Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 1 of 17 Page ID #:2175 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA (SOUTHERN DIVISION - SANTA ANA) IN RE: ) CASE NO: 8:19-cv-02326-DOC-ADSx ) ) CIVIL ) MERIT MEDICAL SYSTEMS, INC. ) Santa Ana, California SECURITIES LITIGATION ) ) Wednesday, April 13, 2022 ) ) (4:26 p.m. to 4:49 p.m.) HEARING RE: MOTION FOR SETTLEMENT APPROVAL OF PRELIMINARY APPROVAL OF SETTLEMENT [DKT.NO.105]; MOTION FOR SETTLEMENT APPROVAL OF PROPOSED CLASS ACTION SETTLEMENT AND PLAN OF ALLOCATION [DKT.NO.107]; PLAINTIFF’S MOTION FOR ATTORNEY FEES AND LITIGATION EXPENSES [DKT.NO.109] BEFORE THE HONORABLE DAVID O. CARTER, UNITED STATES DISTRICT JUDGE APPEARANCES: SEE PAGE 2 Court Reporter: Recorded; CourtSmart Courtroom Deputy: Karlen Dubon Transcribed by: Exceptional Reporting Services, Inc. P.O. Box 8365 Corpus Christi, TX 78468 361 949-2988 Proceedings recorded by electronic sound recording; transcript produced by transcription service. EXCEPTIONAL REPORTING SERVICES, INC Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 2 of 17 Page ID #:2176 2 APPEARANCES FOR: Plaintiffs: DAVID R. KAPLAN, ESQ. Saxena White 12750 High Bluff Dr. Suite 475 San Diego, CA 92130 JONATHAN D. USLANER, ESQ. Bernstein Litowitz Berger & Grossmann 2121 Avenue of the Stars Suite 2575 Los Angeles, CA 90067 Defendants: MICHAEL J. BILES, ESQ. King & Spalding 500 West 2nd Street Suite 1800 Austin, TX 78701 EXCEPTIONAL REPORTING SERVICES, INC Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 3 of 17 Page ID #:2177 3 1 Santa Ana, California; Wednesday, April 13, 2022; 4:26 p.m. 2 --oOo-- 3 THE COURT: All right. We’re on the record in 4 19-02326, In Re: Merit Medical Systems, Inc. Securities 5 Litigation. 6 Counsel, if you’d remain seated and would you please 7 make your appearance beginning with Plaintiff? 8 MR. KAPLAN: Good afternoon, Your Honor, Dave Kaplan 9 of Saxena White on behalf of the lead Plaintiffs and with me 10 here today is Jonathan Uslaner from Bernstein Litowitz Berger 11 and Grossmann, our co-counsel -- our co-lead counsel in this 12 case also on behalf of lead Plaintiffs. 13 THE COURT: Thank you. 14 On behalf of the Defendant? 15 MR. BILES: Good afternoon, Your Honor. It’s Michael 16 Biles of King and Spalding on behalf of Defendants. 17 THE COURT: And, Counsel, your comments, your 18 argument on this matter. 19 MR. KAPLAN: Thank you, Your Honor. We’re here 20 before Your Honor today on a motion for final approval of the 21 settlement in this case, a settlement Your Honor granted 22 preliminary approval of on January 3rd of this year. And I’m 23 happy to summarize for the Court the principal reasons 24 supporting our request for final settlement approval and answer 25 any questions Your Honor may have. EXCEPTIONAL REPORTING SERVICES, INC Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 4 of 17 Page ID #:2178 4 1 THE COURT: Please. 2 MR. KAPLAN: So the pending motions for final 3 approval of the settlement and for attorneys’ fees and 4 reimbursement of litigation expenses are unopposed. There were 5 no objections to any aspect of the settlement as well as any 6 aspect of the request for fee and reimbursement. 7 The proposed settlement consideration is $18.25 8 million and following the Court’s January 3rd preliminary 9 approval order, the full amount of that settlement 10 consideration was deposited into an escrow account at 11 Huntington Bank where it’s been invested in Treasury Bills and 12 has been earning interest for the benefit of the settlement 13 class. 14 THE COURT: Okay. 15 MR. KAPLAN: And in accordance with the Court’s 16 preliminary approval order, lead counsel together with the 17 claims administrator has embarked on an extensive notice 18 program which included providing nearly 26,000 notice packets 19 to potential settlement class members that have been identified 20 by the company itself, the Defendant company Merit Medical 21 itself as well as banks, brokers and other nominees. And those 22 notice packets -- the mailing of those notice packets occurred 23 between January 21st and March 25th. 24 Publication notice was also provided in Investors 25 Business Daily and the PR Newswire on February 7th. Both of EXCEPTIONAL REPORTING SERVICES, INC Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 5 of 17 Page ID #:2179 5 1 the respective lead counsel firms have also provided notice via 2 our websites as well as a dedicated website maintained by the 3 class action administrator for the settlement, 4 www.meritmedicalsecuritieslitigation.com. 5 And throughout this process, as is customary, the 6 claims administrator maintained a toll-free number for 7 investors to call with any questions about the settlement. 8 There’s only been a few calls, seven in -- 14 inbound calls 9 that lasted approximately 2.5 hours and seven outbound calls 10 made in response to messages left and to follow up on any 11 questions. 12 My co-counsel and I actually spoke with the claims 13 administrator yesterday afternoon just to ensure that the 14 notice program was going smoothly and that there were no 15 questions by potential class members or the brokers or the 16 nominees regarding any aspect of the settlement or the notice 17 program. And the claims administrator confirmed that 18 everything is proceeding smoothly and as planned. 19 So on March 9th following the transfer of the full 20 settlement consideration into the Huntington Bank into the 21 escrow account, we, lead Plaintiffs, filed their reply in 22 further support of final settlement approval. And we’re 23 pleased to report that there has not been a single objection, 24 as I mentioned earlier, to any aspect of the settlement nor has 25 any member of the proposed settlement class requested EXCEPTIONAL REPORTING SERVICES, INC Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 6 of 17 Page ID #:2180 6 1 exclusion. 2 We did receive one exclusion request. It was by an 3 individual investor who was not a member of the settlement 4 class. They held 20 shares of Merit common stock and sold them 5 for a gain before the first alleged corrected disclosure. So 6 they wouldn’t be a member of the settlement class in any event. 7 So there’s been no request for exclusion. There’s 8 been no objections to any aspect to either of the motions. And 9 as set forth in our papers, I would submit to the Court that 10 the settlement is fair, reasonable and adequate and meets the 11 approval standards of Rule 23(e)(2) and applicable Ninth 12 Circuit law including each of the handling factors. 13 And I’m happy to go through those and I’m also happy 14 to detail the extensive efforts that the lead Plaintiffs and 15 the lead counsel took in this case on behalf of the class that 16 resulted in the 18.25 million-dollar recovery. I could go 17 through those efforts briefly for Your Honor. 18 It included two years of litigation and an extensive 19 pre-suit investigation that included the identification over -- 20 of over 700 former employees of Merit Medical and the two 21 acquisition companies that it -- two companies that it acquired 22 and that were the subject of the claims and interviews with 23 over four dozen of those former employees, 16 of which were 24 included in our nearly hundred-page amended complaint. 25 My colleague Jon here spoke with each and every one EXCEPTIONAL REPORTING SERVICES, INC Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 7 of 17 Page ID #:2181 7 1 of those during those interviews and confirmed their accounts 2 and their accounts were cited in both Your Honor’s decision 3 denying transfer of the case to the Defendant company’s home 4 forum of the District of Utah as well as the decision denying 5 the motion -- substantially denying the motion to dismiss in 6 this case. 7 Our efforts also included, as I mentioned, defeating 8 Defendants’ transfer motion to Utah, largely defeating the 9 motion to dismiss first before Magistrate Judge Spaeth and then 10 again before Your Honor in connection with Defendants’ 11 objection to Judge Spaeth’s Report and Recommendation. 12 Thereafter, discovery began and we received from 13 Defendants and reviewed from Defendants and five nonparties 14 over a half million pages of documents and we also consulted 15 with experts regarding various aspects of the claims and 16 damages. 17 Thereafter, we engaged in mediation discussions 18 before a well -- a highly experienced mediator Michelle Yoshida 19 of Phillips ADR which we informed Your Honor about at that 20 settlement conference that we had in this case. 21 We engaged in a full-day in-person mediation. That 22 did not result in a settlement but our discussions continued 23 for six weeks thereafter, as did discovery, and ultimately the 24 parties accepted the mediator’s recommendation on a double- 25 blind basis for the $18.25 million in settlement consideration. EXCEPTIONAL REPORTING SERVICES, INC Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 8 of 17 Page ID #:2182 8 1 I would point out as well that, as Your Honor may be 2 aware, typically in securities class action settlements, the 3 settlement is funded entirely by directors’ and officers’ 4 insurance policies. Here, over half of the settlement 5 consideration was funded by the company itself. The company 6 went out of pocket. So we do believe that’s a meaningful fact 7 to bring to the Court’s consideration in assessing the 8 substantial recovery achieved for the class here. 9 And in that regard, in terms of the recovery achieved 10 for the class, our expert estimated that the total realistic 11 class-wide damages in this case after considering some 12 significant loss-causation arguments -- and I could get into 13 those if Your Honor would like -- was $153 million. But that 14 is taking a very -- 15 THE COURT: Right. 16 MR. KAPLAN: -- Plaintiff’s-oriented view of loss 17 causation and -- but under Defendants’ arguments, our expert 18 analyzed that the total class-wide damages were $33 million. 19 So depending on which side you look at and which side 20 the jury -- the Court or jury were to accept, the recovery 21 achieved through this settlement represents between 12 and 55 22 percent of the maximum realistic trial damages class-wide in 23 this case. And that’s a very significant figure. 24 For example, every year a leading economic consulting 25 firm, Cornerstone Research, publishes a review of securities EXCEPTIONAL REPORTING SERVICES, INC Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 9 of 17 Page ID #:2183 9 1 class action settlements and the median recovery rates. And 2 the most recent report cited a median recovery in cases of all 3 sizes from 2011 to 2019 of 4.9 percent. So we’re more than 4 double that figure even at the low end of the range and over 11 5 times that figure at the high end of the range. 6 So we did believe that the settlement achieved here, 7 as well as the lead Plaintiffs strongly believed, represented a 8 very meaningful recovery for the class and that continued risk 9 -- continued further litigation in the case not only might not 10 achieve a larger recovery but it might result in no recovery at 11 all because Defendants vigorously challenged every aspect of 12 the claims including the core claim elements of falsity, 13 materiality, scienter and loss causation. 14 And some of these arguments were extremely 15 challenging and we believed in the merits of our case and in 16 the strength of our investigation but there were very real 17 risks in this case and we do believe that the recovery achieved 18 in this case is an excellent recovery for the class and 19 certainly surpasses the typical recovery in securities class 20 action cases. 21 THE COURT: Okay. 22 MR. KAPLAN: I can move on to address the plan of 23 allocation very briefly. 24 THE COURT: Why don’t you? 25 MR. KAPLAN: Sure. So the plan of allocation here EXCEPTIONAL REPORTING SERVICES, INC Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 10 of 17 Page ID #:2184 10 1 seeks to equitably distribute the net settlement fund among 2 settlement class members who suffered economic losses as a 3 result of the alleged violations of the securities laws pled in 4 our complaint. It was developed by lead counsel in 5 consultation with lead Plaintiffs’ damages expert and is 6 consistent with plans of allocation utilized in this district 7 and Federal courts throughout California and nationwide. 8 And what it does is it calculates the estimated 9 amount of artificial inflation that was introduced into the 10 stock price by Defendants’ alleged misrepresentations and the 11 amount of that artificial inflation that was removed in this 12 case on two alleged corrective disclosure dates when the stock 13 price plummeted in response to various news disclosures 14 including what we allege are corrective revelations of the 15 prior misstatements. 16 So it measures the amount of artificial inflation 17 within the stock price drop on those two corrective disclosure 18 events that was removed and tied to the alleged misstatements 19 in the case and then treats all class members equally in 20 apportioning the net settlement fund based on the timing of 21 those -- each class member’s purchases and sales and the amount 22 of artificial inflation that they -- that was in the stock 23 price when they purchased it and the damages that they suffered 24 as a result of holding those shares over the corrective 25 disclosure events. EXCEPTIONAL REPORTING SERVICES, INC Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 11 of 17 Page ID #:2185 11 1 So it’s a very common plan of allocation, typical of 2 security -- in securities class action settlements. And it’s 3 fairly straightforward in this case given that there were two 4 corrective disclosure events and it’s an eight-month class 5 period. 6 I can go into greater detail on the plan of 7 allocation. It’s described in great detail in the notice that 8 went out to class members but if Your Honor doesn’t have any 9 questions regarding the plan of allocation, I’m happy to turn 10 to our fee and expense request. 11 THE COURT: Please. 12 MR. KAPLAN: So -- thank you, Your Honor. As I 13 mentioned earlier, this action was litigated for two years and 14 without any compensation to the lead counsel firms. It was -- 15 we took this case on a full contingency-fee basis. All 16 expenses were out-of-pocket expenses incurred by the firms. 17 We’re requesting a fee of 30 percent of the net 18 settlement fund or $5.475 million with the agreement and full 19 support of the three lead Plaintiffs in this case. The three 20 lead Plaintiffs are sophisticated public pension funds with 21 several billion dollars of combined assets under management. 22 They’re experienced fiduciaries and that experience includes 23 oversight of lead counsel and many other securities class 24 action settlements. 25 The 30-percent fee amount has -- for securities class EXCEPTIONAL REPORTING SERVICES, INC Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 12 of 17 Page ID #:2186 12 1 actions, Your Honor, as recognized in other cases, is the norm 2 in complex securities fraud cases and is consistent with 3 percentage fees awarded in comparable cases and certainly in 4 cases where -- involving significant work by counsel and 5 substantial results that have been achieved by counsel. 6 And we do recognize that the Ninth Circuit has a 7 benchmark, 25 percent. We do think, given the substantial 8 amount of work that we’ve invested in this case and the 9 extraordinary recovery that this proposed settlement would 10 return to shareholders, that a modest upwards adjustment to 30 11 percent is consistent not only with your prior case law stating 12 that that’s the norm in complex securities fraud cases but case 13 law from numerous other judges in District courts throughout 14 California and beyond California. 15 And I point out that if the Court were to look at the 16 lodestar that our firm has incurred and the prosecution -- 17 investigation, research and prosecution in this case, it totals 18 $3.8 million or over 6,550 hours of work and none of that is in 19 connection with the fee and expense request. That’s all been 20 removed -- so just for the investigation and prosecution of 21 this case. And that results in a modest multiplier of 1.4 -- 22 THE COURT: Okay. 23 MR. KAPLAN: -- so certainly in line with other 24 multipliers approved by Courts in the Ninth Circuit and, in 25 fact, at the low end. There’s many cases Courts approving EXCEPTIONAL REPORTING SERVICES, INC Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 13 of 17 Page ID #:2187 13 1 percentage-fee awards with three to four times multipliers and 2 often cases with substantially less recovery rates than we’ve 3 achieved here. So we do believe that this -- what we would 4 term a “modest” 1.4 percent multiplier, if the Court were to 5 perform a lodestar cross-check, also supports the -- fully 6 supports the 30-percent fee request. 7 Lastly, turning to expenses, we’re very pleased to 8 report to Your Honor that the total expenses that we’re seeking 9 reimbursement of in this case is less than half of the 250,000- 10 dollar estimate that was in the notice. And specifically, 11 we’re requesting reimbursement of expenses in the amount of 12 $104,686. These are typical expenses that one would incur in a 13 case of this type. 14 Nearly -- just to give you a rough sense of the 15 nature of the expenses, nearly 80 percent of the expenses were 16 for categories involving legal and factual research, experts 17 and consultants and mediation. And we’re cognizant of some of 18 Your Honor’s prior statements in other approval hearings and 19 decisions regarding expert fees. And here we were able to keep 20 the expert fees to under $50,000. 21 THE COURT: Okay. 22 MR. KAPLAN: -- and especially given some the hourly 23 rates of experts in this field, we think that’s certainly a 24 very reasonable sum, as is the total, approximate 104,000- 25 dollar expense reimbursement request. EXCEPTIONAL REPORTING SERVICES, INC Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 14 of 17 Page ID #:2188 14 1 THE COURT: Okay. 2 MR. KAPLAN: Finally -- and this would be the last 3 substantive aspect of the motions that I would like to address 4 with Your Honor is a very modest reimbursement for the time 5 spent by the actual lead Plaintiffs overseeing the prosecution 6 of the case. The lead Plaintiffs were very involved in the 7 prosecution of the case from the outset, from the lead 8 Plaintiffs stage through settlement approval. 9 That -- this included reviewing drafts of the 10 pleadings and other key -- and motions and briefs and key case 11 filings in the case, participating in the mediation process, 12 evaluating and approving the settlement. And awards that we’re 13 requesting are $5,500 for the two Atlanta funds and $3,392 for 14 the Baton Rouge fund. And, again, that is a reimbursement -- 15 THE COURT: Is that the $8,892 added together? I 16 think it -- 17 MR. KAPLAN: Right. For their actual time spent 18 overseeing the prosecution of the case. 19 THE COURT: Got it. 20 MR. KAPLAN: And then in all other respects, their 21 claims would be submitted under the plan of allocation to the 22 claims administrator and treated the same as any other class 23 member. 24 THE COURT: Counsel -- 25 MR. KAPLAN: And unless Your Honor has any other EXCEPTIONAL REPORTING SERVICES, INC Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 15 of 17 Page ID #:2189 15 1 questions, which I’m happy to address, I would just like to 2 close by thanking the Court for its two years overseeing this 3 complex matter. 4 THE COURT: Well, thank you. 5 Counsel, any response or any thoughts? 6 MR. BILES: Your Honor, the Defendants take no 7 position on Plaintiffs’ request for fees but we support the 8 Court’s approval of the settlement and entry of final judgment. 9 THE COURT: All right. Then under Federal Rule of 10 Civil Procedure 23(e)(2), the Court may approve a final class 11 action settlement only on finding that it is fair, reasonable 12 and adequate. And the Court must consider whether the class 13 representatives and the class counsel have adequately 14 represented the class, the proposal was negotiated at arm’s 15 length, the relief provided for the class is adequate taking 16 into account the costs, risks and delay of trial and appeal, 17 effectiveness of any proposed method of distributing relief to 18 the class including the method of processing class member 19 claims and the terms of any proposed award of attorneys’ fees 20 including timing of payment. 21 Here the proposed settlement gives 18 million -- 22 well, 18.25 million to the class -- or to the settlement class, 23 30 percent of the settlement fund in attorneys’ fees, 24 $104,686.68 in litigation expenses and $8,892.01 to lead 25 Plaintiffs. This Court is convinced that the class EXCEPTIONAL REPORTING SERVICES, INC Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 16 of 17 Page ID #:2190 16 1 representatives and counsel have adequately represented the 2 class. The proposed settlement appears and seems to have been 3 negotiated at arm’s length and the settlement does not raise 4 any concerns. 5 Securities class action litigation under the PSLRA is 6 risky and often difficult to prove. Moreover, this case 7 progressed without a parallel SEC action and the results 8 achieved are substantial and avoid the risks of proceeding to 9 trial. 10 This Court has previously found an attorneys’ fee 11 award of 30 percent is the norm in common fund cases but I 12 especially find and make the same award and find that the 13 attorneys’ fee award is not only reasonable but to be commended 14 here. And I want to thank each of you for your courtesy. Well 15 represented -- 16 MR. SPEAKER: Thank you, Your Honor. 17 MR. SPEAKER: Thank you, Your Honor. 18 THE COURT: -- and very, very much appreciated. 19 MR. SPEAKER: Thank you, Your Honor. 20 MR. SPEAKER: Thank you, Your Honor. 21 THE COURT: And so we’ll see you soon or maybe not so 22 soon. Good night now. 23 MR. SPEAKER: Good afternoon. 24 (This proceeding adjourned at 4:49 p.m.) 25 EXCEPTIONAL REPORTING SERVICES, INC Case 8:19-cv-02326-DOC-ADS Document 124 Filed 12/01/22 Page 17 of 17 Page ID #:2191 17 CERTIFICATION I certify that the foregoing is a correct transcript from the electronic sound recording of the proceedings in the above-entitled matter. December 1, 2022 Signed Dated TONI HUDSON, TRANSCRIBER EXCEPTIONAL REPORTING SERVICES, INC