“[D]istrict courts must make sure that the members of the class possess the same interests, and that no fundamental conflicts exist among the members.”
How later courts described this case
- “[D]istrict courts must make sure that the members of the class possess the same interests, and that no fundamental conflicts exist among the members.”
- “In the context of a request for settlement-only class certification, the protection of absentee class members takes on heightened importance.”
- “Formal discovery is not a prerequisite; the question is whether the parties had adequate information about their claims.”
- “[P]ublic policy supports granting attorneys[’] fees that are sufficient to encourage plaintiffs’ counsel to bring securities class actions that supplement the efforts of the SEC.”
Written by the judges who cited it.
The opinion
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-------------------------------------------------------x
WALTER DE SCHUTTER, Individually and
On Behalf of All Others Similarly Situated,
Plaintiffs, MEMORANDUM & ORDER
21-CV-3502 (PKC) (RML)
- against -
TARENA INTERNATIONAL, INC.,
SHAOYUN HAN, and YUDUO YANG,
Defendants.
-------------------------------------------------------x
PAMELA K. CHEN, United States District Judge:
Lead Plaintiff Walter De Schutter and Named Plaintiffs Steven Clauter and Cynthia Lewis
(“Plaintiffs”),1 on behalf of themselves and the Settlement Class, seek final certification of a
settlement class; final approval of a settlement agreement; and attorneys’ fees, litigation expenses,
and class representative incentive awards. (Dkts. 49–53.) Plaintiffs brought this class action
against Tarena International, Inc. (“Tarena”), Shaoyun Han, and Yuduo Yang (“Individual
Defendants”), alleging securities fraud pursuant to §§ 10(b) and 20(a) of the Exchange Act. On
September 5, 2023, the Court granted Plaintiffs’ unopposed motion for preliminary approval of
the Second Amended Stipulation of Settlement (“Stipulation”). (See Dkts. 40, 41.) The Court
now finds the Stipulation fair, adequate, and reasonable, and grants Plaintiffs’ unopposed motion
for the reasons stated below.
1 Yili Qiu commenced this putative securities fraud class action complaint in this Court
against Defendants alleging claims under Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934 (the “Exchange Act”) in June 2021. (Dkt. 1.) On September 1, 2021, the Court appointed
Walter De Schutter as Lead Plaintiff in this action. (9/1/2021 Dkt. Order.)
BACKGROUND
I. Factual Background
Tarena is a Cayman Islands corporation headquartered in China. Plaintiffs brought this
class action on behalf of all persons who bought, sold, or otherwise traded in Tarena’s American
Depositary Shares (“ADSs”) between August 16, 2016, and November 1, 2019. (Amended
Complaint (“Am. Compl.”), Dkt. 17, ¶ 1.) The Amended Complaint alleges that Tarena provides
professional education services, including professional information technology (“IT”) vocational
training courses and after-school IT programs. (Id. ¶ 2.) Two of Tarena’s employees—Shaoyun
Han and Yuduo Yang—allegedly signed and spread public disclosure documents that falsely
inflated Tarena’s revenues. (Id. ¶¶ 34–35.) In late 2019, Tarena issued a series of corrected public
disclosures which caused the ADS’s price to drop from $5.02 per unit in May 2019 to $0.76 on
November 4, 2019. (Id.¶¶ 8–11.) Eventually, on April 24, 2020, Tarena issued a corrective report
that restated its previously issued financial statements for the years ending December 31, 2014,
2015, 2016, and 2017 and previously issued financial results for the year ending
December 31, 2018. (Id. ¶ 41.) The Stipulation “represents an estimated average recovery of
$0.08 per ADS for the approximately 43.4 million Tarena ADSs damaged during the Class
Period.” (Class Notice, Dkt. 40-2, at 1.)
II. Procedural History
On June 22, 2021, Plaintiffs filed this putative securities fraud class action against
Defendants alleging securities fraud under Sections 10(b) and 20(a) of the Exchange Act. (Compl.,
Dkt. 1.) On August 23, 2021, motions to appoint a lead plaintiff and lead counsel were filed.
(Dkts. 5–7.) On September 1, 2021, the Honorable Robert M. Levy, U.S. Magistrate Judge,
granted the unopposed motion to appoint Walter De Schutter (“Schutter”) as Lead Plaintiff and
the Rosen Law Firm, P.A. as Lead Counsel (“Class Counsel”). (See 9/1/2021 Dkt. Order.) On
November 1, 2021, Plaintiffs filed an Amended Complaint, which named Steven Clauter and
Cynthia Lewis as Named Plaintiffs, but was otherwise, in substance, the same as the previous
Complaint. (Am. Compl., Dkt. 17, ¶¶ 18–19.)
In January 2022, the Court set a briefing schedule for Tarena’s motion to dismiss,
(see 1/11/2022 Dkt. Order), which was filed in May 2022, (Dkt. 24). The parties have not engaged
in any discovery. In July 2022, the parties notified the Court that they had reached a settlement in
principle. (Dkt. 30.) On August 31, 2022, Plaintiffs moved for preliminary approval of the
proposed settlement agreement. (Dkts. 31–34.) The motion was unopposed. (Id.) The Court held
a preliminary approval hearing with the parties on November 8, 2022, and reserved judgment on
the pending motion for preliminary approval of the settlement agreement. (See 11/8/2022 Min.
Entry.) After the hearing, Plaintiffs filed an amended settlement agreement and a second amended
settlement agreement on December 5, 2022 and August 18, 2023, respectively, based on the
Court’s instructions. (See Dkts. 38–39; Dkt. 40.) On September 5, 2023, the Court granted
Plaintiffs’ unopposed motion for preliminary approval of the further revised settlement agreement.
(Dkt. 41.)
In January 2024, Plaintiffs filed a motion for final approval of the class action settlement
and plan of allocation, and a motion for attorneys’ fees and service awards to Plaintiffs Schutter,
Clauter, and Lewis. (Dkts. 49–53.) To date, no objections from Class Members have been filed.
On February 9, 2024, the Court held a final fairness hearing (the “Final Fairness Hearing”) for the
approval of the proposed Settlement. (2/9/2024 Min. Entry.) Following the hearing, and in line
with the Court’s instructions, Class Counsel provided the Court with supplemental information
regarding counsel’s request for attorneys’ fees, including contemporaneous billing records and
additional case law regarding the suitability of using current hourly rates, rather than historical
rates, when calculating a lodestar cross-check. (Pls.’ Billing Ltr., Dkt. 55; Billing Records, Dkts.
55-1, 55-2.)
III. The Stipulation, Fund Allocation, and Notification to Class
A. Terms of the Stipulation
The essential terms of the Stipulation are as follows. (See Stipulation, Dkt. 40.) The
Settlement Class is broadly defined as anyone (person/corporation/entity, etc.), across the world
that purchased Tarena ADSs between August 16, 2016, until November 1, 2019 (the “Class
Period”). (Id. ¶¶ 1.5, 1.21, 1.31.) All dates are inclusive. (Id. ¶ 1.5.) The settlement amount is
defined as a fund of $3.5 million, intended to cover both the class’s recovery, taxes, attorneys’
fees, and service awards to Plaintiffs. (Id. ¶ 1.30.) The Settlement Fund is not a “claims made”
settlement, i.e., it is not a settlement where any unclaimed amount from the Settlement Fund would
revert back to Tarena. (Id. ¶ 6.7.) Taxes will be paid from the Settlement Fund to the extent they
are necessary. (Id. ¶ 2.8(c).)
The potential recovery for the Settlement Class will be calculated based on the purchase
and sale dates of the ADSs, the ADS purchase prices, inflation, and average closing stock price.
The Stipulation offers three tiers of recovery, (see Class Notice, Dkt. 40-2, at 6–7): (1) ADSs
purchased during the Class Period and sold during the Class Period;2 (2) ADSs purchased during
the Class Period and retained as of the close of trading on January 31, 2020;3 (3) ADSs purchased
2 The recognized loss per share will be the lesser of: (1) the inflation per share upon
purchase less the inflation per share upon sale; or (2) the purchase price per share minus the sales
price per share. (Class Notice, Dkt. 40-2, at 6.) Inflation per share at various time periods are set
forth in Inflation Table A of the Stipulation. (Id. at 7.)
3 The recognized loss will be the lesser of (1) the inflation per share upon purchase; or (2)
the purchase price per share minus $1.58 per share. (Id. at 6.)
during the Class Period and sold during the period November 4, 2019 through January 31, 2020.4
“The average approximate recovery, after deduction of attorneys’ fees and expenses approved by
the Court, is $0.052 per Tarena ADS outstanding during the Class Period.” (Id. at 2.) All
Settlement Class Members will be barred from making any further claim against Defendants
beyond the amount allocated to them. (Id. at 9.)
If there is still money left in the Settlement Fund after Strategic Claims Services (the
“Claims Administrator”) tries to get all authorized claimants to cash their distribution checks, any
remaining balance will be used to: (1) pay any missed amounts to authorized claimants, (2) pay
additional administration costs; and (3) make a second distribution to authorized claimants who
cashed their checks from the initial distribution and would receive at least $10.00 from the second
distribution, if it is feasible. (Id. at 6.) Any additional unclaimed funds will be donated to a non-
profit chosen by Class Counsel with the Court’s approval. (Id.; Stipulation, Dkt. 40, ¶ 1.17.) In
addition to the payments to the Settlement Class, Plaintiffs request an award to Class Counsel for
fees of up to one-third of the Settlement Fund, approximately $1.16 million, along with litigation
costs and class representative incentive awards totaling $15,000, to come out of the Settlement
Fund. (Stipulation, Dkt 40, ¶ 7.1; Class Notice, Dkt. 40-2, at 1.)
B. Notice and Claims
According to the Claims Administrator, postcard notices were mailed, and links to the Long
Notice and Claim Form were emailed, to 12,960 potential Settlement Class Members. (Reply
Mem. Supp. Final Approval & Att’y Fees (“Reply Mem.”), Dkt. 54, at 2.) On February 9, 2024,
the Court held the Final Fairness Hearing. (2/9/2024 Min. Entry.) Following the hearing, the
4 The recognized loss will be the lesser of: (1) the inflation per share upon purchase; or (2)
the difference between the purchase price per share and the average closing stock price as of date
of sale. (Id. at 7.) Closing prices per share are set forth in Table B of the Stipulation. (Id.)
Court asked for: (1) unredacted contemporaneous billing records supporting Plaintiffs’ attorneys’
fees request for the Court’s in camera review; and (2) supplemental briefing on cases where federal
courts in the Second Circuit, preferably in the Eastern District of New York, found lodestar
calculations based on current hourly rates (rather than historic rates) reasonable in securities fraud
class action settlement cases, especially cases where attorneys billed work done as associates at
current partner rates after the attorneys became partners over the course of the litigation. (2/9/2024
Min. Entry.) Plaintiffs timely responded on February 16, 2024. (Pls.’ Billing Ltr., Dkt. 55.) On
July 31, 2024, upon being notified that claims processing had concluded, the Court ordered
Plaintiffs to provide the Court with final claims-related statistics. (7/31/2024 Dkt. Order.) As of
August 7, 2024, the Claims Administrator had received 2,424 claims, of which 435 claims were
deemed valid, representing $5,334,209.77 in recognized losses.5 (Final Claims Ltr., Dkt. 64, at 1.)
To date, no objections from Settlement Class Members have been filed. (Id. at 2.)
DISCUSSION
I. The Settlement Class Is Certified
On September 5, 2023, the Court preliminarily certified the class for the purposes of
settlement under Federal Rules of Civil Procedure (“Rule” or “Rules”) 23(a) and (b)(3). (Dkt. 41.)
The Court now grants final certification for settlement.
A. Legal Standard
To certify a settlement class, the Court must find that Rule 23(a)’s requirements of
(1) numerosity, (2) commonality, (3) typicality, and (4) adequacy of representation are satisfied.
5 The letter also states that seven claimants were given the opportunity to cure after being
found inadequate. Of the seven, two claims were successfully cured and the other five claimants
either did not respond to the inadequacy notice or responded with inadequate documentation and
were ultimately sent a rejection notice. (Final Claims Ltr., Dkt. 64, at 1–2.)
See In re Am. Int’l Grp., Inc. Sec. Litig., 689 F.3d 229, 238 (2d Cir. 2012) (citations omitted)
[hereinafter In re Am. Int’l Grp.]. “The salience of the ‘adequacy’ factor, Fed. R. Civ. P. 23(a)(4),
is particularly acute in settlement class situations.” Calibuso v. Bank of Am. Corp., 299
F.R.D. 359, 366 (E.D.N.Y. 2014) (citation omitted); Gallego v. Northland Grp. Inc., 814 F.3d 123,
129 (2d Cir. 2016) (“In the context of a request for settlement-only class certification, the
protection of absentee class members takes on heightened importance.”). The requirement ensures
that the class representatives “fairly and adequately protect the interests of the class [and] serve[]
to uncover conflicts of interest between [them] and the class they seek to represent, as well as the
competency and conflicts of class counsel.” In re Payment Card Interchange Fee & Merch. Disc.
Antitrust Litig., 827 F.3d 223, 231 (2d Cir. 2016) (cleaned up) (citing Amchem Prods., Inc. v.
Windsor, 521 U.S. 591, 623 (1997)) [hereinafter In re Payment Card]. Furthermore, “to certify a
Rule 23(b)(3) [settlement] class, [plaintiffs] must show that common questions of law or fact
‘predominate’ over purely individual questions and that a class action is ‘superior’ to other
methods of resolving the dispute.” In re Am. Int’l Grp., 689 F.3d at 239.
Applying these legal standards, the Court finds that the Stipulation meets all of the Rule 23
requirements.
B. Numerosity, Typicality, and Commonality Are Met
Rule 23 requires a determination that “the class is so numerous that joinder of all members
is impracticable[.]” Fed. R. Civ. P. 23(a)(1). “Impracticable does not mean impossible, and a
precise enumeration or identification of class members is not required.” Allegra v. Luxottica Retail
N. Am., 341 F.R.D. 373, 397 (E.D.N.Y. 2022) (cleaned up) (citation omitted). Notably, “[c]ourts
in the Second Circuit presume numerosity at a level of 40 members.” Id. (citations omitted). Here,
the numerosity requirement is met. Plaintiffs allege that “there are likely at least hundreds if not
thousands of potential Settlement Class Members as Tarena’s ADSs were publicly traded on
NASDAQ with approximately 43.4 million damaged shares during the Settlement Class Period.”
(Mem. Supp. Mot. Settlement, Dkt. 33, at 4.)
The requirement of typicality is similarly satisfied here. “Typicality requires that the
claims or defenses of the class representatives be typical of the claims or defenses of the class
members.” Brown v. Kelly, 609 F.3d 467, 475 (2d Cir. 2010) (citing Fed. R. Civ. P. 23(a)(3)).
This requirement “is satisfied when each class member’s claim arises from the same course of
events, and each class member makes similar legal arguments to prove the defendant’s liability.”
Id. (cleaned up) (citing Marisol A. v. Giuliani, 126 F.3d 372, 376 (2d Cir. 1997)). In this case,
Plaintiffs assert that their claims are typical of the claims of the Class Members, as all members of
the class are similarly affected by Defendants’ wrongful conduct. Here, all claims relate to the
same alleged acts of securities fraud and are fundamentally similar. Even though the strength of
the claims may vary due to differences among global regulatory regimes, the cost of litigation by
a single plaintiff anywhere, including gathering evidence about global wrongdoing, is likely to
mean that everyone will recover similar amounts. Therefore, any variation in recovery is unlikely
to be consequential, as the cost of litigating the matter likely would be higher than any reasonable
amount of recovery, anywhere in the world. Thus, “[Plaintiffs’] claim and the class claims are so
interrelated that the interests of the class members will be fairly and adequately protected in their
absence.” See Marisol. A., 126 F.3d at 376 (quoting Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147,
157 n.13 (1982)).
Likewise, the requirement of commonality is satisfied. Rule 23 requires a finding that
“there are questions of law or fact common to the class[.]” Fed. R. Civ. P. 23(a)(2). “Even a single
common question” is enough. See Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 359 (2011)
(cleaned up). Here, commonality is met because common questions of law and fact exist as to all
members of the class pertaining to “whether the federal securities laws were violated by
Defendants’ acts . . . ;[] whether statements made by Defendants to the investing public during the
Class Period misrepresented material facts about the business, operations and management of
Tarena;[] whether the Individual Defendants caused Tarena to issue false and misleading
statements during the Class Period; [and] to what extent the members of the Class have sustained
damages and the proper measure of damages.” (Am. Compl., Dkt. 17, ¶ 87.)
C. Class Representatives Are Adequate
Finally, the requirement that the class representatives be adequate is met. “Determination
of adequacy typically entails inquiry as to whether: (1) plaintiff’s interests are antagonistic to the
interest of other members of the class and (2) plaintiff’s attorneys are qualified, experienced and
able to conduct the litigation.” In re Payment Card Interchange Fee & Merch. Disc. Antitrust
Litig., 330 F.R.D. 11, 30 (E.D.N.Y. 2019) [hereinafter In re Payment Card I] (citation omitted).
First, to be adequate, a proposed class “representative must have [(1)] an interest in
vigorously pursuing the claims of the class, and [(2)] have no interests antagonistic to the interests
of other class members.” In re Payment Card, 827 F.3d at 231 (citation omitted); Charron v.
Wiener, 731 F.3d 241, 249 (2d Cir. 2013) (“[D]istrict courts must make sure that the members of
the class possess the same interests, and that no fundamental conflicts exist among the members.”).
Here, there are no fundamental conflicts between the class representatives and the class members.
Class representatives, who purchased Tarena ADSs and were damaged in the same or similar ways
that the Class Members were damaged, are seeking to recover from Defendants’ alleged
misconduct. Therefore, their interests are aligned with those of other Settlement Class Members
as they share the common objective of maximizing their recovery from Tarena for the same alleged
misconduct.
Turning to the second prong, Class Counsel are qualified and capable of litigating the
matter. Class Counsel have successfully litigated dozens of class actions in recent decades, some
in this District. (Mem. Supp. Mot. Settlement, Dkt. 33, at 7 (discussing class actions that Class
Counsel have litigated in this District).) Lead counsel in this matter, Attorney Phillip Kim,
graduated from law school in 2002 and has successfully litigated similar class actions against
Chinese securities issuers in the past. (Mem. Supp. Final Settlement Approval, Dkt. 50, at 7; Class
Counsel Firm Resume, Dkt. 6-4, at 1.)6 Thus, the Court finds that Class Counsel is able to
adequately prosecute this matter.
D. Rule 23(b)(3)’s Requirements of Predominance and Superiority Are Met
“The Rule 23(b)(3) predominance inquiry tests whether proposed classes are sufficiently
cohesive to warrant adjudication by representation.” Moore v. PaineWebber, Inc., 306 F.3d 1247,
1252 (2d Cir. 2002) (citation omitted). This “predominance requirement is satisfied if: (1)
resolution of any material legal or factual questions can be achieved through generalized proof,
and (2) these common issues are more substantial than the issues subject only to individualized
proof.” In re Petrobras Sec., 862 F.3d 250, 270 (2d Cir. 2017) (cleaned up) (citation omitted). In
this case, the crucial question is whether Defendants’ issuance of false and misleading statements
violated federal securities laws. That question is “essential to the claims of all putative class
members,” and the “‘same evidence will suffice for each [class] member [to answer it].’” In re
Payment Card I, 330 F.R.D. at 56 (first alteration in original) (quoting Tyson Foods, Inc. v.
6 Some of these cases include Christine Asia Co. Ltd. v. Yun Ma, No. 15-MD-02631 (CM)
(SDA), 2019 WL 5257534 (S.D.N.Y. Oct. 16, 2019) (achieving a $250 million settlement against
Alibaba); Horowitz v. Sunlands Tech. Grp., No. 19-CV-3744 (RML) (E.D.N.Y. Oct. 11, 2023),
Dkt. 74 (approving a settlement of $6.2 million against Sunlands Technology Group); and In re
PPDAI Grp. Inc. Sec. Litig., No. 18-CV-6716 (TAM) (E.D.N.Y. Jan. 21, 2022), Dkt. 84
(approving a settlement of $9 million against PPDAI).
Bouaphakeo, 577 U.S. 442, 453 (2016)). While individual questions will remain as to the extent
of the harm caused to each Class Member, “‘the fact that damages may have to be ascertained on
an individual basis is not sufficient to defeat class certification’ under Rule 23(b)(3).” Roach v.
T.L. Cannon Corp., 778 F.3d 401, 405 (2d Cir. 2015) (citation omitted).
The requirement of superiority is likewise satisfied. “To establish the superiority prong of
this inquiry, ‘the moving party must show that the class action presents economies of time, effort
and expense, and promotes uniformity of decision.’” In re 3D Sys. Secs. Litig., No. 21-CV-1920
(NGG) (TAM), 2024 WL 50909, at *8 (E.D.N.Y. Jan. 4, 2024) (cleaned up) (quoting Lea v. Tal.
Educ. Grp., No. 18-CV-5480 (KHP), 2021 WL 5578665, at *6 (S.D.N.Y. Nov. 30, 2021)). Here,
in light of the numerosity of the class members and the uniformity of their claims, there is a strong
basis for a finding of superiority. See Pub. Emps.’ Ret. Sys. v. Merrill Lynch & Co., Inc., 277
F.R.D. 97, 120 (S.D.N.Y. 2011) (finding superiority where “there is no overwhelming interest by
class members to proceed individually” and noting that in most securities actions, “[m]ultiple
actions by multiple plaintiffs could also significantly reduce the prospects for recovery as it would
decrease plaintiffs’ bargaining power”).
II. The Settlement Agreement Is Substantively and Procedurally Fair
Under Second Circuit precedent, as recently established in Moses v. N.Y. Times Co., 79
F.4th 235, 244 (2d Cir. 2023), both Rule 23(e)(2) factors and the nine factors set forth in City of
Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974) (the “Grinnell factors”), weigh in favor
of finding that the Stipulation in this case is procedurally and substantively fair, and warrants final
approval.
A. Legal Standard
Rule 23(e) “sets forth the standards and procedures that apply to class action settlements.”
In re Payment Card I, 330 F.R.D. at 27. Pursuant to Rule 23(e), approval of a class action
settlement generally occurs in two stages: (1) the preliminary approval stage, where the Court
makes an initial evaluation of the settlement’s fairness before notifying the class, and (2) the final
approval stage when class members and the parties are given an opportunity to be heard before the
Court approves the settlement. See id. At the final approval stage, a district court may approve a
class action settlement only upon “finding that it is fair, reasonable, and adequate.” Moses, 79
F.4th at 242 (quoting Fed. R. Civ. P. 23(e)(2)). To make that determination, a court should
expressly evaluate four “primary procedural considerations and substantive qualities that should
always matter” in its “holistic[]” review of a proposed settlement. Id. (quoting Fed. R. Civ.
P. 23(e)(2) Advisory Committee’s Note to 2018 Amendment (the “2018 Advisory Note”)). These
four considerations include whether:
(A) the class representatives and class counsel have adequately represented the class;
(B) the proposal was negotiated at arm’s length;
(C) the relief provided for the class is adequate, taking into account:
(i) the costs, risks, and delay of trial and appeal;
(ii) the effectiveness of any proposed method of distributing relief to the class,
including the method of processing class-member claims;
(iii) the terms of any proposed award of attorney’s fees, including timing of
payment; and
(iv) any agreement required to be identified under Rule 23(e)(3); and
(D) the proposal treats class members equitably relative to each other.
Fed. R. Civ. P. 23(e)(2). “The first two factors are procedural in nature,” Moses, 79 F.4th at 242,
and “examine ‘the conduct of the litigation and of the negotiations leading up to the proposed
settlement,’” In re Payment Card I, 330 F.R.D. at 29 (quoting 2018 Advisory Note). The latter
two factors “guide the substantive review of a proposed settlement,” Moses, 79 F.4th at 244,
assessing “[t]he relief that the settlement is expected to provide to class members . . . .” Id.
(quoting 2018 Advisory Note).
In Moses, the Second Circuit emphasized that the amended Rule 23(e) “now mandates
courts to evaluate factors that may not have been highlighted in [this Circuit’s] prior case law, and
its terms prevail over any prior analysis that are inconsistent with its requirements.” Id. at 243.
The panel explained that “Rule 23(e)(2) prohibits courts from applying a presumption of fairness
to a settlement agreement based on its negotiation at arm’s length . . . because the rule ‘does not
suggest that an affirmative answer to that one [factor] creates a favorable presumption on review
of the other three.’” Id. (citation omitted). Regarding substantive fairness, while courts in this
Circuit historically “evaluate[d] substantive fairness [by] considering the nine Grinnell factors,”
which largely overlap with the revised Rule 23(e)(2), the Moses court emphasized that the “rule
now requires courts to expressly consider two core factors [under Rules 23(e)(2)(C)–(D)] when
reviewing the substantive fairness of a settlement: the adequacy of relief provided to a class and
the equitable treatment of class members.” Id. at 244 (second alteration in original) (citation
omitted). Importantly, the Moses panel noted that “the revised Rule 23(e)(2) does not displace”
the Grinnell factors that courts have traditionally applied, “which remain a useful framework for
considering the substantive fairness of a settlement.” Moses, 79 F.4th at 243. The nine Grinnell
factors are:
(1) the complexity, expense and likely duration of the litigation;
(2) the reaction of the class to the settlement;
(3) the stage of the proceedings and the amount of discovery completed;
(4) the risks of establishing liability;
(5) the risks of establishing damages;
(6) the risks of maintaining the class action through the trial;
(7) the ability of the defendants to withstand a greater judgment;
(8) the range of reasonableness of the settlement fund in light of the best possible
recovery; [and]
(9) the range of reasonableness of the settlement fund [compared] to a possible
recovery in light of all the attendant risks of litigation.
Grinnell, 495 F.2d at 463 (citations omitted).
B. Procedural Fairness
To evaluate the procedural fairness of a proposed settlement, a court must expressly
consider the two factors under Rules 23(e)(2)(A)–(B): whether “the class representatives and class
counsel have adequately represented the class” and whether “the proposal was negotiated at arm’s
length.” Fed. R. Civ. P. 23(e)(2)(A)–(B).
First, the Court has already found the class representatives adequate as part of the Court’s
Section 23(a) analysis. See Discussion supra Section I.C. Given the similarity of the analyses
regarding adequacy under Rule 23(e)(2)(A) and Rule 23(a)(4), the Court finds that the class
representatives and Class Counsel provided adequate representation to the putative classes under
Rule 23(e)(2)(A). See In re Payment Card I, 330 F.R.D. at 54 (holding that the court will likely
find that class representatives and class counsel have provided adequate representation under
Rule 23(a) after finding adequate representation by class representatives and class counsel under
Rule 23(e)(2)(A)).
Second, the Court “must pay close attention to the negotiating process, to ensure that the
settlement resulted from arm’s-length negotiations[.]” McReynolds v. Richards-Cantave, 588
F.3d 790, 804 (2d Cir. 2009) (citation omitted). Here, Plaintiffs allege that some settlement
negotiations took place before a mediator. After Defendants’ motion to dismiss was fully briefed
in May 2022, the parties began discussing possible resolution of the action with the assistance of
the mediator Robert A. Meyer of JAMS. (Kim Decl., Dkt. 53, ¶ 8.) On June 2, 2022, the parties
participated in an all-day, virtual mediation session. (Id. ¶ 9.) While the mediation ended without
a resolution, Plaintiffs explain, albeit without specifics, that the mediator, following their virtual
encounter, “continued to facilitate settlement discussions.” (Id.; Meyer Decl., Dkt. 53-2, ¶ 10 (“A
settlement was not reached at the mediation session, but I assisted the parties in ongoing settlement
discussions.”).) The negotiations spanned slightly more than a month. (Id. ¶¶ 10, 11.) On July 13,
2022, the mediator notified the parties that both sides had accepted the mediator’s double-blind
“mediator’s proposal” of $3,500,000 to resolve the action. (Id. ¶ 11.) According to the mediator,
throughout the mediation process, “the parties carried out extensive, detailed, and hard-fought
discussions regarding the strengths and weaknesses of the case” and that the “negotiations between
counsel for the parties were conducted at arm’s length and were not collusive.” (Id. ¶ 12.) During
the Final Fairness Hearing, Class Counsel further clarified that the relative speed with which they
were able to reach an agreement could be explained, in part, by the work both parties had to put in
while briefing the merits of their respective positions before mediation had begun, during pre-
mediation discussions. (Fairness Hr’g Tr., Dkt. 57, at 5:12–6:22.)
Accordingly, the Court concludes that the procedural fairness requirement under
Rules 23(e)(2)(A)–(B) has been satisfied.
C. Substantive Fairness
In evaluating the substantive fairness of a proposed settlement, a court must expressly
consider the “two core factors” under Rules 23(e)(2)(C)–(D): “the adequacy of relief provided to
a class and the equitable treatment of class members.” Moses, 79 F.4th at 244. In particular, such
evaluation must be conducted in tandem with reviewing the appropriateness of the proposed
attorneys’ fees and incentive awards encompassed in the settlement agreement. Id.
1. Rule 23(e)(2)(C): Adequacy of Class Relief
In assessing whether a proposed settlement provides adequate relief for the putative class
under Rule 23(e)(2)(C), a district court must take into account several factors, including: (i) the
costs, risks, and delay of trial and appeal; (ii) the effectiveness of any proposed method of
distributing relief to the class, including the method of processing class-member claims, if
required; (iii) the terms of any proposed award of attorneys’ fees, including timing of payment;
and (iv) any agreement required to be identified under Rule 23(e)(3). Fed. R. Civ. P. 23(e)(2)(C).
The first statutory factor under Rule 23(e)(2)(C)(i) largely overlaps with the first Grinnell
factor “complexity, expense, and likely duration of the litigation.” 495 F.2d at 463. Since this
case has limited motion practice and formal discovery, continued litigation likely would result in
significant time and expense for the parties, “including costly depositions of opt-in plaintiffs and
others, motion practice, trial preparation, trial and appeal, [which] could meaningfully decrease
possible recovery for plaintiffs.” Flores v. Mamma Lombardi’s of Holbrook, Inc., 104 F. Supp.
3d 290, 299 (E.D.N.Y. 2015). A settlement, by contrast, provides “relief without the delay, risk,
and uncertainty of trial and continued litigation.” In re Namenda Direct Purchaser Antitrust
Litig., 462 F. Supp. 3d 307, 312 (S.D.N.Y. 2020). Thus, the first factor supports approving the
settlement.
The second statutory factor requires courts to look at “the method of processing class-
member claims.” Fed. R. Civ. P. 23(e)(2)(C)(ii). “To warrant approval, the plan of allocation
must also meet the standards by which the settlement [is] scrutinized—namely, it must be fair and
adequate . . . . An allocation formula need only have a reasonable, rational basis, particularly if
recommended by experienced and competent class counsel.” In re Payment Card I, 330 F.R.D.
at 40 (quoting In re WorldCom, Inc. Sec. Litig., 388 F. Supp. 2d 319, 344 (S.D.N.Y. 2005)). While
the plan of distribution must be fair, it “need not be perfect.” Id. (quoting In re EVCI Career Colls.
Holding Corp. Sec. Litig., No. 05-CV-10240, 2007 WL 2230177, at *11 (S.D.N.Y. July 27, 2007)).
Here, the method for processing Settlement Class Members’ claims and distributing the Net
Settlement Fund were developed with the assistance of an experienced Claims Administrator.
(Preliminary Approval, Dkt. 41, ¶ 11; see Bravata Decl., Dkt. 53-1.) The Claims Administrator
processed the claims under Class Counsel’s guidance, and the Stipulation allows claimants an
opportunity to cure any purported deficiencies or request that the Court review their claim denial
and, if approved, requires the Claims Administrator to mail or wire authorized claimants their pro
rata share of the Net Settlement Fund. (Preliminary Approval, Dkt. 41, ¶ 21.) Specifically, the
Plan of Allocation calls for the Net Settlement Fund to be distributed on a pro rata basis to valid
Class Members based on their proof of recognized loss, which is a function of the amount of Tarena
ADSs owned by each claimant during the class period, the dates on which the shares were
purchased then sold, and inflation. (Class Notice, Dkt. 40-2, at 4–7.) “A plan of allocation that
calls for the pro rata distribution of settlement proceeds on the basis of investment loss is
presumptively reasonable.” In re Merrill Lynch Tyco Rsch. Secs. Litig., 249 F.R.D. 124, 135
(S.D.N.Y. 2008).7 Further, the Plan of Allocation in this case was described in detail in the notice
that was sent to each potential Class Member, and no Class Member has objected to the plan.
(Final Claim Ltr., Dkt. 64, at 1–2.) Accordingly, the record indicates that the Plan of Allocation
is an effective form of relief distribution, and this factor weighs in favor of granting final approval.
The third statutory factor, Rule 23(e)(2)(C)(iii), directs courts to examine “the terms of any
proposed award of attorneys’ fees, including timing of payment.” Fed. R. Civ. P. 23(e)(2)(C)(iii).
7 The Court has given serious consideration to the fact that because the attorneys’ fees and
costs, service awards, and administrative costs all come out of the Settlement Fund, the total payout
to Class Members amounts to only 41% of their recognized losses of $5.3 million. Specifically,
the Court considered reducing the attorneys’ fees to 30% of the Settlement Fund, instead of 33%,
which would raise the percentage recovery of Class Members to about 43%. However, weighed
against all of the other relevant factors—e.g., procedural fairness, lack of opposition to the Plan of
Allocation, the significant risks of litigation and enforcement of any judgment against Defendants,
and the reasonableness of the attorneys’ fees in light of the swift resolution achieved in this
matter—the Court finds that the recovery agreed to in the Stipulation is adequate.
In this case, the Stipulation provides that Class Counsel may apply for payments from the
Settlement Fund for: (a) an award of attorneys’ fees; plus (b) reimbursement of actual costs and
expenses, including without limitation the fees and expenses of experts, consultants, and
investigators incurred in connection with prosecuting the case. (Stipulation, Dkt. 40, ¶ 7.0.) Also,
Class Counsel reserves the right to make additional applications for fees and expenses incurred, if
necessary. (Id.) Specifically, Class Counsel seek attorneys’ fees of $1,166,666.67, an award of
one-third of the $3,500,000 Settlement Fund and $25,922.61 as reimbursement of out-of-pocket
litigation expenses. (Mem. Supp. Att’y Fees, Dkt. 52, at 1.) An award of one-third of the
Settlement Fund is within the range of fee award percentages that courts in this Circuit have
approved. See In re BioScrip, Inc. Sec. Litig., 273 F. Supp. 3d 474, 496–97 (S.D.N.Y. 2017)
(collecting cases where courts granted fee awards of approximately 30–33.3% of the total value of
the settlement); Fleisher v. Phoenix Life Ins. Co., Nos. 11-CV-8405 (CM) & 14-CV-8714 (CM),
2015 WL 10847814, at *16 & n.11 (S.D.N.Y. Sept. 9, 2015) (same).
Regarding the timing of payment, at least one district court in this Circuit has held that
“[t]here are sound reasons for courts to ensure that the class has been compensated prior to
attorneys in class-action settlements,” including that, “[c]ynically, money is the best way to keep
lawyers engaged.” Hart v. BHH, LLC, 334 F.R.D. 74, 77 (S.D.N.Y. 2020). Here, the Stipulation
provides that Defendants will pay the attorneys’ fees and litigation expenses immediately upon
entry of the Court’s order awarding such fees and expenses. (Stipulation, Dkt. 40, ¶ 7.1.) The
Stipulation also provides that “[n]o monies will be disbursed from the Settlement Fund until after
the Effective Date8 except as provided in . . . ¶ 7.1 regarding Attorneys’ Fees and Expenses.”
8 The Effective Date is defined in the Stipulation as “the first date by which all of the events
and conditions specified in ¶ 8.0 of the Stipulation have occurred and/or been met.” (Stipulation,
Dkt. 40, ¶ 1.9.) Paragraph 8.0, in turn, conditions the Effective Date “upon the occurrence of all
(Id. ¶ 2.4.) During the Final Fairness Hearing, Class Counsel clarified that the payment to
attorneys, made once the Settlement is approved, would happen before the payment to claimants,
which will be made once the motion to distribute is granted. (Fairness Hr’g Tr., Dkt. 57, at 8:6–
9:9.) Nonetheless, for the reasons set forth below, see Discussion infra Section III, the Court finds
that the proposed attorneys’ fees in this case are reasonable. While a settlement provision providing
for payment of attorneys’ fees prior to the distribution of settlement funds among class members “does
not bolster the case” for approval, “it also does not undercut that case where, as here, the majority of
other factors weigh significantly in its favor.” Mikhlin v. Oasmia Pharm. AB, No. 19-CV-4349 (NGG)
(RER), 2021 WL 1259559, at *7 (E.D.N.Y. Jan. 6, 2021). Therefore, the fact that Class Counsel will
be paid before the Class Members does not weigh significantly against final approval of the
Stipulation given the totality of factors.
Finally, the fourth statutory factor mandates that courts consider “any agreement required
to be identified under Rule 23(e)(3),” that is, “any agreement made in connection with the
proposal.” Fed. R. Civ. P. 23(e)(2)(c)(iv) & (e)(3). Here, the parties have entered into a
confidential Supplemental Agreement giving Tarena the right to terminate the Stipulation if
Settlement Class Members holding more than a certain number of ADSs opt out. (Stipulation,
Dkt. 40, ¶ 2.12.) The Court presumes that the purpose of this agreement is to protect Defendants
from the possibility that a large enough number of Class Members choose to opt out and litigate
the same claim covered by the Stipulation, thereby subjecting Defendants to costly litigation in
addition to a costly pay out through the Stipulation. Plaintiffs assert that “the number of shares
of the following events”: the Court’s approval of the Settlement Agreement, the Settlement
Amount being paid into the Settlement Fund, Tarena not exercising its option to terminate the
Stipulation pursuant to the Supplemental Agreement (discussed infra), and the entry of final
judgment in this case. (Id. ¶ 8.0.)
that trigger the right to terminate has not been disclosed” “[t]o prevent third parties from utilizing
it for the improper purpose of obstructing the settlement and obtaining higher payouts.” (Mem.
Supp. Final Settlement Approval, Dkt. 50, at 18–19 (citation omitted).) “Given the specific
function of this separate agreement, it does not appear to bear upon the overall fairness of the
settlement agreement itself.” In re 3D Sys. Secs. Litig., 2024 WL 50909, at *13; see also Mikhlin,
2021 WL 1259559, at *8 (finding that “the general contours of the supplemental agreement are
not incompatible with class members’ receipt of adequate relief” because “in the event that
Defendants’ termination right is activated, and that Defendants exercise such right, Plaintiffs
would still be in a position to pursue relief through litigation”). Accordingly, the Court finds that
the supplemental agreement does not pose an impediment to final approval of the Settlement.
2. Rule 23(e)(2)(D): Equitable Treatment of Class Members
Rule 23(e)(2)(D) requires the Court to consider whether “the proposal treats class members
equitably relative to each other.” Fed. R. Civ. P. 23(e)(2)(D). In evaluating this factor, courts may
weigh “whether the apportionment of relief among class members takes appropriate account of
differences among their claims, and whether the scope of the release may affect class members in
different ways that bear on the apportionment of relief.” Moses, 79 F.4th at 245 (quoting 2018
Advisory Note). Particularly, after Moses, “the existence and extent of incentive payments is
relevant to whether ‘class members [are treated] equitably relative to each other.’” Id. (alteration
in original) (quoting Fed. R. Civ. P. 23(e)(2)(D)). In evaluating the substantive fairness of a
settlement, courts must not only ensure that a settlement protects “the interests of class
representatives who play an active role in the litigation—often providing the background
information that forms the basis of the lawsuit, engaging in fact discovery, and devoting
considerable time and effort into the settlement process—from having absent class members free
ride on their efforts,” but they must also “reject incentive awards that are excessive compared to
the service provided by the class representative or that are unfair to the absent class members.” Id.
(citation omitted).
Here, the Plan distributes funds on a pro rata basis to each Settlement Class member who
timely submits a valid claim based on recognized losses resulting from the stock price declines
during the Settlement Class Period. (Mem. Supp. Final Settlement Approval, Dkt. 50, at 19.) “Pro
rata distribution schemes are sufficiently equitable and satisfy the requirements of
Rule 23(e)(2)(D).” Cymbalista v. JPMorgan Chase Bank, N.A., No. 20-CV-456 (RPK) (LB), 2021
WL 7906584, at *9 (E.D.N.Y. May 25, 2021). In addition, Plaintiffs seek a total award of $15,000,
comprised of $10,000 to Lead Plaintiff Walter De Schutter and $2,500 to each of the two Named
Plaintiffs Steven Clauter and Cynthia Lewis. (Mem. Supp. Att’y Fees, Dkt. 52, at 23.) The Court
calculates the average class recovery by taking the $3,500,000 Settlement Fund, subtracting the
proposed attorney fees of $1,166,666.67, the litigation expenses of $25,922.61, the claims
administration costs of $99,750.33, the incentive awards of $15,000, and finally dividing the
remaining amount by 435, i.e., the number of valid claims. By this calculation, the estimated
average class recovery for a Class Member will likely be around $5,040.60, not taking into account
any accrued interest on the litigation expenses. The requested incentive awards for the two Named
Plaintiffs are therefore lower than the estimated average class recovery. And while the incentive
award for the Lead Plaintiff is around $5,000 greater than the estimated average class recovery,
the Court does not find this difference to be so great as to be unreasonable in light of Lead Plaintiff
Schutter having been involved in the case for longer than each of the Named Plaintiffs, and his
role having required more frequent interactions with counsel for case-related matters. (See
Fairness Hr’g Tr., Dkt. 57, at 27:15–29:13.)
3. Remaining Grinnell Factors
Having already considered Grinnell Factor 1, see Discussion supra Section II.C.1, the
Court now finds that the Settlement satisfies the remaining eight Grinnell factors.
a. Grinnell Factor 2: Reaction of the Class to the Settlement
“It is well-settled that the reaction of the class to the settlement is perhaps the most
significant factor to be weighed in considering its adequacy.” Maley v. Del Glob. Techs. Corp.,
186 F. Supp. 2d 358, 362 (S.D.N.Y. 2002). “Courts have found this factor to weigh in favor of
approval where the majority of class members have not objected to or opted out of a settlement.”
Flores, 104 F. Supp. 3d at 300 (quoting In re Sinus Buster Prods. Consumer Litig., No. 12-CV-
2429 (ADS) (AKT), 2014 WL 5819921, at *9 (E.D.N.Y. Nov. 10, 2014)).
Here, after the Court preliminarily approved the Settlement on September 5, 2023,
settlement materials were mailed or emailed to 12,960 potential Settlement Class Members.
(Reply Mem., Dkt. 54, at 2.) The deadline to object to or seek exclusion from the Stipulation
passed on January 19, 2024. (Id. at 3.) The Claims Administrator received 2,424 claims, out of
which 435 valid claims have recognized losses of over $5.3 million. (Final Claims Ltr., Dkt. 64,
at 2.) The Claims Administrator has not received any objections to this date. (Id.) Further, the
Claims Administrator received no valid exclusion requests from the Settlement Class. (Reply
Mem., Dkt. 54, at 5.) Thus, the Court finds that the Stipulation, overall, has been well-received.
Notably, the fact that a relatively small number of Class Members submitted claims is not decisive.
4 Newberg and Rubenstein on Class Actions § 12:17 (6th ed.) (“Given the small value of most
class action claims, it should not be surprising that few class members bother to spend the time
filing a claim.”). “It is the ‘absence of significant exclusion[s] or objection[s]’ that courts in this
Circuit regularly consider, not low response rates.” Stinson v. City of New York, 256 F. Supp. 3d
283, 290 (S.D.N.Y. 2017) (alterations in original) (quoting In re Bear Stearns, 909 F. Supp. 2d
259, 267 (S.D.N.Y. 2012)). Accordingly, given the low number of exclusions and no objections,
this factor generally favors the Settlement.
b. Grinnell Factor 3: Stage of Proceedings and Amount of Discovery
In considering the third Grinnell factor, courts “focus[ ] on whether the plaintiffs obtained
sufficient information through discovery to properly evaluate their case and to assess the adequacy
of any settlement proposal.” Fleisher, 2015 WL 10847814, at *7 (alteration in original) (citation
omitted). “While the parties need not have engaged in extensive discovery, a sufficient factual
investigation must have been conducted to afford the Court the opportunity to intelligently [ ]
make . . . an appraisal of the Settlement.” Frank v. Eastman Kodak Co., 228 F.R.D. 174, 185
(W.D.N.Y. 2005) (alterations in original) (citations omitted); see also In re Glob. Crossing Secs.
& ERISA Litig., 225 F.R.D. 436, 458 (S.D.N.Y. 2004) (“Formal discovery is not a prerequisite;
the question is whether the parties had adequate information about their claims.”).
Here, although no formal discovery has taken place, Plaintiffs represent that prior to
settlement, they conducted a “thorough and informed investigation” to become knowledgeable
about the strengths of the claims as well as the real risks of continued litigation. (Mem. Supp.
Final Settlement Approval, Dkt. 50, at 21.) Plaintiffs’ investigation included hiring an investigator
in China to interview witnesses and obtain Chinese regulatory filings; hiring an accounting expert
to assist in the review of Tarena’s publicly-filed financial reporting; reviewing Tarena’s Class
Period SEC filings, press releases, quarterly earnings calls, numerous analyst reports issued about
Tarena, and a variety of industry publications; retaining an expert to assess damages; and engaging
in extensive negotiations regarding the terms of the proposed Settlement. (Kim Decl.,
Dkt. 53,¶ 17.) Taken together, the “stage of proceedings” factor does not weigh against final
settlement approval.
c. Grinnell Factors 4–6: Risk of Establishing Liability and Damages
and Maintaining the Class Action Through Trial
“Litigation inherently involves risks.” Flores, 104 F. Supp. at 303 (citation omitted). This
case is no exception. Plaintiffs would face several substantial risks if this case were to proceed.
First, as Plaintiffs admit, it is uncertain whether they would be able to establish liability.
Plaintiffs allege that Tarena engaged in accounting fraud by manipulating the Company’s financial
statements, which necessitated a restatement. Plaintiffs recognize that “a significant risk existed
that the Court would accept Tarena’s argument that its statements were unactionable[] audit
opinions.” (Mem. Supp. Final Settlement Approval, Dkt. 50, at 13.) This is particularly true here,
where a Court or a jury would have to find “severe recklessness” if evidence of knowledge or
intent to defraud is not proffered. (Id.) In addition, even if Plaintiffs were to survive the motion
to dismiss, there is a “substantial risk involved in proving scienter, because it goes directly to a
defendant’s state of mind, and proof of state of mind is inherently difficult.” (Id. (quoting In re
Am. Bank Note Holographics, Inc., 127 F. Supp. 2d 418, 426 (S.D.N.Y. 2001).)
Second, “[e]ven assuming that Plaintiffs prevailed on liability, the existence and amount
of damages would have been hotly contested at trial.” In re Namenda, 462 F. Supp. 3d at 313.
Plaintiffs are cognizant that Defendants have argued and would continue to argue that there are no
damages because Tarena’s statements are unactionable audit opinions, and that Tarena would
proffer its own expert to offer contrary causation testimony at trial with respect to all of the price
declines. (Mem. Supp. Final Settlement Approval, Dkt. 50, at 14–15.) Finally, as Plaintiffs
acknowledge, there are also risks and uncertainty surrounding class certification because Tarena
would have challenged class certification.9 (Id. at 15.)
d. Grinnell Factor 7: Ability of Defendant to Withstand a Greater
Judgment
This factor is “typically relevant only when a settlement is less than what it might otherwise
be but for the fact that the defendant’s financial circumstances do not permit a greater settlement.”
In re Namenda, 462 F. Supp. 3d at 314. Plaintiffs assert that the Stipulation is a highly favorable
result and was obtained without exposing the Settlement Class to the risk, expense, and delay of
continued litigation because if the litigation continued, Tarena’s assets would have continued to
drain. (Mem. Supp. Final Settlement Approval, Dkt. 50, at 22.) Furthermore, any judgment likely
would have been unenforceable because Tarena, its assets, and the Individual Defendants are all
located in China. (Id.) Therefore, this factor also weighs in favor of settlement approval.
e. Grinnell Factors 8 & 9: Range of Reasonableness of the Settlement
and Attendant Risks of Litigation
“The final two Grinnell factors [, i.e., the range of reasonableness of the settlement in light
of the best possible recovery and all attendant risks,] are typically considered together.” Dial
Corp. v. News Corp., 317 F.R.D. 426, 432 (S.D.N.Y. 2016). “[T]here is a range of reasonableness
with respect to a settlement—a range which recognizes the uncertainties of law and fact in any
particular case and the concomitant risks and costs necessarily inherent in taking any litigation to
completion[.]” Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 119 (2d Cir. 2005) (quoting
Newman v. Stein, 464 F.2d 689, 693 (2d Cir. 1972)). The mere “fact that a proposed settlement
9 Although, for the reasons discussed above, any challenge to class certification in this case
likely would fail, Plaintiffs, at a minimum, would have to bear the expense of defending against
such a challenge.
may only amount to a fraction of the potential recovery does not, in and of itself, mean that the
proposed settlement is grossly inadequate and should be disapproved.” Grinnell, 495 F.2d at 455.
Here, the proposed settlement allows the class to recoup $3,500,000 for their alleged harm,
minus attorneys’ fees, litigation costs, and any other expenses. Plaintiffs claim that the $3,500,000
cash settlement represents approximately 19% of the total maximum recoverable damages of
approximately $18.4 million estimated by Plaintiffs’ expert, but for the latter figure to be realized,
Plaintiffs, most significantly, would have to survive a motion to dismiss and summary judgment,
and then prove to a jury that 100% of Tarena’s price declines were caused by the revelation of the
accounting misstatements. (Mem. Supp. Final Settlement Approval, Dkt. 50, at 15–16.) Given
the many legal and factual uncertainties involved in litigation, this factor favors settlement
approval.
III. Attorneys’ Fees, Litigation Expenses, and Incentive Awards Request
As mentioned above, Class Counsel seek an award of attorneys’ fees in the amount of
$1,166,666.67 (one-third of the Settlement Fund, which includes accrued interest); reimbursement
of $25,922.61 in litigation expenses (plus accrued interest); and incentive awards to Plaintiffs
totaling $15,000, comprising of $10,000 to Lead Plaintiff and $2,500 to each of the Named
Plaintiffs.
A. Legal Standard
Under Rule 23(h), “the court may award reasonable attorney’s fees . . . that are authorized
by law or by the parties’ agreement.” Fed. R. Civ. P. 23(h). In a class action settlement, the court
must carefully scrutinize Class Counsel’s application for attorneys’ fees to “ensure that the
interests of class members are not subordinated to the interests of . . . class counsel.” Maywalt v.
Parker & Parsley Petroleum Co., 67 F.3d 1072, 1078 (2d Cir. 1995). The court’s role in this
context is “to act as a fiduciary who must serve as a guardian of the rights of absent class
members.” McDaniel v. County of Schenectady, 595 F.3d 411, 419 (2d Cir. 2010) (citation
omitted).
Courts commonly employ either the “percentage of the fund method” or the “‘lodestar’
method” to evaluate the reasonableness of attorneys’ fees awards in common fund settlement
cases. Wal-Mart Stores, Inc., 396 F.3d 96 at 121 (internal quotation marks omitted). “The trend
in this Circuit is toward the percentage method, which directly aligns the interests of the class and
its counsel and provides a powerful incentive for the efficient prosecution and early resolution of
litigation,” with the lodestar serving only as a “cross-check” on the resulting fee. Id. at 121, 123
(citations omitted).
Irrespective of which method is used, “district courts should continue to be guided by the
traditional criteria” identified in Goldberger (the “Goldberger factors”) in analyzing the
reasonableness of attorneys’ fees, including: “(1) the time and labor expended by counsel; (2) the
magnitude and complexities of the litigation; (3) the risk of the litigation . . . ; (4) the quality of
the representation; (5) the requested fee in relation to the settlement; and (6) public policy
considerations.” Goldberger v. Integrated Res., Inc., 209 F.3d 43, 49–50 (2d Cir. 2000) (alteration
in original) (citation omitted). In addition to the Goldberger factors, “the relief actually delivered
to the class can be a significant factor in determining the appropriate fee award.” Moses, 79 F.4th
at 244 (quoting 2018 Advisory Note). Additionally, attorneys must submit contemporaneous time
records to support their fee applications. See N.Y. State Ass’n for Retarded Child., Inc. v.
Carey, 711 F.2d 1136, 1148 (2d Cir. 1983).
B. Application
1. Common Fund and Percentage of Fund Method
As an initial matter, this action involves a common fund settlement and not a claims-made
settlement. Therefore, the percentage-of-fund method, which Class Counsel request to apply in
awarding attorneys’ fees, is proper. “Under the percentage method, the court calculates the fee
award as some percentage of the funds made available to the Settlement Class.” Hesse v. Godiva
Chocolatier, No. 19-CV-972 (LAP), 2022 U.S. Dist. LEXIS 72641, at *33 (S.D.N.Y. Apr. 20,
2022) (citing Cent. States Se. & Sw. Areas Health & Welfare Fund v. Merck-Medco Managed
Care, L.L.C., 504 F.3d 229, 249 (2d Cir. 2007)). Here, as discussed above, Class Counsel seek
attorneys’ fees of $1,166,666.67, an award of one-third of the $3,500,000 Settlement Fund. (Mem.
Supp. Att’y Fees, Dkt. 52, at 1.) An award of one-third, or 33.3%, of the Settlement Fund is within
the range that courts in this Circuit have awarded. See In re BioScrip, Inc. Sec. Litig., 273
F. Supp. 3d at 496–97 (collecting cases where courts granted fee awards of approximately 30–
33.3% of the total value of the settlement); Fleisher, 2015 WL 10847814, at *16 & n.11 (same).
However, the requested fee award is subject to cross-check under lodestar.
2. Lodestar Cross-Check
Even where fees are reasonable when analyzed under the percentage method, courts will
additionally perform a lodestar “cross-check” and “compare the fees generated by the percentage
method with those generated by the lodestar method.” Mobley v. Five Gems Mgmt. Corp., No. 17-
CV-9448 (KPF), 2018 WL 1684343, at *4 (S.D.N.Y. Apr. 6, 2018) (citations omitted). Here, in
support of their request for attorneys’ fees, Class Counsel submitted a summary chart of their
billing rates and hours expended, along with the declaration of Attorney Phillip Kim. (See
generally Kim Decl., Dkt. 53; see also id. ¶ 28.) Class Counsel further provided contemporaneous
billing records to the Court. (See Billing Records, Dkts. 55-1, 55-2.)
a. Reasonable Hourly Rates
“A reasonable hourly rate is ‘the rate a paying client would be willing to pay . . . bear[ing]
in mind that a reasonable paying client wishes to spend the minimum necessary to litigate the case
effectively.’” McLaughlin v. IDT Energy, No. 14-CV-4107 (ENV) (RML), 2018 WL 3642627,
at *16 (E.D.N.Y. July 30, 2018) (alteration in original) (quoting Arbor Hill Concerned Citizens
Neighborhood Ass’n v. County of Albany, 522 F.3d 182, 190 (2d Cir. 2008)). To determine
reasonable hourly rates for the legal services performed, courts typically take into account several
factors, such as “the labor and skill required, the difficulty of the issues, the attorney’s customary
hourly rate, and the experience, reputation and ability of the attorney.” Bodon v. Domino’s Pizza,
No. 09-CV-2941 (SLT), 2015 WL 3889577, at *7 (citing Arbor Hill, 522 F.3d at 186 n.3, 190).
“In assessing the hourly rate, courts consider rates awarded in the district in which the reviewing
court sits, pursuant to what is known as the ‘forum rule.’” Id. (quoting Simmons v. N.Y.C. Transit
Auth., 575 F.3d 170, 174–75 (2d Cir. 2009)).
Here, Class Counsel spent 659.9 hours in this action, resulting in a lodestar of $576,005.
Based on a one-third fee (equal to $1,166,666.67), Class Counsel’s lodestar yields a multiplier
of 2.025, which is “below what has been deemed reasonable for the common fund settlements in
securities class action cases in this circuit.” In re Graña y Montero S.A.A. Secs. Litig., No. 17-
CV-01105 (LDH) (ST), 2021 WL 4173684, at *18 (E.D.N.Y. Aug. 13, 2021); see, e.g., Athale v.
Sinotech Energy Ltd., No. 11-CV-5831 (AJN), 2013 WL 11310686, at *8 (S.D.N.Y. Sept. 4, 2013)
(collecting cases that found as reasonable “lodestar multipliers between four and five”).
Class Counsel based their calculation on the timekeepers’ current hourly billing rates,
rather than blended historical rates, “i.e., the hourly rates reflective of the rate at the time the work
was performed,” even though their billings spanned more than three years preceding the fee
petition. In re Payment Card Interchange Fee & Merchant Disc. Antitrust Litig., No. 05-MD-
1720 (MKB) (JO), 2019 WL 6888488, at *3 (E.D.N.Y. Dec. 16, 2019) [hereinafter In re Payment
Card II]. While courts have discretion to apply current rates in awarding attorneys’ fees, for
example, to account for delayed payment in prolonged litigation, the use of current rates in some
cases may be problematic because this “may have overstated [the lodestar calculation] given the
lengthy duration of [the] case and the likelihood that the firm’s rates increased over the years.”
City of Westland Police & Fire Ret. Sys. v. MetLife, Inc., No. 12-CV-0256 (LAK), 2021
WL 2453972, at *1 (S.D.N.Y. June 15, 2021).
Here, the total amount billed was highest for an attorney who was promoted to partner
during the pendency of the litigation. (Fairness Hr’g Tr., Dkt. 57, at 22:4–22:11; Billing Records,
Dkts. 55-1, 55-2.) Though the use of that attorney’s current rate increased the overall fee amount,
the Court notes that the use of current rates to calculate lodestar figures in securities litigation has
been endorsed by other federal courts within this Circuit, as well as the Supreme Court. See In re
Hi-Crush Partners L.P. Sec. Litig., No. 12-CV-8557 (CM), 2014 WL 7323417, at *15 & n.9
(S.D.N.Y. Dec. 19, 2014) (“Finally, the use of current rates to calculate the lodestar figure has
been endorsed repeatedly by the Supreme Court, the Second Circuit and district courts within the
Second Circuit as a means of accounting for the delay in payment inherent in class actions and for
inflation.” (citing, inter alia, Missouri v. Jenkins, 491 U.S. 274, 283–84 (1989); Gierlinger v.
Gleason, 160 F.3d 858, 882 (2d Cir.1998))). Current rates have also been accepted in situations
where a lead attorney on the matter was promoted during the litigation [and the litigation was not
lengthy], as is the case here. See, e.g., Mikhlin, No. 19-CV-4349 (NGG) (RER), (E.D.N.Y.
May 24, 2021), Dkt. 39-2 ¶ 5, Dkt. 45 at 2 (granting class counsel’s request for attorneys’ fees,
showing an hourly rate of “Partner” for Attorney Jonathan Horne for the lodestar cross-check, and
noting that “Mr. Horne was elevated to the partnership during the pendency of this case”). The
Court is further persuaded by Plaintiffs’ argument that using historical rates rather than current
rates would only change the lodestar multiplier by a small amount, from 2.025 to 2.41, still lower
than what courts in this Circuit have found reasonable. (Pl.’s Billing Ltr., Dkt. 55, at 3.)
The rates charged by Class Counsel are higher than the prevailing rates in the Eastern
District of New York. “[I]n complex matters, courts [in more recent cases] have awarded rates
that have ranged from approximately $375 to $630 for partners, $200 to $400 for associates, and
$100 to $125 for paralegals.” Alcon Vision, LLC v. Lens.com, Inc., No. 18-CV-407 (NG) (SJB),
2023 WL 8072507, at *7 (E.D.N.Y. Nov. 21, 2023); see also Aptive Env’t, LLC v. Village of East
Rockaway, No. 19-CV-3365 (DRH) (SIL), 2022 WL 5434178, at *5 (E.D.N.Y. July 8, 2022)
(setting billing rates at $325 to $600 per hour for partners, $200 to $395 per hour for associates,
and $125 to $240 per hour for paralegals), R. & R. adopted, No. 19-CV-3365 (JMA) (SIL), 2022
WL 4376618 (E.D.N.Y. Sept. 22, 2022). Here, Class Counsel’s current hourly rates—$875 to
$1,025 per hour for partners, $600 to $650 per hour for associates, and $275 per hour for
paralegals—exceed the prevailing hourly rates in this District, including those approved in
complex litigation. Specifically, one of the three partners for whom attorneys’ fees are sought
charges hourly rates in excess of $1,000.
Responding to these concerns, Class Counsel note that the overall median for a first-year
associate’s salary increased 21.2% since 2021, to $200,000, according to a survey administered by
the National Association for Law Placement, Inc. in 2023, and that in New York and other major
cities, the rates for first-year associates are higher. (Kim Decl., Dkt. 53, ¶ 31.) Class Counsel also
note that salaries for more experienced attorneys have also increased due to inflation and other
market factors in recent years. (Id.) However, the Court need not, and therefore does not, decide
whether Class Counsel’s higher billing rates are appropriate in this case because even if the Court
were to cap the outlier partner rate at $875, in line with the partners at the firm, the resulting
multiplier would be 2.06. Once again, the negligible change in the multiplier weighs in favor of
finding the hourly rates reasonable.
b. Reasonable Hours
In determining whether the number of hours worked is reasonable, “a district court should
‘examine[ ] the particular hours expended by counsel with a view to the value of the work product
of the specific expenditures to the client’s case.’” Chaparro v. John Varvatos Enters., Inc., No. 21-
446-CV, 2021 WL 5121140, at *2 (2d Cir. 2021) (summary order) (alterations in original) (quoting
Luciano v. Olsten Corp., 109 F.3d 111, 116 (2d Cir. 1997)). “Where, as is the case here, ‘the
billing records are voluminous, it is less important that judges attain exactitude, than that they use
their experience with the case, as well as their experience with the practice of law, to assess the
reasonableness of the hours spent.’” E.S. v. Katonah-Lewisboro Sch. Dist., 796 F. Supp. 2d 421,
431 (S.D.N.Y. 2011) (citation omitted). “In dealing with hours that are excessive, redundant, or
otherwise unnecessary, . . . the court has discretion simply to deduct a reasonable percentage of
the number of hours claimed as a practical means of trimming fat from a fee application.”
Chaparro, 2021 WL 5121140, at *2 (alteration in original) (citation omitted). Here, Class
Counsel’s summary chart shows the hours expended by many individuals, including three partners,
one counsel, two associates, one paralegal, as well as the various rates charged. (See Kim Decl.,
Dkt. 53, ¶ 28.) The contemporaneous billing records submitted by counsel provide more
information about the nature of the work performed in connection with the hours for which
compensation is sought. (Billing Records, Dkts. 55-1, 55-2.) Based on reviewing these
documents, the Court finds that the number of hours worked is reasonable.
3. Reasonableness Under the Goldberger Factors
In applying either the lodestar or the percentage-of-the-fund method to calculate attorneys’
fees, “[t]he final step in this analysis is to determine whether the fee award calculated above is
reasonable under the Goldberger factors.” McLaughlin, 2018 WL 3642627, at *20. These six
factors are: “(1) the time and labor expended by counsel; (2) the magnitude and complexities of
the litigation; (3) the risk of the litigation . . . ; (4) the quality of representation; (5) the requested
fee in relation to the settlement; and (6) public policy considerations.” Goldberger, 209 F.3d at 50
(alteration in original) (citation omitted). For the following reasons, the Court finds that the
requested award is reasonable under the Goldberger factors, which largely overlap with the
Grinnell factors.
a. The Time and Labor Expended by Counsel
As set forth in Class Counsel’s declarations, Class Counsel expended significant time,
resources, and effort in successfully representing the Class in the instant case. (See Kim Decl.,
Dkt. 53, ¶¶ 6–15, 17.) Over the course of this case, Class Counsel engaged in investigation,
mediation, settlement negotiations, and settlement preliminary approval, and class certification.
(See id.). “The scope of work[ ] performed by Class Counsel was necessary and reasonable for
complex class actions of this type.” Hesse, 2022 U.S. Dist. LEXIS 72641, at *36. Accordingly,
this factor favors the attorneys’ fee award.
b. The Magnitude and Complexities of the Litigation
“In evaluating the second Goldberger factor, the size and difficulty of the issues in a case
are significant factors to be considered[.]” Hallmark v. Cohen & Slamowitz, LLP, 378 F.
Supp. 3d 222, 232 (W.D.N.Y. 2019) (cleaned up) (citation omitted). Class actions themselves are
considered inherently complex. The instant action spanned over three and a half years of litigation,
involved a substantial number of Class Members, and necessitated investigations, mediation, and
settlement negotiations. Thus, the second Goldberger factor weighs in favor of approving the fee
award.
c. The Risk of the Litigation
“The most important Goldberger factor is often the case’s risk.” In re Payment Card
Interchange Fee & Merch. Disc. Antitrust Litig., 991 F. Supp. 2d 437, 440–41 (E.D.N.Y. 2014)
(citations omitted). As discussed above, Plaintiffs would face several substantial risks of
establishing liability and damages and maintaining the class action if this case were to proceed.
Also, this action involves additional risks because Tarena is a variable interest entity based in
China with no material assets in the United States. (See Kim Decl., Dkt. 53, ¶ 23.) This fact alone
would impose additional hurdles in engaging in discovery and enforcing a judgment. (Id. ¶¶ 18–
20.) Therefore, this factor weighs heavily in favor of approving the requested attorneys’ fee award.
d. The Quality of the Representation
“Courts have consistently recognized that the result achieved is a major factor to be
considered in making a fee award and in assessing the quality of the representation.”
Hallmark, 378 F. Supp. 3d at 233 (citations omitted). “Considering the favorable result reached
on behalf of the Class, it is obvious that the members of the Class benefited from [C]ounsel,” while
avoiding the risk and uncertainty of trial and continued litigation. Id. at 234. Also, “[t]hat Class
Counsel was able to negotiate this Settlement against a sophisticated company represented by
highly capable counsel, while avoiding adverse rulings that could have reduced Plaintiffs’
negotiating leverage, is a testament to the skill displayed by Class Counsel.” Hesse, 2022 U.S.
Dist. LEXIS 72641, at *39. Accordingly, the fourth Goldberger factor supports the attorneys’
fees.
e. The Requested Fee in Relation to the Settlement
“To avoid routine windfalls where the recovered fund runs into the multi-millions, courts
typically decrease the percentage of the fee as the size of the fund increases.” Hart v. BHH, LLC,
No. 15-CV-4804, 2020 WL 5645984, at *11 (S.D.N.Y. Sept. 22, 2020) (citation omitted). As
discussed, Class Counsel’s requested attorneys’ fees represent one-third of the Settlement Fund,
which is within the range of the percentage that courts in this Circuit have awarded, and the
relatively modest size of the Settlement Fund does not create an outsized attorneys’ fees award.
Thus, this factor weighs in favor of the fee award.
f. Public Policy Considerations
Lastly, “when determining whether a fee award is reasonable, courts consider the social
and economic value of the class action, and the need to encourage experienced and able counsel
to undertake such litigation.” Lizondro-Garcia v. Kefi LLC, No. 12-CV-1906 (HBP), 2015
WL 4006896, at *12 (S.D.N.Y. July 1, 2015) (cleaned up) (citation omitted). “A strong public
policy concern exists for rewarding firms for bringing successful securities litigation.” In re
Ashanti Goldfields Sec. Litig., No. 00-CV-717 (DGT), 2005 WL 3050284, at *5 (E.D.N.Y.
Nov. 15, 2005) (citing In re Bristol-Myers Squibb Sec. Litig., 361 F. Supp. 2d 229, 236
(S.D.N.Y. 2005) (“[P]ublic policy supports granting attorneys[’] fees that are sufficient to
encourage plaintiffs’ counsel to bring securities class actions that supplement the efforts of the
SEC.”)). Thus, this factor weighs in favor of the fee award.
C. Litigation Expenses
Class Counsel request reimbursement of litigation expenses of $25,922.61 (plus accrued
interest). In class action settlements, “[a]ttorneys may be compensated for reasonable out-of-
pocket expenses incurred and customarily charged to their clients, as long as they were incidental
and necessary to the representation of those clients.” Jermyn v. Best Buy Stores, L.P., No. 08-CV-
214 (CM), 2012 WL 2505644, at *9 (S.D.N.Y. June 27, 2012) (citations omitted).
Here, Class Counsel have submitted a chart summarizing their incurred expenses in support
of their request. (See Kim Decl., Dkt. 53, ¶ 32.) These expenses, primarily attributed to mediation,
investigator, and expert fees, are typical for actions like this one and were necessary for Class
Counsel to successfully prosecute this case. Thus, Class Counsel should be reimbursed for these
expenses. See, e.g., Yang v. Focus Media Holding Ltd., No. 11-CV-9051 (CM) (GWG), 2014
WL 4401280, at *19 (S.D.N.Y. Sept. 4, 2014) (approving mediator fees, expert fees, electronic
research, photocopying, postage, meals, and court filing fees and finding that these are the type of
expenses that law firms typically bill to their clients).
D. Class Representative Incentive Awards
In determining a fair and appropriate incentive award, courts look to the existence of
special circumstances, including
the personal risk (if any) incurred by the plaintiff-applicant in becoming and
continuing as a litigant, the time and effort expended by that plaintiff in assisting in
the prosecution of the litigation or in bringing to bear added value (e.g., factual
expertise), any other burdens sustained by that plaintiff in lending himself or herself
to the prosecution of the claim, and, of course, the ultimate recovery.
Roberts v. Texaco, Inc., 979 F. Supp. 185, 200 (S.D.N.Y. 1997). However, courts should “reject
incentive awards that are excessive compared to the service provided by the class representative
or that are unfair to the absent class members” to “ensure that [such] awards are reasonable and
promote equity between class representatives and absent class members.” Moses, 79 F.4th at 245.
Here, Class Counsel request incentive awards to Plaintiffs totaling $15,000, comprised of
$10,000 to Lead Plaintiff and $2,500 to each of the Named Plaintiffs. Each of them spent a
considerable among of time assisting Class Counsel in this case, such as by reviewing information
about Tarena and discussing findings with their attorneys, reviewing significant filings in this case,
producing information to attorneys, consulting with attorneys regarding the settlement
negotiations, and evaluating and approving the proposed Settlement. (See Schutter Decl., Dkt. 53-
3, ¶ 4; Clauter Decl., Dkt. 53-4, ¶ 4; Lewis Decl., Dkt. 53-5, ¶ 4.) Class Counsel also represented
at the Final Fairness Hearing that Lead Plaintiff Schutter has been involved in the case for longer
than Named Plaintiffs, and his role has required more frequent interactions with counsel for case-
related matters, which warrants a higher incentive award. (Fairness Hr’g Tr., Dkt. 57, at 27:15–
29:12.)
Accordingly, the Court finds the incentive awards reasonable.
CONCLUSION
For the reasons stated above, the Court hereby finally approves the settlement agreement
and certifies the Settlement Class. In addition, the Court approves and awards: (1) attorneys’ fees
in the amount of $1,166,666.67, (2) reimbursement of litigation expenses in the amount of
$25,922.61 (plus accrued interest), and (3) incentive awards to Plaintiffs totaling $15,000,
comprising of $10,000 to Lead Plaintiff and $2,500 to each Named Plaintiff.
SO ORDERED.
/s/ Pamela K. Chen
Pamela K. Chen
United States District Judge
Dated: September 9, 2024
Brooklyn, New York