Tenth Circuit Rules on Notice Requirements

How much advance warning is enough for shareholders to be informed of their right to opt-out or object to a securities class action settlement? Well, in the Sprint case, a Panel of the Tenth Circuit evaluated a situation where certain shareholders “received notice of a class settlement two weeks after the deadline for filing objections to the settlement and on the same day as the final fairness hearing on the settlement.” The shareholders, who “held their shares in ‘street name’ (meaning that they held only beneficial title to the shares while legal title was vested in their broker's name),” in the $50 million settlement argued that “the thirty-two-day period between the initial mailing of the settlement notice and the deadline for objections did not sufficiently account for the delays involved in forwarding notice packets to beneficial stock owners.”

In affirming the District Court’s rejection of the street name objectors’ claims that their Due Process and Rule 23 rights had been violated, the Panel held that the focus should be not upon “actual notice rates,” but instead “upon whether the district court gave the best notice practicable under the circumstances including individual notice to all members who can be identified through reasonable effort.” In concluding that the time period was fair, the Panel concluded that “in the instant case, particularly given the absence of any evidence that anyone other than Appellants received their notice after the deadline for objections or the settlement hearing, the initial and secondary rounds of mailings were sufficient to flush out any objections that might arise to the fairness of the settlement.”

You can read Dejulius v. New England Health Care Employees Pension Fund, issued October 28, 2005, here or at 2005 U.S. App. LEXIS 23353.

Nugget: “Many controversies have raged about the cryptic and abstract words of the Due Process Clause but there can be no doubt that at a minimum they require that deprivation of life, liberty or property by adjudication be preceded by notice and opportunity for hearing appropriate to the case.”