DEBORAH CLARK-WEINTRAUB, hereby affirm as follows: 1. I am an attorney duly licensed to practice law in the State of New York and am a partner of the law firm Scott+Scott Attorneys at Law LLP (“Scott+Scott”). Scott+Scott serves as counsel (“Plaintiff’s Counsel”) for Plaintiff Erie County Employees’ Retirement System (“Erie County” or “Plaintiff”), in the above-captioned action (the “Action”). 1 I am familiar with the proceedings in this Action and have personal knowledge of the matters set forth herein based upon my firm’s and my own participation in this Action. If called as a witness, I could and would testify competently thereto. 2. I submit this affirmation pursuant to CPLR Article 9 in support of the accompanying Motion for Final Approval of the Settlement and Plan of Allocation, and Award of Attorneys’ Fees and Expenses to Plaintiff’s Counsel and Service Award to Plaintiff. The purpose of this affirmation is to set forth the reasons Plaintiff and Plaintiff’s Counsel believe: (i) the Settlement is fair, reasonable, and adequate and should be approved by this Court; (ii) the proposed Plan of Allocation is fair and reasonable and should be approved; and (iii) the requested attorneys’ fees and expenses and service award to Plaintiff should be granted. 3. This is the first request the parties have made for Final Approval of the parties’ proposed Settlement of this Action. 4. On July 25, 2022, the parties requested Preliminary Approval of the parties’ proposed Settlement. On September 1, 2022, the Court issued an Order Preliminarily Approving the Settlement and Providing for Notice and setting a Settlement Fairness Hearing for December 1, 2022, at 2:00 p.m. 1 Capitalized terms not otherwise defined herein have the meanings given to them in the Stipulation of Settlement (“Stipulation”), filed with this Court on July 25, 2022. NYSCEF No. 116. 1 2 of 31 FILED: NEW YORK COUNTY CLERK 11/01/2022 02:09 PM INDEX NO. 656462/2019 NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022 I. INTRODUCTION 5. After over two and a half years of hard-fought litigation, Plaintiff and Plaintiff’s Counsel have succeeded in obtaining a substantial recovery for the Settlement Class of $9,500,000 in cash. 6. Plaintiff and Plaintiff’s Counsel respectfully submit that this is an outstanding result. As explained herein and in the accompanying memorandum, despite significant litigation risk, Plaintiff and its Counsel have achieved an above-average recovery of investor losses for a case of this type based on objective data. Assuming Plaintiff “ran the table” on all liability issues at trial and any subsequent appeal, Plaintiff’s expert estimated that maximum theoretically recoverable statutory damages applying the damages formula in Section 11(e) of the Securities Act were approximately $93 million, but that reasonably recoverable damages were closer to $47.6 million, and perhaps less, based on Defendants’ likely negative causation arguments. Accordingly, the $9,500,000 Settlement represents the recovery, in a complex and high-risk case, of approximately 10% of the maximum theoretically recoverable statutory damages and 20% of Plaintiff’s best estimate of reasonably recoverable damages. This compares very favorably to settlements in other securities class action cases. For example, NERA Economic Consulting’s most recent annual survey of trends and recoveries in securities class action litigation reported that from December 2012 to December 2021, the median settlement value as a percentage of NERA- defined investor losses2 was 5.2% and 4.2% in securities class-action cases with NERA-defined investor losses of $20 million to $49 million and $50 million to $99 million, respectively. See J. McIntosh & S. Starykh, Recent Trends in Securities Class Action Litigation: 2021 Full-Year 2 NERA-Defined Investor Losses is a proprietary variable constructed by NERA assuming that investors had invested in stocks during the class period whose performance was comparable to that of the S&P 500 Index. 2 3 of 31 FILED: NEW YORK COUNTY CLERK 11/01/2022 02:09 PM INDEX NO. 656462/2019 NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022 Review, NERA ECONOMIC CONSULTING, at 23 (Jan. 25, 2022) (https://www.nera.com/content/dam/nera/publications/2022/PUB_2021_Full-Year_Trends_0120 22.pdf). The total Settlement Amount also represents an above-average recovery in absolute terms. See Laarni T. Bulan & Laura E. Simmons, Securities Class Action Settlements 2021 Review and Analysis, CORNERSTONE RESEARCH, at 7 (listing $8.9 million as the median Securities Act settlement from 2012 through 2021) (https://www.cornerstone.com/wp- content/uploads/2022/03/Securities-Class-Action-Settlements-2021-Review-and-Analysis.pdf). 7. Importantly, at the time the Settlement was agreed to, Plaintiff and its Counsel had a clear understanding of the strengths and weaknesses of the claims and the defenses thereto. By the time the Settlement was reached, Plaintiff’s motion for class certification was fully briefed and scheduled to be heard, the Appellate Division, First Department had denied Defendants’ appeal of this Court’s Decision and Order denying Defendants’ motion to dismiss, merits discovery was complete, and the Parties had retained and designated testifying experts. 8. The Settlement was accomplished through hard-fought and extensive arm’s-length settlement discussions facilitated by a highly skilled and experienced mediator, Gregory P. Lindstrom, Esq. of Phillips ADR. After exchanging mediation statements, the Parties and NN Inc.’s D&O carriers attended a mediation via video conference on March 29, 2022, but did not reach agreement. Thereafter, Mr. Lindstrom continued to engage with the Parties as merits discovery proceeded. Following the First Department’s ruling and the completion of merits discovery, Mr. Lindstrom made a mediator’s proposal that the Action be settled for a non-recourse cash payment of $9,500,000, which the Parties accepted. 3 4 of 31 FILED: NEW YORK COUNTY CLERK 11/01/2022 02:09 PM INDEX NO. 656462/2019 NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022 9. The Settlement has the full support of Plaintiff. Erie County Aff., ¶8. 3 10. Pursuant to the Order Preliminarily Approving Settlement and Providing for Notice (“Preliminary Approval Order”), dated September 1, 2022 (NYSCEF No. 119), the Notice and the Proof of Claim form (the “Notice Packet”) were mailed to potential Settlement Class Members who could be identified with reasonable effort; the Notice Packet was posted on the Internet at www.NNIncSecuritiesLitigation.com; and the Summary Notice was published once over a national newswire service. See Affirmation of Justin R. Hughes Regarding Notice Dissemination, Publication, and Requests for Exclusion Received to Date (“Hughes Aff.”), submitted herewith. 11. The Court-ordered deadline for filing objections to the Settlement or requesting exclusion from the Settlement Class is November 15, 2022. To date, no objections to any aspect of the Settlement have been filed by Settlement Class Members nor have any Settlement Class Members requested exclusion from the Settlement Class. 4 12. For all of the reasons set forth herein, and in light of the excellent result obtained, notwithstanding the significant risks of the litigation detailed below, Plaintiff and Plaintiff’s Counsel respectfully submit that the proposed Settlement is fair, reasonable, and adequate in all respects and that the Court should grant final approval. 13. In addition to seeking final approval of the Settlement, Plaintiff also seeks approval of the proposed Plan of Allocation, which is consistent with allocation plans that courts have approved in similar cases. The Plan of Allocation was developed by Plaintiff’s expert Scott D. 3 “Erie County Aff.” refers to the Affirmation of Dr. Kyle Foust on behalf of Erie County Employees’ Retirement System in Support of Motions for: (1) Final Settlement Approval; (2) Attorneys’ Fees and Payment of Litigation Expenses; and (3) Plaintiff’s Service Award, dated November 1, 2022, submitted herewith. 4 Plaintiff will address any objection(s) and/or request(s) for exclusion in its Reply Brief In Support of Final Approval of the Settlement to be filed by November 23, 2022. 4 5 of 31 FILED: NEW YORK COUNTY CLERK 11/01/2022 02:09 PM INDEX NO. 656462/2019 NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022 Hakala of ValueScope, Inc. and provides for the fair and equitable distribution of the Net Settlement Fund to Settlement Class Members who submit valid Claim Forms and, therefore, is fair and reasonable. 14. Plaintiff’s Counsel seek an award of attorneys’ fees of 33 and 1/3% of the Settlement Amount (or $3,166,666.67) and payment of their litigation expenses for costs necessary to prosecute the Action totaling $170,217.76 with interest on both amounts earned at the same rate earned on the Settlement Fund. See accompanying Affirmation of Daryl F. Scott Filed on Behalf of Scott+Scott Attorneys at Law LLP in Support of Application for Award of Attorneys’ Fees and Expenses (“Scott+Scott Aff.”), ¶5. As discussed below, Plaintiff’s Counsel’s requested fees amount to a modest 1.1 multiple of Plaintiff’s Counsel’s “lodestar” (i.e., Plaintiff’s Counsel’s hourly rates multiplied by the hours spent on prosecuting and settling this Action). Id. Plaintiff’s Counsel respectfully submits that the requested fee is fair and reasonable given the excellent result obtained here and the extensive work performed by Plaintiff’s Counsel. As set forth in the accompanying Memorandum, it is also consistent with awards in similar securities class action cases under both the percentage and lodestar methodologies. Memorandum of Law in Support of Motion for Final Approval of Settlement and Plan of Allocation and Award of Attorneys’ Fees and Expenses to Plaintiff’s Counsel and Service Award to Plaintiff (“Memo.”) at §§IV.A, IV.B. Again, Plaintiff supports this request. 15. In addition, Plaintiff requests an award in the amount of $15,000 for its time and expenses representing and serving the best interests of the Settlement Class, an amount within the range typically granted to plaintiffs in securities and other similar class actions. Memo. at §IV.D. II. BACKGROUND 5 6 of 31 FILED: NEW YORK COUNTY CLERK 11/01/2022 02:09 PM INDEX NO. 656462/2019 NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022 A. NN & the SPO 16. This is an action for violation of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 arising out of alleged material, untrue statements, and omissions in the Registration Statement and Prospectus (the “Offering Documents”) issued in connection with NN, Inc.’s (“NN” or the “Company”) September 14, 2018 secondary public offering (the “Offering” or “SPO”). NN sold 14.375 million shares in the SPO at a price of $16 per share for gross proceeds of $230 million to repay a $200 million second-lien credit facility that had been utilized to acquire Paragon Medical (“Paragon”) in May 2018, a portion of the more than $1 billion in debt NN had accumulated in completing several strategic acquisitions between 2014 and 2018. Following these acquisitions, NN reorganized itself into three business segments focused on discreet end markets – Mobile Solutions (general industrial and automotive), Life Sciences (medical), and Power Solutions (electrical, aerospace, and defense). ¶¶3, 35-36, 40. 5 17. The Action, which was filed on November 1, 2019, alleged that the stated goal of the acquisitions and the reorganization was to diversify NN’s business away from its focus on the cyclical automotive end market and transform the Company into a global diversified industrial business that was less vulnerable to a downturn in any one geographic or product market and accelerate growth by creating multiple revenue streams across a global series of end markets. Id. Plaintiff alleged that the Offering Documents for the SPO touted this purported transformation, describing the Company as a “diversified industrial business with a comprehensive geographic footprint in attractive high-growth market segments” that possessed a “[l]ong-term blue-chip customer base” of predominantly non-retail customers that “limit[ed] volatility” and “provide[d] enhanced sales visibility.” ¶¶59-61. Additionally, Plaintiff alleged that the Offering Documents 5 All “¶_” and “¶¶__” references are to the Amended Complaint for Violations of the Securities Act of 1933 (“Amended Complaint”) (Jan. 24, 2020), attached hereto as Exhibit 1. 6 7 of 31 FILED: NEW YORK COUNTY CLERK 11/01/2022 02:09 PM INDEX NO. 656462/2019 NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022 emphasized NN’s “significant exposure to emerging markets in Asia” with “significant growth potential” and assured investors that “[t]he diverse nature, size and reach of [its] customer base [has] provide[d] resistance to localized market and geographic fluctuations and help[ed] stabilize[] overall product demand.” ¶¶60-61. 18. Plaintiff alleged that in fact, NN’s revenue remained volatile, unpredictable, and sensitive to changes in individual geographic and product markets in particular, China’s automotive market. ¶6. Specifically, Plaintiff alleged that NN’s Mobile Solutions business segment, which accounted for 40% of the Company’s revenue, was being adversely impacted by a downturn in China’s automotive market, including due to increased regulation of the peer-to- peer (“P2P”) lending that had helped fuel the spectacular growth in auto sales in that country. ¶¶42, 45-50. Additionally, Plaintiff alleged that at the same time, Power Solutions’ earnings were also stagnating throughout 2018 due to a loss of orders from two large customers. ¶¶6, 55. Plaintiff alleged that by the time of the SPO, which occurred just two weeks before the end of the third quarter of 2018, these undisclosed events were already adversely impacting NN’s financial results. ¶7. 19. The SPO closed on September 18, 2018, just 12 days before the end of NN’s third quarter. ¶57. Shortly thereafter, on November 7, 2018, the Company revealed deeply disappointing revenue and adjusted earnings per share, both below analysts’ consensus expectations and at the low-end of the Company’s own guidance range, driven by lower-than- expected sales in Mobile and Power Solutions. ¶69. NN also lowered its full year 2018 guidance for every financial metric, including revenue, adjusted operating margin, adjusted EBITDA margin, adjusted diluted EPS, and free cash flow (“FCF”). Id. 7 8 of 31 FILED: NEW YORK COUNTY CLERK 11/01/2022 02:09 PM INDEX NO. 656462/2019 NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022 20. On the next trading day, November 8, 2018, NN’s stock price fell sharply, closing at $8.07 per share, a 35% drop against the closing price from the previous day before the disappointing earnings were released. ¶73. B. Procedural History 1. Plaintiff’s Pre-Filing Investigation and Preparation of the Complaints 21. Plaintiff’s Counsel undertook an extensive investigation before filing the initial complaint and the Amended Complaint that included a review of U.S. Securities and Exchange Commission (“SEC”) filings made by NN, analyst and media reports about the Company, and Company press releases. In addition, Plaintiff’s Counsel conducted research with respect to China’s automotive market, including relevant trends in monthly production and sales, and factors influencing these metrics, including recent developments with respect to the country’s P2P lending platforms. Further, Plaintiff’s Counsel identified, located, and interviewed persons having knowledge of the Company’s operations. 22. Plaintiff’s Counsel also reviewed and researched the relevant legal precedents concerning Plaintiff’s claims. All of the foregoing culminated in Plaintiff’s filing of the initial complaint on November 1, 2019, and then an even more detailed operative Amended Complaint on January 24, 2020. See NYSCEF Nos. 7, 18. 2. Plaintiff Successfully Opposed Defendants’ Motion to Dismiss 23. On May 4, 2020, Defendants filed a motion to dismiss the Amended Complaint arguing, among other things, that Plaintiff had failed to state a claim for relief because (i) the Offering Documents had warned of the very risks Plaintiff claimed had materialized; (ii) the alleged untrue statements and omissions were not actionable; (iii) Plaintiff failed to allege sufficient facts to establish that it purchased NN shares from any Defendant in the Offering and, therefore, lacked standing to assert a claim under Section 12(a)(2) of the Securities Act; (iv) 8 9 of 31 FILED: NEW YORK COUNTY CLERK 11/01/2022 02:09 PM INDEX NO. 656462/2019 NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022 Plaintiff failed to allege loss causation; (v) Plaintiff failed to allege that Defendants had an affirmative duty to disclose under Items 105 and 303 of Regulation S-K; and (vi) Plaintiff could not assert control person liability under Section 15 of the Securities Act against any Defendant because its underlying Section 11 and 12(a)(2) claims failed. NYSCEF Nos. 20-30. In addition, notwithstanding earlier decisions of this Court rejecting the argument, Defendants also argued that the Securities Act claims pled in the Amended Complaint were subject to the heightened pleading standard of CPLR 3016(b). 24. On May 22, 2020, Plaintiff filed an opposition to the motion to dismiss. NYSCEF No. 31. As an initial matter, citing prior decisions of this Court, Plaintiff responded that the Securities Act claims at issue in the Action were subject to notice pleading because they were based on an alleged breach of duty. In addition, Plaintiff argued that NN had a clear duty to disclose the omitted facts with respect to Mobile and Power Solutions’ businesses because Defendants had chosen to speak with respect to these topics and the Offering Documents were materially misleading absent disclosure. Plaintiff further argued that the market reaction in response to disclosure of the omitted information was persuasive evidence of its materiality and contradicted Defendants’ arguments that the alleged untrue statements and omissions were puffery, inactionable opinions, or protected by the PSLRA safe harbor. Plaintiff also argued that the risk warnings in the Offering Documents cited by Defendants were themselves false and misleading because the relevant risks had already occurred. Further, Plaintiff argued that Defendants had an independent duty to disclose the downturn in China’s automotive market and the loss of orders from Power Solutions customers under Items 105 and 303 of Regulation S-K because they were known uncertainties that existed at the time of the SPO. Plaintiff also argued that it had no duty to plead or prove loss causation with respect to the Securities Act claims asserted 9 10 of 31 FILED: NEW YORK COUNTY CLERK 11/01/2022 02:09 PM INDEX NO. 656462/2019 NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022 and that it had sufficiently alleged the Defendants were statutory sellers under Section 12(a)(2). Finally, Plaintiff argued that it had adequately alleged control person liability under Section 15, having properly pleaded violations of Sections 11 and 12(a)(2). However, in the event the Court agreed that the Action should be dismissed, Plaintiff requested leave to amend pursuant to CPLR 3025(b). 25. Defendants filed a reply in support of their motion to dismiss on June 22, 2020, reiterating the arguments made in their opening brief. NYSCEF No. 32. 26. On May 14, 2021, the Court denied Defendants’ motion to dismiss in its entirety holding that (i) the heightened pleading standard of CPLR 3016(b) did not apply, but even if it did, the Amended Complaint satisfied that standard; (ii) there was “no question” Defendants had a duty to disclose the omitted facts concerning the Mobile and Power Solutions businesses because Defendants’ affirmative statements on these topics had triggered a duty to disclose the “whole truth” with respect to these issues; (iii) the alleged misstatements were not immaterial puffery; (iv) the Offering Documents’ risk disclosures were generic in nature and did not warn investors of the risks Plaintiff claimed materialized; (v) the Amended Complaint adequately alleged that Defendants were statutory sellers of the common stock sold in the SPO; and (vi) Plaintiff adequately alleged control person liability because the Amended Complaint alleged primary violations of the Securities Act. NYSCEF No. 41. 3. Plaintiff Successfully Opposed Defendants’ Appeal of This Court’s Decision and Order 27. Thereafter, on June 9, 2021, Defendants filed a notice of appeal in the First Department (NYSCEF No. 45) and perfected the appeal from this Court’s Decision and Order on 10 11 of 31 FILED: NEW YORK COUNTY CLERK 11/01/2022 02:09 PM INDEX NO. 656462/2019 NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022 September 7, 2021 (App.-Div. NYSCEF No. 7). 6 Defendants’ appellate brief continued to press the argument that Plaintiff’s Securities Act claims were subject to CPLR 3016(b)’s heightened pleading standard notwithstanding an intervening decision of the First Department which had held, consistent with this Court’s prior rulings, that Securities Act claims were subject to notice pleading. In addition, Defendants argued that this Court’s Decision and Order was erroneous because it(i) relied on “unpled allegations” of knowledge with respect to the business issues allegedly impacting Mobile and Power Solutions, (ii) treated inactionable puffery and forward- looking statements as actionable misrepresentations of fact, (iii) misinterpreted SEC regulations, (iv) relied on “conclusory” control person allegations, and (v) wrongly decided that the complaint had adequately alleged that Plaintiff purchased securities in the SPO from Defendants. 28. On October 6, 2021, Plaintiff filed a brief in response to Defendants’ appeal. App.- Div. NYSCEF No. 8. As an initial matter, Plaintiff argued that the First Department had already held that CPLR 3016(b)’s heightened pleading standard did not apply to the Securities Act claims in the Action because fraud was not an element of the claims, and Defendants had presented no compelling circumstances to depart from that ruling. In addition, Plaintiff argued that the alleged omissions concerning Mobile and Power Solutions’ businesses were material and required to be disclosed in order to make the statements in the Offering Documents not misleading. Addressing Defendants’ contention that this Court had relied on unpled allegations of knowledge, Plaintiff argued that it was not required to plead knowledge on the part of Defendants, only the existence of the undisclosed facts at the time of the SPO, which it had, and that even if required, Defendants’ knowledge of the undisclosed facts could be inferred from the surrounding circumstances. 6 All references to “App.-Div. NYSCEF No. _” are to filings on the Appellate Division docket for this case, Case No. 2021-02102. 11 12 of 31 FILED: NEW YORK COUNTY CLERK 11/01/2022 02:09 PM INDEX NO. 656462/2019 NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022 Plaintiff also argued that the alleged misstatements were not puffery or protected forward-looking statements and that the risk warnings cited by Defendants did not adequately apprise investors of the omitted events adversely impacting Mobile and Power Solutions at the time of the SPO. Further, Plaintiff argued that this Court had correctly interpreted Items 105 and 303 in holding that the Offering Documents omitted disclosures required by these provisions. Finally, Plaintiff argued that this Court had correctly concluded that the Amended Complaint adequately alleged Section 12(a)(2) claims and control person liability. 29. On November 12, 2021, Defendants filed a reply in support of their appeal, repeating the arguments in their opening brief. App.-Div. NYSCEF No. 12. 30. The First Department heard oral argument on Defendants’ appeal on May 10, 2022. On May 31, 2022, the First Department issued an order unanimously affirming this Court’s Decision and Order denying Defendants’ motion to dismiss. App.-Div. NYSCEF No. 22. 31. Following this Court’s denial of Defendant’s motion to dismiss, on June 17, 2021, Defendants filed answers denying the allegations in the Amended Complaint and asserting, in the aggregate, 70 affirmative defenses. NYSCEF Nos. 53-54. 4. Plaintiff Completed Merits Discovery 32. On July 9, 2021, Plaintiff served its First Request for Production of Documents to the NN Defendants and its First Request for Production of Documents to the Underwriter Defendants. Defendants served their responses and objections on July 30, 2021. Thereafter, the Parties negotiated search terms and custodians to be used to locate responsive electronically stored documents, as well as a Confidentiality Stipulation and Protective Order and ESI Protocol. Collectively, Defendants produced approximately 34,000 documents (totaling approximately 170,000 pages) in response to Plaintiff’s initial and later follow-on requests for production. 12 13 of 31 FILED: NEW YORK COUNTY CLERK 11/01/2022 02:09 PM INDEX NO. 656462/2019 NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022 33. Defendants also served initial requests for production on Plaintiff and Plaintiff filed responses and objections thereto on July 30, 2021. Plaintiff’s Counsel identified and collected responsive documents using search terms and custodians agreed to by the Parties. In total, Plaintiff produced 61 documents (totaling over 3,300 pages) in response to Defendants’ requests for production. 34. After conducting a thorough review of Defendants’ production, between May 4, 2022 and June 15, 2022, Plaintiff deposed nine current and former NN officers, directors, and employees, including Defendants Richard D. Holder, NN’s former CEO, Thomas Burwell, NN’s former CFO, and Robert E. Brunner, the Chairman of NN’s Board of Directors at the time of the SPO. Plaintiff also deposed a representative from J.P. Morgan Securities LLC (“JPM”), the lead underwriter of the SPO. 35. Plaintiff’s representative, Dr. Kyle Foust, the Erie County, Pennsylvania controller responsible for the administration of the Erie County Employees’ Retirement System, was deposed by Defendants on January 20, 2022. 36. On May 12, 2022, Plaintiff served its First Set of Interrogatories on Defendants. Defendants served Responses and Objections on June 1, 2022. On May 18, 2022, Defendants served their First Set of Interrogatories on Plaintiff. Plaintiff served its Responses and Objections thereto on May 7, 2022. 37. The documents and depositions discussed above provided Plaintiff and Plaintiff’s Counsel with a strong foundation from which to assess the risks and strengths of the claims. 5. Plaintiff’s Contested Motion for Class Certification 38. On November 15, 2021, Plaintiff filed its Motion for Class Certification, arguing that the Action’s strict liability claims under the Securities Act easily satisfied the prerequisites for class certification under CPLR §§901 and 902. NYSCEF No. 64. On February 7, 2022, 13 14 of 31 FILED: NEW YORK COUNTY CLERK 11/01/2022 02:09 PM INDEX NO. 656462/2019 NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022 Defendants opposed the motion arguing that (i) the proposed Class definition improperly included persons who suffered no damages because it did not contain a temporal limitation tied to corrective disclosures; (ii) Plaintiff was atypical because its investment advisers had complete authority to make investment decisions on its behalf; (iii) Plaintiff was subject to a unique defense because it did not purchase NN stock directly from any Defendant and, therefore, did not have standing to bring a claim under Section 12(a)(2); and (iv) Plaintiff was an inadequate class representative because “it [was] little more than a figurehead” and had a portfolio monitoring agreement with Plaintiff’s Counsel. NYSCEF No. 72. 39. On April 15, 2022, Plaintiff filed its Reply Brief in further support of its motion for class certification. NYSCEF No. 82. Plaintiff argued that the proposed Class definition was standard in Securities Act cases and that Defendants’ demand for a temporal limitation tied to corrective disclosures was contrary to the statutory damages formula contained in Section 11(e), which presumes that any diminution in the value of an offered security between the offering date and the date a Section 11 case is filed resulted from the alleged untrue statements and omissions, subject to a defendants’ heavy burden to show negative causation. See Akerman v. Oryx Commc’ns Inc., 810 F.2d 336, 341 (2d Cir. 1987). In addition, Plaintiff strenuously rejected Defendants’ attack on its typicality, arguing that pension funds routinely rely on outside investment advisers to make investment decisions but are nonetheless routinely appointed as class representatives in securities class action cases such as this. Further, Plaintiff demonstrated that discovery had substantiated that it purchased shares in the SPO directly from lead underwriter JPM at the SPO price without paying a commission. Finally, Plaintiff argued that it was an adequate class representative as demonstrated by its high level of involvement in the Action and that courts have 14 15 of 31 FILED: NEW YORK COUNTY CLERK 11/01/2022 02:09 PM INDEX NO. 656462/2019 NYSCEF DOC. NO. 124 RECEIVED NYSCEF: 11/28/2022 routinely rejected the contention that a portfolio monitoring agreement with counsel renders institutional investors like Plaintiff inadequate to serve as a class representative. 40. Plaintiff’s motion for class certification was scheduled for oral argument on August 9, 2022. 6. Plaintiff Participated in Arm’s Length Mediation Culminating in the Proposed Settlement 41. Following the completion of briefing in the First Department, the Parties agreed that it would be productive to engage a mediator to explore the possibility of reaching a negotiated resolution of the Action. To that end, in February 2022, the Parties engaged Mr. Lindstrom, a nationally recognized mediator who has successfully mediated numerous securities class action cases. 42. The parties exchanged detailed opening and reply mediation statements (and voluminous exhibits thereto) in advance of the mediation highlighting the factual and legal issues in dispute. In advance of the mediation, Plaintiff’s Counsel also consulted extensively with their expert, Mr. Hakala, to critically evaluate estimated recoverable damages and to test anticipated assertions by Defendants regarding the same. 43. On March 29, 2022, the parties attended a formal mediation