Securities America Lawsuit PDF

Case 3:10-cv-01833-F Document 117 Filed 06/14/11 Page 1 of 32 PageID 2684
THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
:
BILLITTERI v. SECURITIES AMERICA, : 3:09-cv-01568-F
INC., et al. (Provident Royalties Litigation) : AND RELATED CASES
:
:
THIS DOCUMENT RELATES TO: :
ALL ACTIONS :
:
:
C. RICHARD TOOMEY, et al. v. :
:3:10-cv-01833-F
SECURITIES AMERICA, INC., et al.
:
:
:
IN RE: MEDICAL CAPITAL SECURITIES Case No. ML 10-2145 DOC (RNBx)
:
LITIGATION (C.D. Cal.)
:
:
:
THIS DOCUMENT RELATES TO: : Limited transfer for settlement
McCoy, SACV09-1084 DOC (RNBx) (C.D. : purposes as Case No. 3-11-cv-00191-
Cal.) : F (N.D. Tex.)
:
MEMORANDUM IN OF LAW IN SUPPORT OF PLAINTIFFS’ MOTION

FOR FINAL APPROVAL OF CLASS ACTION SETTLEMENT WITH
SECURITIES AMERICA, INC., SECURITIES AMERICA FINANCIAL
CORPORATION AND AMERIPRISE FINANCIAL, INC.
TABLE OF CONTENTS
I. INTRODUCTION 1
II. BACKGROUND OF THE LITIGATION AND SETTLEMENT 2
III. MATERIAL TERMS OF THE SETTLEMENT 2
A. The Settlement Classes 2
B. The Settlement Fund 3
C. Allocation of the Settlement Fund 3
D. The Release of Settlement Class Members’ Claims 4
E. Attorneys’ Fees and Expenses and Administrative Costs 4
F. Supplemental Agreement 5
IV. THE SETTLEMENT NOTICE SATISFIED RULE 23 AND DUE PROCESS 5
V. THE COURT SHOULD CERTIFY THE SETTLEMENT CLASSES 6
A. The Settlement Classes Are Sufficiently Numerous 7
B. Common Questions of Law and Fact Predominate 7
1. The Texas Securities Act Claims Asserted in Provident 8
2. The Federal Securities Act Claims Asserted In Provident and

Medical Capital 9
3. The Breach of Fiduciary Duty Claim Asserted in Provident 10
4. The Negligence Claim Asserted in Medical Capital 11
C. The Representative Plaintiffs’ Claims Are Typical 11
D. The Representative Plaintiffs Adequately Represent the Classes 12
E. A Class Action Is Superior 13
VI. THE COURT SHOULD APPOINT SETTLEMENT CLASS COUNSEL 15
i
VII. THE SETTLEMENT IS FAIR, REASONABLE AND ADEQUATE AND

SHOULD BE APPROVED 15
A. The Absence of Fraud and Collusion Weighs In Favor of Settlement 16
B. The Complexity, Expense and Likely Duration of the Litigation Weigh in

Favor of Approval 18
C. The Stage of the Proceedings Weighs in Favor of Approval 19
D. The Probability of Success on the Merits Weighs in Favor of Approval 20
E. The Range of Possible Recovery Weighs in Favor of Approval 22
F. The Opinions of Settlement Class Counsel, Class Representatives and

Absent Class Members 23
VIII. CONCLUSION 24
ii
TABLE OF AUTHORITIES
Cases
Amchem Products, Inc. v. Windsor
521 U.S. 591 (1997) 6, 7, 13, 15
Ayers v. Thompson
358 F.3d 356 (5th Cir. 2004) 16, 19, 24
City of San Antonio v. Hotels.com

2008 WL 2486043 (W.D. Tex. May 27, 2008) 8
Columbus Drywall & Insulation, Inc. v. Masco Corp.

258 F.R.D. 545 (N.D. Ga. 2007) 5
Cotton v. Hinton
559 F.2d 1326 (5th Cir. 1977) 15, 20, 23, 24
DeHoyos v. Allstate Corp.

240 F.R.D. 269 (W.D. Tex. 2007) passim
Durrett v. John Deere Co.

150 F.R.D. 555 (N.D. Tex. 1993) 14
Eatmon v. Palisades Collection, LLC

2010 WL 1189571 (E.D. Tex. Mar. 5, 2010) 7, 8
Eisen v. Carlisle & Jacquelin

417 U.S. 156 (1974) 5
Feder v. Electronic Data Systems Corp.

429 F.3d 125 (5th Cir. 2005) 12
Fernea v. Merrill Lynch Pierce Fenner & Smith, Inc.

2011 WL 56057 (Tex. App. Jan. 7, 2011) 9, 21
G.A. Thompson & Co. v. Partridge

636 F.2d 945 (5th Cir. 1981) 10
Hollinger v. Titan Capital Corp.

914 F.2d 1564 (9th Cir. 1990) 10
Howard v. Everex Sys., Inc.

228 F. 3d 1057 (9th Cir. 2000) 10
iii
In re AOL Time Warner, Inc. Securities & “ERISA ” Litig.

2006 WL 903236 (S.D.N.Y. Apr. 6, 2006) 24
In re CertainTeed Corp. Roofing Shingles Products Liability Litig.

269 F.R.D. 468 (E.D. Pa. 2010) 11
In re Charles Schwab Corp. Sec. Litig.

257 F.R.D. 534 (N.D. Cal. 2009) 21
In re Corrugated Container Antitrust Litig.

643 F.2d 195 (5th Cir. 1981) 12, 20
In re Dell, Inc.
2010 WL 2371834 (W.D. Tex. June 11, 2010) 6
In re Education Testing Services Proaxis Principles of Learning & Teaching: Grades 7-12 Litig.
447 F. Supp. 2d 612 (E.D. La. 2006) 22
In re Enron Corp. Securities, Derivative & "ERISA " Litig.

228 F.R.D. 541 (S.D. Tex. 2005) 22
In re Enron Corp. Securities, Derivative & ERISA Litig.

2008 WL 2566867 (S.D. Tex. June 24, 2008) 4
In re Enron Corp. Securities, Derivative & "ERISA " Litig.

586 F. Supp. 2d 732 (S.D. Tex. 2008) 20
In re HealthSouth Corp. Securities Litig.

334 Fed. Appx. 248, 253-55 & n.1 1 (11th Cir. 2009) 5
In re WorldCom, Inc. Sec. Litig.

2005 WL 591189 (S.D.N.Y. Mar. 14, 2005) 4
James v. City of Dallas

254 F.3d 551 (5th Cir. 2001) 11, 12
Jenkins v. Raymark Industries, Inc.

782 F.2d 468 (5th Cir. 1986) 6
Klein v. O’Neal
705 F. Supp. 2d 632 (N.D. Tex. 2010) 17, 18, 20, 23
Lehocky v. Tidel Tech., Inc.

220 F.R.D. 491 (S.D. Tex. 2004) 14
iv
Longden v. Sunderman
123 F.R.D. 547 (N.D. Tex. 1988) 9, 14
Maher v. Zapata Corp.

714 F.2d 436 (5th Cir. 1983) 18
McNamara v. Bre -X Minerals Ltd.

214 F.R.D. 424 (E.D. Tex. 2002) 6, 7, 12
Miller v. Republic Nat'l Life Insurance Co.

559 F.2d 426 (5th Cir. 1977) 15
Miller v. Thane Int’l, Inc.

519 F.3d 879 (9th Cir. 2008) 10
Mullen v. Treasure Chest Casino, LLC

186 F.3d 620 (5th Cir. 1999) 7, 9, 11
Plotkin v. Joekel
304 S.W.3d 455 (Tex. App. 2009) 10
Pope v. Harvard Bancshares, Inc.

240 F.R.D. 383 (N.D. Ill. 2006) 11
Reed v. General Motors Corp.

703 F.2d 170 (5th Cir. 1983) passim
Schwartz v. TXU Corp.

2005 WL 3148350 (N.D. Tex. Nov. 8, 2005) passim
Shaw v. Toshiba Am. Info. Sys., Inc.

91 F. Supp. 2d 942 (E.D. Tex. 2000) 7, 14
Stirman v. Exxon Corp.

280 F.3d 554 (5th Cir. 2002) 11
Tracker Marine L.P. v. Ogle

108 S.W.3d 349 (Tex. App. 2003) 8
Turner v. Murphy Oil USA, Inc.

472 F. Supp. 2d 830 (E.D. La. 2007) 23
Vaughn v. American Honda Motor Co.

27 F. Supp. 2d 738 (E.D. Tex. 2007) 17, 24
v
Watson v. Shell Oil Co.

979 F.2d 1014 (5th Cir. 1992) 11
Weatherly v. Deloitte & Touche

905 S.W.2d 642 (Tex. App. 1995) 8, 9
Williams v. First Nat’l Bank of Pauls Valley

216 U.S. 582 (1910) 15
Young v. Katz
447 F.2d 431 (5th Cir. 1971) 20
Statutes
15 U.S.C. § 77 l(a)(2) 10
15 U.S.C. § 77o(a) 10, 21
15 U.S.C. § 78u-4(a)(7) 6
Tex. Rev. Civ. Stat. art. 581, § 33(A)(2) 8
Tex. Rev. Civ. Stat. art. 581, § 33(F)(1) 8, 9, 21
Rules
Fed. R. Civ. P. 23(b)(3) 7, 13
Fed. R. Civ. P. 23(c)(2) 5
Fed. R. Civ. P. 23(g)(1)(A) 15
Fed. R. Civ. P. 23(g)(1)(B) 15
vi
I. INTRODUCTION
On May 5, 2011, the Court entered an order granting preliminary approval of the
proposed class action settlement with Defendants Securities America, Inc., Securities America
Financial Corporation (SAFC), and Ameriprise Financial, Inc. (together, the “Settling
Defendants”). The Court also preliminarily certified Rule 23(b)(3) classes for settlement
purposes under the Federal Rules of Civil Procedure, preliminarily approved the settlement terms
as fair, reasonable and adequate, and approved notice to the class. (Billitteri Dkt. No. 435) The
Court scheduled a fairness hearing for July 25, 2011 to consider final approval of the settlement.
The representative plaintiffs, Joseph Billitteri, the Sharon Kreindel Revocable Trust DTD
02/09/2005, Henry Mitchell, Alvin Sabroff and June Sabroff, now ask the Court to enter an order
finally certifying the settlement classes and approving the settlement.
The settlement provides for an all-cash payment of $80 million to 2,158 Settlement Class
Members, who will recover approximately 40% of their losses. Investors who commenced
arbitration proceedings are being paid from a separate $70 million fund, resulting in a total
payment of $150 million to investors who purchased Provident Securities and Medical Capital
Notes through Securities America. The settlement will be funded through a special purpose loan
by Ameriprise to Securities America, an extraordinary result given the significant challenges

plaintiffs would face in proving Ameriprise’s liability as a control person under the securities
laws. Settlement Class Members will recover far more from this settlement than investors
typically recover through litigation—the median recovery in securities class actions settled in
2010 was 2.4% of investor losses.
The global settlement is the product of extensive arm’s-length negotiations by
experienced counsel who were sufficiently familiar with the relevant facts and law to assess the
strengths and weakness of the cases and the relative benefits of settlement over trial and any
appeals. The result is a fair and adequate settlement that the Representative Plaintiffs and
Settlement Class Counsel believe is in the best interests of the Settlement Classes and an
1
excellent recovery given the many obstacles prior to trial. 1 The settlement also has the support
of the PR Liquidating Trustee, Provident Receiver Dennis Roossien, and Medical Capital
Receiver Thomas W. Seaman. See Apx. 231, 234-235. The settlement merits final approval.
II. BACKGROUND OF THE LITIGATION AND SETTLEMENT
The accompanying Joint Declaration of Daniel C. Girard and Susan Salvetti sets forth the
procedural and factual background leading up to and supporting the settlement. See Apx 1-29.
III. MATERIAL TERMS OF THE SETTLEMENT
A. The Settlement Classes

The proposed settlement has been reached on behalf of two Settlement Classes. The
Provident Settlement Class is defined as “all Investors, their successors and assigns, who
purchased Provident Securities from SAI, and were damaged thereby.” (Settlement Agreement
¶ I.23.) The 335 Provident investors who assigned their claims to the PR Liquidating Trust will
participate in the settlement in accordance with the terms of the Provident Bankruptcy Plan. (See
id., ¶ I.13.) The Medical Capital Settlement Class is defined as “all Investors, their successors
and assigns, who purchased Medical Capital Notes from SAI and were damaged thereby.” ( Id.,
¶ 12.)
The Settlement Classes exclude any Settlement Class Member who timely and validly
requests exclusion and any Provident or Medical Capital investor who commenced arbitration
against Securities America prior to April 1, 2011 and agreed to settle his or her claims in
arbitration by executing a Confidential Individual Claimant Agreement as part of the separate
Arbitration Settlement. Also excluded are the defendants, parents and subsidiaries of the
defendants, and defendants’ officers, directors, affiliates, legal representatives, predecessors,
successors and assigns, as well as Provident and Medical Capital, their parents, subsidiaries,
officers, directors, affiliates, legal representatives, predecessors, successors and assigns. ( Id.,
¶¶ I. 12 & I.13.)
1Capitalized terms in this brief are defined in the Settlement Agreement, attached as exhibit 8 to
the joint declaration. See Apx 182-212.
2
B. The Settlement Fund
The Settling Defendants will pay $80,000,000 in cash to resolve the claims of investors
who purchased Provident Securities and Medical Capital Notes through Securities America and
who do not participate in the Arbitration Settlement or opt out of the settlement. (Settlement
Agreement ¶¶ I. 14, I.15, I.36, VIII.D.)
C. Allocation of the Settlement Fund

The parties propose that the Settlement Fund be allocated pro rata to the members of
both Settlement Classes. After payment of court-approved attorneys’ fees and expenses and
administrative costs related to notice and distribution of the settlement funds, the Settlement
Fund will be divided proportionately between the Provident Settlement Class and the Medical
Capital Settlement Class based upon the amount of money actually invested in such securities,
net of any return of investments received by the Settlement Class Members. (Settlement
Agreement ¶ VIII.H.2.)
The Net Provident Settlement Fund will then be distributed to the Provident Settlement
Class Members on a pro rata basis, in the same proportion as each individual Provident
Settlement Class Member’s lost principal investment amount in Provident Securities bears to the
total lost principal investment amount of all Provident Settlement Class Members, net of any
return of investments. ( Id., ¶ VIII.H. 2(a).) Payments that would be made to Provident
Settlement Class members who assigned their claims to the PR Liquidating Trust will be made
directly to Mr. Segner for distribution in accordance with the Bankruptcy Plan, and will not be
reduced by plaintiffs’ counsel’s attorneys’ fees. ( Id., ¶ I.13.)
The Net Medical Capital Settlement Fund will be distributed to the Medical Capital
Settlement Class Members on a pro rata basis, in the same proportion as each individual Medical
Capital Settlement Class Member’s lost principal investment amount in Medical Capital
Securities bears to the total lost principal investment amount of all Medical Capital Settlement
Class Members, net of any return of investments. ( Id. ¶ VIII.H.2(b).)
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The proposed order of final settlement approval and judgment also includes a mutual bar
order and a judgment reduction provision. These types of provision are typical of class action
settlements, and the Court does not need to determine what type of judgment reduction may be
applicable. See, e.g., In re Enron Corp. Securities, Derivative & ERISA Litig., No. MDL-1446,
2008 WL 2566867, at *5, *8-9 (S.D. Tex. June 24, 2008); In re WorldCom, Inc. Sec. Litig., No.
02 Civ. 3288(DLC), 2005 WL 591189, at *5-6 (S.D.N.Y. Mar. 14, 2005).

D. The Release of Settlement Class Members’ Claims
The Settlement Agreement provides that Settling Defendants and their affiliates and
subsidiaries, along with each of their current and former officers, directors, agents, registered
investment advisors and employees, including Securities America’s Registered Representatives
(collectively, “Releasees”) will be released from any and all liability as to the Released Claims.
(Settlement Agreement ¶¶ I.24, I.25.) The Settlement Agreement defines Released Claims as:
any and all Claims (known or unknown) that have or could have been asserted by,
on behalf of, for the benefit of, or in the name of, any Settlement Class Member
against Releasees, directly or indirectly, based upon, arising out of, or related to:
(i) an investment or interest in one or more of the Provident Securities or Medical
Capital Notes, or (ii) the facts, transactions, events, occurrences, acts, or
omissions that relate to any of the matters alleged or that could have been alleged
in the Class Actions. The Released Claims do not include claims by Milo Segner,
Trustee, for avoidance of fraudulent transfers pursuant to 11 U.S.C. Section 548 et
seq. and/or the Uniform Fraudulent Transfer Act.
(Id., ¶ I.30.) The release will bar and permanently enjoin Settlement Class Members from
prosecuting, commencing or continuing any and all Released Claims they had or have against the
Releasees in any forum. (Id., ¶¶ VIII.C.3-4.)
E. Attorneys’ Fees and Expenses and Administrative Costs

Plaintiffs’ counsel are separately applying for an award of attorneys’ fees of up to 25% of
the Settlement Fund, excluding the portion of the Settlement Fund allocable to the PR
Liquidating Trust, and for reimbursement of the expenses they have advanced to pursue the
litigation. (Settlement Agreement ¶¶ VIII.B.1(g), VIII.C.8., VIII.H.2.) The award of fees and
expenses is subject to Court approval. A minimal portion of the Settlement Fund will be used to
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pay administrative costs related to mailing the notice and distributing the Settlement Fund. (Id.,
¶ VIII.H.2.) Plaintiffs’ counsel anticipate that the administrative costs will not exceed $60,000.
F. Supplemental Agreement
Settlement Class Counsel and Settling Defendants’ counsel have entered into a
supplemental agreement setting forth certain conditions under which the Settling Defendants, at
the sole discretion of Ameriprise, may withdraw from the Settlement Agreement if class
members above a certain threshold amount exclude themselves from the Settlement Classes. The
supplemental agreement will not be filed prior to the Fairness Hearing unless a dispute arises as
to its terms, and will then be filed under seal. (Settlement Agreement, ¶ VIII.F.) The legitimate
interests of the settling parties in maintaining the confidentiality of these types of agreements has
been recognized by the courts. See, e.g., In re HealthSouth Corp. Securities Litig., 334 Fed.
Appx. 248, 253-55 & n.1 1 (11th Cir. 2009); Columbus Drywall & Insulation, Inc. v. Masco
Corp., 258 F.R.D. 545, 560 (N.D. Ga. 2007).
IV. THE SETTLEMENT NOTICE SATISFIED RULE 23 AND DUE PROCESS

The notice to the Settlement Class satisfied the requirements of Rule 23, due process and
the PSLRA. Settlement Class Members received “the best notice practicable under the
circumstances, including individual notice to all members who can be identified through
reasonable effort.” Fed. R. Civ. P. 23(c)(2); see also Eisen v. Carlisle & Jacquelin, 417 U.S.
156, 173-74 (1974) (due process requires the best notice practicable). The Provident and
Medical Capital Receivers, through their agents, each assembled lists of mailing addresses of
Settlement Class Members and provided those lists to Settlement Class Counsel. Apx 232, 235.
Settlement Class Counsel provided those lists, and the list assembled by counsel for Securities
America, to the settlement administrator. After updating the addresses, the settlement
administrator sent 2,158 copies of the Court-approved notice by first-class mail on May 16,
2011.2 Apx 239. The PR Liquidating Trustee received notice on behalf of all Provident
2 Three investors who are members of both Settlement Classes were only sent one copy of the
notice. Apx 239
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investors who assigned their claims. Apx 255.
“The notice ... adequately describes both the key facts of the suit, the monetary
distribution of the settlement, and the procedure for objecting to the settlement.” In re Dell, Inc.,
No. A-06-CA-726-SS, 2010 WL 2371834, at *5 (W.D. Tex. June 11, 2010). The notice
described the nature, history and status of the class actions; set forth the definition of the
Settlement Classes; explained how to opt out; said that class members may enter an appearance
through their own counsel; and pointed out the binding effect of the settlement approval
proceedings. It also supplied the date, time and place of the Fairness Hearing, and the
procedures for commenting on the settlement and appearing at the hearing. Apx 242-51.
The notice described the settlement, the proposed plan of distribution, the amount of
attorneys’ fees and expenses that plaintiffs’ counsel are seeking, and the reasons the parties are
proposing the settlement. As required by the PSLRA, the notice stated the amount of the
Settlement to be distributed to class members, in both the aggregate and an approximate amount
per dollar invested; the amount of fees and costs that plaintiffs’ counsel are seeking, in both the
aggregate and an approximate amount per dollar invested; and the amount of damages the classes
could recover if the claims were to proceed to trial. See 15 U.S.C. § 78u-4(a)(7). The notice
provided a toll-free number, website address and contact information for Settlement Class
Counsel for class members to obtain additional information. In sum, the notice “contain[ed] an
adequate description of the proceedings written in objective, neutral terms that, insofar as
possible, may be understood by the average absentee class member.” McNamara v. Bre -X
Minerals Ltd., 214 F.R.D. 424, 432 (E.D. Tex. 2002) (citation omitted).
V. THE COURT SHOULD CERTIFY THE SETTLEMENT CLASSES
The Court preliminarily certified the settlement classes when it granted preliminary
approval of the settlement. “[T]he ‘settlement only’ class has become a stock device,” and “all
Federal Circuits recognize [its] utility.” Amchem Products, Inc. v. Windsor, 521 U.S. 591, 618
(1997). The Court has broad discretion in determining whether to certify a class. Jenkins v.
Raymark Industries, Inc., 782 F.2d 468, 471 (5th Cir. 1986). Because the Settlement Classes
6
satisfy the four Rule 23(a) prerequisites—numerosity, commonality, typicality and adequacy—
and the predominance and superiority requirements of Rule 23(b)(3), the Court should grant final
certification of the classes for settlement purposes.

A. The Settlement Classes Are Sufficiently Numerous
The Settlement Classes are so numerous that joinder of all members of each class is
impracticable. See Mullen v. Treasure Chest Casino, LLC, 186 F.3d 620, 624 (5th Cir. 1999)
(finding that a class of 100 to 150 members satisfies numerosity). Securities America sold more
than $47 million in Provident Securities to 543 investors, 178 of whom are members of the
Provident Settlement Class. Apx 239. Securities America sold nearly $700 million in Medical
Capital Notes to 2,605 investors, 1,983 of whom are members of the Medical Capital Settlement
Class. Apx 239. In addition, the Settlement Class Members are too geographically dispersed to
be easily joined into one action. See, e.g., Eatmon v. Palisades Collection, LLC, No. 2:08-CV-
306-DF-CE, 2010 WL 1189571, at *4 (E.D. Tex. Mar. 5, 2010) (considering the “geographic
dispersion of the class”).
B. Common Questions of Law and Fact Predominate
Rule 23(a) requires the existence of “questions of law or fact common to the class.” Fed.
R. Civ. P. 23(a)(2). “The test for commonality is not demanding.” Mullen, 186 F.3d at 625. It is
satisfied where, as here, “there is at least one issue, the resolution of which will affect all or a
significant number of the putative class members.” Id. at 625 (citation omitted).
Rule 23(b)(3) requires that the common issues predominate over any questions affecting
only individual members of the class. Fed. R. Civ. P. 23(b)(3). The predominance requirement
“is readily met in certain cases alleging consumer or securities fraud or violations of antitrust
law.” McNamara, 214 F.R.D. at 429 (quoting Amchem, 521 U.S. at 625); see also Schwartz v.
TXU Corp., No. 3:02-CV-2243-K, 2005 WL 3148350, at *15 (N.D. Tex. Nov. 8, 2005).
“Efficiency is the traditional focus of the predominance test” and “[w]here significant common
issues can be resolved for all claimants in a single adjudication, the advantage of a class-wide
proceeding is obvious.” Shaw v. Toshiba America Information Systems, Inc., 91 F. Supp. 2d
7
942, 955 (E.D. Tex. 2000).
The common legal and factual issues – centering upon defendants’ conduct directed at all
class members – predominate over any individual issues in both the Provident litigation and the
Medical Capital litigation. See, e.g., Eatmon, 2010 WL 1189571, at *8 (common issues
predominate where defendants are “alleged to have acted wrongfully in the same basic manner
towards an entire class”) (citation omitted). Because the majority of the elements of the claims
asserted in both cases turn on class-wide evidence, common issues easily predominate over any
individual issues. See City of San Antonio v. Hotels.com , No. SA-06-CA-381, 2008 WL
2486043, at *9 (W.D. Tex. May 27, 2008) (“[T]he Court must consider whether the putative
class members would be able to rely on common or ‘generalized’ proof, as opposed to individual
proof, in prosecuting their claims.”).
1. The Texas Securities Act Claims Asserted in Provident
In the Provident litigation, plaintiffs asserted claims against Securities America and
Ameriprise for violation of the Texas Securities Act (TSA). The elements of the claim against
Securities America are: (1) whether untrue statements and omissions of fact existed in the PPMs
and brochures; (2) the materiality of the untrue statements and omissions; (3) whether Securities
America was a “seller” as defined by the statute; and (4) damages. Tex. Rev. Civ. Stat. art. 581,
§ 33(A)(2); see also Weatherly v. Deloitte & Touche, 905 S.W.2d 642, 650-51 (Tex. App. 1995),
abrogated on other grounds by Tracker Marine L.P. v. Ogle, 108 S.W.3d 349 (Tex. App. 2003).
Securities America may avoid liability if it can prove that either (1) the buyer knew of the
untruth or omission, or (2) Securities America did not know, and in the exercise of reasonable
care could not have known, of the untruth or omission. Tex. Rev. Civ. Stat. art. 581, § 33(A)(2).
To prove Ameriprise’s liability as a control person, plaintiffs must first establish

Securities America’s liability and then prove that Ameriprise directly or indirectly controlled
Securities America with respect to its sale of these investments. Tex. Rev. Civ. Stat. art. 581,
§ 33(F)(1). To prove control, plaintiffs must show that Ameriprise had actual power or influence
over Securities America and had the power to control or influence Securities America’s offer and
8
sale of the securities. See Fernea v. Merrill Lynch Pierce Fenner & Smith, Inc., No. 03-09-0566-
CV, 2011 WL 56057, at *15 (Tex. App. Jan. 7, 2011). If Ameriprise can show that it “did not
know, and in the exercise of reasonable care could not have known, of the untruth or omission,”
it will not be liable. Tex. Rev. Civ. Stat. art. 581, § 33(F)(1); see also Fernea, 2011 WL 56057,
at *15-16.
The main focus of these claims is the alleged misstatements and omissions in the PPMs,
which “are not only significant but pivotal” to each class member’s case. Mullen, 186 F.3d at
626; see also Longden v. Sunderman, 123 F.R.D. 547, 553 (N.D. Tex. 1988) (“The class action
device is appropriate in securities fraud cases involving similar or identical misrepresentations,
even if they are issued at different times.”). Other issues that turn on common proof are the
materiality of the false and misleading statements and omissions to a reasonable person, whether
Securities America was a “seller” as defined by the securities laws, and whether SAFC and
Ameriprise are liable as control persons. See, e.g., Weatherly, 905 S.W.2d at 649 (“[T]he focus
under the Texas Securities Act is on the conduct of the seller or issuer of the securities, i.e.,
whether they made a material misrepresentation, not on the conduct of the individual buyers. A
misrepresentation that is material to one class member as a reasonable investor will be material
as to all class members.”).
2. The Federal Securities Act Claims Asserted In Provident and Medical

Capital
In both cases plaintiffs assert claims against Securities America for violations of section
12(a)(2) of the federal Securities Act, and against SAFC and Ameriprise for violations of section
15 of the Securities Act. 3 The elements of the section 12(a)(2) claim are virtually identical to the
elements of the Texas Securities Act claim: “(1) an offer or sale of a security, (2) by the use of a
means or instrumentality of interstate commerce, (3) by means of a prospectus or oral
communication, (4) that includes an untrue statement of material fact or omits to state a material
3
In Provident, the Securities Act claims are asserted against Securities America, SAFC and
Ameriprise in the Toomey case, which the Court stayed after it was transferred from the District
of Idaho. The Toomey claims will be released in the settlement. (Settlement Agreement, ¶ 20.)
9
fact that is necessary to make the statements not misleading. Miller v. Thane Int’l, Inc., 519 F.3d
879, 885 (9th Cir. 2008). Securities America will not be held liable if it proves that it “did not
know, and in the exercise of reasonable care could not have known” about the untruths or
omissions. 15 U.S.C. § 77 l(a)(2).
To prove SAFC and Ameriprise’s liability as control persons under section 15, plaintiffs
must prove Securities America’s liability and then prove that SAFC and Ameriprise had power
or control over Securities America. See Howard v. Everex Systems, Inc., 228 F.3d 1057, 1065
(9th Cir. 2000);4 G.A. Thompson & Co. v. Partridge, 636 F.2d 945, 957-58 (5th Cir. 1981). As
with Texas law, SAFC and Ameriprise have a defense; they may avoid liability by showing that
they “had no knowledge of or reasonable ground to believe in the existence of the facts by reason
of which the liability of the controlled person is alleged to exist.” 15 U.S.C. § 77o(a). Because
the elements of and defenses to the Securities Act claims are virtually identical to the Texas
Securities Act claims, they will turn on the same class-wide issues and common proof.
3. The Breach of Fiduciary Duty Claim Asserted in Provident
Plaintiffs have asserted a breach of fiduciary claim against Securities America in the
Provident case. The elements of the fiduciary duty claim are whether (1) Securities America
owed a fiduciary duty to class members; (2) Securities America breached its fiduciary duty to
class members; and (3) class members are entitled to recover damages. See Plotkin v. Joekel,
304 S.W.3d 455, 479 (Tex. App. 2009). These issues are predominantly common to all class
members and will be proved using class-wide evidence. The existence and scope of Securities
America’s fiduciary duty to its clients is common to all class members because plaintiffs allege
that the duty arises from the same legal obligations and factual circumstances: Securities
America’s duty to all of its clients to reasonably investigate private placement securities it
recommends to clients. The issue of whether the defendants breached their fiduciary duty is
4 Howard addressed claims alleged under section 20 of the Exchange Act of 1934, but the Ninth
Circuit has instructed that “the controlling person analysis is the same” under section 15 of the
Securities Act and section 20 of the Exchange Act. Hollinger v. Titan Capital Corp., 914 F.2d
1564, 1578 (9th Cir. 1990) (en banc).
10
also common to all class members because it focuses on Securities America’s conduct. Finally,
class members’ damages can be calculated using Securities America’s records. Certification of
the fiduciary duty claim is therefore appropriate. See, e.g., Pope v. Harvard Bancshares, Inc.,
240 F.R.D. 383, 391 (N.D. Ill. 2006) (certifying a class where “Plaintiffs’ claim of breach of
fiduciary duty primarily involves an inquiry into the conduct of the defendants, an issue that is
common to all putative class members”).
4. The Negligence Claim Asserted in Medical Capital

Like the TSA and breach of fiduciary duty claims, plaintiffs’ negligence claim in the
Medical Capital case focuses on Securities America’s conduct. Plaintiffs allege that Securities
America owed a duty to exercise due care when offering and selling the Medical Capital Notes to
its clients. This duty included performing a reasonable due diligence investigation of the
Medical Capital entities, ensuring that the Notes were suitable investments and that all material
risks were disclosed in the PPMs, and to comply with FINRA rules and regulations. The
negligence claim is therefore appropriate for certification. See Watson v. Shell Oil Co., 979 F.2d
1014 (5th Cir. 1992) (affirming the district court’s class certification of the plaintiffs’ negligence
claim as part of a trial plan that included a class-wide trial of the defendants’ liability); Mullen,
186 F.3d at 626 (affirming the district court’s certification of plaintiffs’ negligence claims
because the common issues related to the defendant’s liability were “pivotal” and predominated
over individual issues of causation, damages and contributory negligence); In re CertainTeed
Corp. Roofing Shingles Products Liability Litig., 269 F.R.D. 468 (E.D. Pa. 2010) (certifying
plaintiffs’ negligence claim for settlement purposes).
C. The Representative Plaintiffs’ Claims Are Typical
The typicality requirement is satisfied because the Representative Plaintiffs’ claims arise
from the same course of conduct as Settlement Class Members’ claims. See James v. City of
Dallas, 254 F.3d 551, 571 (5th Cir. 2001) (typicality requires only that “the class representative’s
claims have the same essential characteristics of those of the putative class”). “[T]he test for
typicality is not demanding” and “does not require a complete identity of claims.” Stirman v.
11
Exxon Corp. 280 F.3d 554, 562 (5th Cir. 2002) (quoting James, 254 F.3d at 571). “The
prerequisite in the settlement context requires ‘proof that the interests of the class representatives
and the class are commonly held for purposes of receiving similar or overlapping benefits from a
settlement.’” DeHoyos v. Allstate Corp., 240 F.R.D. 269, 281 (W.D. Tex. 2007) (citation
omitted). The Representative Plaintiffs do not assert claims unique to themselves. Like every
Provident Settlement Class member, Representative Plaintiffs Joseph Billitteri’s and the Sharon
Kreindel Revocable Trust’s claims arise out of Securities America’s sale of Provident Securities.
Similarly, like all Medical Capital Settlement Class members, the claims of Representative
Plaintiffs Henry Mitchell, Alvin Sabroff and June Sabroff arise out of Securities America’s sale
of Medical Capital Notes. To succeed on the merits, Representative Plaintiffs and members of
each of the Settlement Classes would have to prove the same or similar facts about Securities
America’s conduct and the same or similar untrue statements and omissions of material fact.
D. The Representative Plaintiffs Adequately Represent the Classes

The adequacy requirement is met where (1) the named plaintiffs’ counsel will prosecute
the action zealously and competently; (2) the named plaintiffs possess a sufficient level of
knowledge about the litigation to be capable of taking an active role in and exerting control over
the prosecution of the litigation; and (3) there are no conflicts of interest between the named
plaintiffs and the absent class members. See Feder v. Electronic Data Systems Corp., 429 F.3d
125, 129-30 (5th Cir. 2005). The Representative Plaintiffs and their counsel have fairly and
adequately represented and protected the interests of all members of each Settlement Class. The
Representative Plaintiffs have demonstrated that they are capable of directing the prosecution of
the class claims. See Apx 494-509. There are no conflicts of interest between the Representative
Plaintiffs and the members of either Settlement Class because their interests are aligned. See In
re Corrugated Container Antitrust Litig., 643 F.2d 195, 208 (5th Cir. 1981) (concurring with the
district court that as long as “all class members are united in asserting a common right, such as
achieving the maximum possible recovery for the class, the class interests are not antagonistic
for representation purpose”); McNamara, 214 F.R.D. at 428-29 (finding no conflict between the
12
named plaintiff and class members where both groups sought maximum recovery).
The Representative Plaintiffs have also retained counsel who are highly qualified to
pursue the litigation. See Fee Apx 5 19-36, 57-76. Plaintiffs’ counsel have committed significant
resources to representing the Settlement Classes and have zealously prosecuted their claims,
investigating the facts and law, retaining consultants, drafting and filing complaints, conducting
formal and informal discovery, consulting with regulatory authorities and other interested
parties, opposing motions to dismiss, communicating regularly with the Representative

Plaintiffs, and engaging in complex and demanding settlement negotiations. See Apx 1-29.
Settlement Class Counsel have thoroughly familiarized themselves with the relevant facts and
law and have prior experience in similar litigation. Apx 1-29; Fee Apx 19-36, 57-76. The
settlement was negotiated with the active participation of counsel for the PR Liquidating Trustee
and the Provident Receiver, and the Medical Capital Receiver was regularly briefed on the
progress of settlement discussions. See Apx 26, 230-232, 234.
E. A Class Action Is Superior

Rule 23(b)(3) requires a finding that common legal and factual issues predominate over
individual issues and that a class action is superior to other methods of addressing the plaintiffs’
claims. As discussed in section V.B. above, common issues predominate over any individual
issues. The superiority prong of Rule 23(b)(3) is also satisfied. A class action is superior when
it serves the primary goals of Rule 23, achieving “economies of time, effort, and expense,”
without sacrificing fairness. See Amchem, 521 U.S. at 615 (citation omitted). In determining
whether the superiority requirement is met, courts consider: (1) the interests of class members in
individually controlling the litigation of their own cases, (2) the extent and nature of other
litigation involving the same issues, (3) the desirability of concentrating the litigation in this
forum, and (4) any difficulties that may be encountered in managing a class action. Fed R. Civ.
P. 23(b)(3). Courts routinely find these factors favor class certification of securities claims. See,
5“Fee Apx” refers to the appendix filed in support of the concurrently filed Motion by Settlement
Class Counsel for Attorneys’ Fees and Reimbursement of Expenses.
13
e.g., Longden, 123 F.R.D. at 559 (“the class action device is the superior method in this
[securities] case for achieving an efficient and fair adjudication of the matters in controversy”);
Shaw, 91 F. Supp. 2d at 958 (“Class certification in securities cases is practically routine”).
The first factor addresses class members’ interests in prosecuting their own cases. This
factor “matters mainly when absent class members have personal injury claims” because “[w]hen
only economic losses are at issue, the interest to personally control the litigation is small.”
Lehocky v. Tidel Technologies, Inc., 220 F.R.D. 491, 510 (S.D. Tex. 2004) (“As long as the
named plaintiffs seek to maximize the recovery for the class, little else matters.”). And
“[a]lthough such desires are pertinent to the analysis, they should be subordinated to the
advantages of having a defendant’s liability determined in one proceeding when virtually all
legal and factual issues are common to the class members.” Durrett v. John Deere Co., 150
F.R.D. 555, 559 (N.D. Tex. 1993). The Settling Defendants have entered into a separate
agreement with investors who initiated arbitration proceedings, so those individuals no longer
have an interest in prosecuting their own cases. Investors who wish to pursue individual
litigation or arbitration may opt out of the settlement.
The second factor considers other litigation that is already pending. Nearly all of the
pending arbitrations will be resolved as part of the negotiated global settlement. The PR
Liquidating Trust will participate in the settlement as a class member. Moreover, “even if a
number of similar suits already exist, a class action might prevent the initiation of further
litigation if class members who have not filed suit could have their rights adequately determined
by a representative in a class action.” Id. at 559-60.
The third factor addresses the benefits of litigating in this forum. With Judge Carter’s
transfer of the Medical Capital cases for settlement purposes, all of the pending class cases are
now before this Court. The coordination of the settlement negotiations has greatly facilitated the
settlement negotiations and led to a global resolution of the class, trust and arbitral claims.
Finally, courts certifying settlement classes do not need to consider the fourth factor,
which focuses on the manageability of a class action. As the Supreme Court noted in Amchem,
14
when “[c]onfronted with a request for settlement-only class certification, a district court need not
inquire whether the case, if tried, would present intractable management problems for the
proposal is that there be no trial.” 521 U.S. at 620 (internal citation omitted); see also Schwartz,
2005 WL 3148350, at *16.
VI. THE COURT SHOULD APPOINT SETTLEMENT CLASS COUNSEL

Under Rule 23, “a court that certifies a class must appoint class counsel ... [who] must
fairly and adequately represent the interests of the class.” Fed. R. Civ. P. 23(g)(1)(A), (B). In
making this determination, the Court must consider counsel’s: (1) work in identifying or
investigating potential claims; (2) experience in handling class actions or other complex
litigation, and the types of claims asserted in the case; (3) knowledge of the applicable law; and
(4) resources committed to representing the class. Fed. R. Civ. P. 23(g)(1)(A). The Court
previously appointed the law firms of Girard Gibbs and Zwerling, Schachter to serve as Interim
Co-Lead Plaintiffs’ Counsel in the Billitteri action. The Girard Gibbs and Zwerling Schachter
firms were also appointed as Co-Lead Counsel under the PSLRA in the Toomey and McCoy
actions. As shown in the firms’ resumes, the firms have significant experience in litigating class
actions and securities cases and, over the last year, have diligently litigated both cases, dedicated
substantial resources to the investigation and prosecution of the claims, and demonstrated their
knowledge of the laws at issue. Apx 1-29; see also Fee Apx 19-36, 54-76. Girard Gibbs and
Zwerling, Schachter should be appointed Settlement Class Counsel under Rule 23(g).
VII. THE SETTLEMENT IS FAIR, REASONABLE AND ADEQUATE AND SHOULD

BE APPROVED
Courts have long favored “[c]ompromises of disputed claims.” Williams v. First Nat’l
Bank of Pauls Valley, 216 U.S. 582, 595 (1910); see also Miller v. Republic Nat’l Life Insurance
Co., 559 F.2d 426, 428 (5th Cir. 1977) (“Settlement agreements are ‘highly favored in the law
and will be upheld whenever possible because they are a means of amicably resolving doubts
and preventing lawsuits.”) (citation omitted). There is “an overriding public interest in favor of
settlement,” particularly in class actions. Cotton v. Hinton, 559 F.2d 1326, 1331 (5th Cir. 1977).
15
Approval of a proposed settlement is within the sound discretion of the district court, and the
“cardinal rule is that the District Court must find that the settlement is fair, adequate and
reasonable and is not the product of collusion between the parties.” Id. at 1330.
To assess whether the settlement is fair, adequate and reasonable, the Fifth Circuit has
identified six factors (known as the “Reed factors”) for district courts to consider. See Reed v.
General Motors Corp., 703 F.2d 170, 172 (5th Cir. 1983); Ayers v. Thompson, 358 F.3d 356, 369
(5th Cir. 2004). The factors are:
(1) the existence of fraud or collusion behind the settlement;
(2) the complexity, expense and likely duration of the litigation;
(3) the stage of the proceedings and the amount of discovery completed;
(4) the probability of plaintiffs’ success on the merits;
(5) the range of possible recovery; and
(6) the opinions of the class counsel, class representatives, and absent class
members.
Reed, 703 F.2d at 172. “[I]n considering the six factors, there is a strong presumption in favor of
finding the settlement fair, adequate and reasonable.” DeHoyos, 240 F.R.D. at 287.
A. The Absence of Fraud and Collusion Weighs In Favor of Settlement
This settlement is the product of arm’s-length negotiations by experienced counsel. The

parties first negotiated separate settlements with Securities America and Ameriprise, a lengthy
process that resulted in the limited fund settlement the Court declined to preliminarily approve.
The Court heard and considered evidence and argument and ruled after a full day hearing that the
proposed settlement did not fall within the narrow parameters of the “limited fund” doctrine.
Apx 25-26, 170-181. Settlement Class Counsel then arranged for mediation with retired United
States District Judge James M. Rosenbaum and invited counsel for all interested arbitration
claimants, many of whom attended and negotiated a separate settlement for their clients. Apx
26. The PR Liquidating Trustee also participated in the negotiations that resulted in this
16
settlement. Apx 27. Having actively supervised this litigation, the Court is ideally situated to
evaluate the fairness of the negotiations and resulting settlement. See, e.g., Reed, 703 F.2d at
172 (“That it is the trial judge who can best know how well the class was represented informs the
discretion given to him in reviewing proffered settlements under Rule 23.”); DeHoyos, 240
F.R.D. at 287 (“Based on the undisputed record and experience with counsel, the Court
determines the proposed settlement was the product of arms’ length negotiations, free of fraud or
collusion.”).
The absence of fraud and collusion is also shown by the support of the PR Liquidating
Trustee, the Provident Receiver and the Medical Capital Receiver, as well as arbitration
claimants who are part of the separate settlement with Securities America. Settlements like this
one, achieved through arm’s-length negotiations by experienced counsel and with the assistance
of a mediator, are presumptively fair and reasonable. See, e.g., Klein v. O’Neal, 705 F. Supp. 2d
632, 650 (N.D. Tex. 2010) (“[C]ourts are to adhere to a strong presumption that an arms-length
class action settlement is fair—especially when doing so will result in significant economies of
judicial resources—absent evidence weighing against approval.”); DeHoyos, 240 F.R.D. at 287
(citing numerous negotiating sessions, both in person and by telephone, by counsel with
significant class action experience ); Schwartz, 2005 WL 3148350, at *21 (approving settlement
where the negotiations involved highly regarded mediators and were “undertaken at arm’s length
by counsel on both sides who have substantial experience and expertise in representing parties in
securities class actions”).
The fairness of the settlement is also shown by the terms of the settlement itself. All
Settlement Class members will receive their pro rata share of the Settlement Fund, calculated by
the amount they invested less any returns they received on their investment. See Vaughn v.
American Honda Motor Co., 627 F. Supp. 2d 738, 748 (E.D. Tex. 2007). (“There was no bias,
collusion, or coercion in favor of any party or group of class members. This fact weighs heavily
in favor of approval.”).
17
B. The Complexity, Expense and Likely Duration of the Litigation Weigh in

Favor of Approval
The complexity of the cases, as well as the expense and delay associated with continued
litigation, even if ultimately successful, also weigh in favor of approval of the settlement. See
Klein, 705 F. Supp. 2d at 653 (“Approval of the Settlement Agreement provides relief while
simultaneously freeing class members and defendants alike from the burdens and uncertainty
inherent in additional litigation.”). Securities litigation is “notoriously difficult and
unpredictable.” Maher v. Zapata Corp., 714 F.2d 436, 455 (5th Cir. 1983). According to NERA
Economic Consulting, nearly 40% of securities class actions filed since January 1996 were
dismissed on the merits. Apx 56.
The procedural aspects of this case have added to its complexity. The cases were
litigated in multiple jurisdictions, including this Court, the Central District of California, the
District of Idaho, and the Judicial Panel for Multidistrict Litigation. In litigating and settling
these cases, Settlement Class Counsel has coordinated with the Provident and Medical Receivers,
the PR Liquidating Trustee, multiple defense counsel and counsel for plaintiffs in related cases
and arbitrations. Because of the multifaceted nature of the cases, Settlement Class Counsel have
devoted significant time and resources to achieve this settlement. The costs of continuing the
litigation include the continued party and non-party discovery that would be required for
plaintiffs to prove their claims, as well expert fees and other usual costs of litigation.
Procedurally, “[a]dditional litigation would likely include: (1) contested class
certification proceedings; (2) [a request for] an appeal under Federal Rule of Procedure 23(f)
from any order granting class certification; (3) dispositive motions; (4) expert depositions
leading to Daubert challenges; (5) extensive pretrial filings; (6) a lengthy trial; (7) post-trial
proceedings in this District Court; and (8) further appeals.” DeHoyos, 240 F.R.D. at 291-92.
The case would undoubtedly be hard fought at each of these stages, as it has been to date, and
that will take time, even with a Court and parties who are committed to efficiently managing the
case. See Schwartz, 2005 WL 3148350, at *19 (“Ultimately, if Plaintiffs were to succeed at trial,
18
they still could expect a vigorous appeal by Defendants and an accompanying delay in the
receipt of any relief.”).
C. The Stage of the Proceedings Weighs in Favor of Approval

This factor evaluates whether “the parties and the district court possess ample
information with which to evaluate the merits of the competing positions.” Ayers, 358 F.3d at
369. “The Court should consider all information which has been available to the parties.”
DeHoyos, 240 F.R.D. at 292. Plaintiffs conducted substantial written discovery in the Provident
litigation. In response to document requests and subpoenas, plaintiffs obtained and reviewed
more than 1,150,000 pages of documents produced by the defendants and 3,200,000 pages of
documents produced by non-parties. Apx 10, 13. The non-party discovery included Mick &
Associates, the law firm that Provident hired to conducted due diligence for brokers like
Securities America. Apx 11-12. Plaintiffs also deposed the Provident Chapter 11 Trustee
Dennis Roossien and Provident’s Chief Restructuring Officer David N. Phelps. Apx 13, 14. The
defendants deposed the class representatives. Apx 13-14.
Although formal discovery had not yet commenced in the Medical Capital litigation,
Settlement Class Counsel’s evaluation of the strengths and weaknesses of the case is informed by
the discovery in the Provident litigation. Securities America’s sale of Provident Securities
overlapped with its sale of Medical Capital Notes, so the company’s due diligence practices
during that time period are critical to both cases. Mick & Associates, who prepared the due
diligence reports for both the Provident offerings and the Medical Capital offerings, produced
more than 31,000 pages of documents in the Provident litigation. Apx 11, 12. The Medical
Capital Receiver’s monthly reports detailing the Receiver’s activities have also provided
adequate insight into Medical Capital’s business methods and practices. The proceedings in the
Massachusetts Securities Division’s administrative action were an additional source of
information about both Medical Capital and Securities America’s sale of the notes.
Moreover, “the lack of [formal discovery] does not compel the conclusion that
19
insufficient discovery was conducted.” Cotton, 559 F.2d at 1332. Unless “the record points
unmistakably toward the conclusion that the settlement was the product of uneducated
guesswork,” the court “may legitimately presume that counsel’s judgment ‘that they had
achieved the desired quantum of information necessary to achieve a settlement is reliable.’” In
re Corrugated Container, 643 F.2d at 211 (quoting Cotton, 559 F.2d at 1332). In both cases,
Settlement Class Counsel thoroughly investigated the claims and entered into settlement
negotiations with a complete understanding of the risks and rewards involved in continued
litigation.
D. The Probability of Success on the Merits Weighs in Favor of Approval

Consideration of this factor “contains an internal tension” because courts must assess the
probability of plaintiffs’ success on the merits without “try[ing] the case in the settlement
hearings because ‘[t]he very purpose of the compromise is to avoid the delay and expense of
such a trial.’” Reed, 703 F.2d at 172 (quoting Young v. Katz, 447 F.2d 431, 433 (5th Cir. 1971));
see also Klein, 705 F. Supp. 2d at 654. “A proposed settlement need not obtain the largest
conceivable recovery for the class to be worthy of approval; it must simply be fair and adequate
considering all the relevant circumstances.” Klein, 705 F. Supp. 2d at 649; see also DeHoyos,
240 F.R.D. at 286 (“The proposed settlement is not required to ‘achieve some hypothetical
standard constructed by imagining every benefit that might someday be obtained in contested
litigation.’”) (citation omitted).
The probability of plaintiffs’ success on the merits hinges on their ability to prove several
layers of liability. Usually, the issuer of the securities is a defendant in a securities case, but both
Provident and Medical Capital are insolvent and not named as defendants. See, e.g., In re Enron
Corp. Securities, Derivative & “ERISA ” Litig., 586 F. Supp. 2d 732, 791 (S.D. Tex. 2008)
(describing the “exceptional obstacles to recovery,” including that “[i]ssuer and primary violator
Enron Corporation was in bankruptcy” and, as the plaintiffs’ expert explained, “securities class
actions are seldom filed when the issuer is bankrupt”). If litigation continues, plaintiffs will have
20
to continue marshaling evidence about the underlying conduct of the Provident and Medical
Capital entities to prove that the PPMs contained materially untrue statements or material
omissions—evidence that Securities America will undoubtedly challenge. Securities America’s
liability then turns largely on whether they knew, or reasonably should have known, of the
untruths or omissions in the PPMs. Securities America contends that the company conducted
appropriate due diligence in accordance with the standard of care in the industry and had no
knowledge of the false and misleading statements in the PPMs.

There is a risk of plaintiffs recovering very little or nothing at all even if they obtain a
judgment against Securities America, depending on the company’s financial viability at the time.
Proving Ameriprise’s liability is therefore critical. Plaintiffs must show that Ameriprise—
Securities America’s ultimate parent company—had actual power or influence over Securities
America and the power to influence or control Securities America’s offer and sale of the
Provident and Medical Capital securities. See Fernea, 2011 WL 56057, at * 15; In re Charles
Schwab Corp. Sec. Litig., 257 F.R.D. 534, 550 (N.D. Cal. 2009). Plaintiffs must overcome
Ameriprise’s defense that it “had no knowledge of or reasonable ground to believe in the
existence of the facts by reason of which the liability of the controlled person is alleged to exist.”
15 U.S.C. § 77o(a); see also Tex. Rev. Civ. Stat. art. 581, § 33(F)(1). Ameriprise has responded
to requests for production of documents in both cases by asserting, in responses certified under
Rule 26(g), that, it has no internal documents referring to Provident or Medical Capital. Apx 30-
40. The absence of internal documents referring to Provident and Medical Capital at Ameriprise
suggests that proof of Ameriprise’s liability as a control person under the securities laws would
be challenging.
Procedural hurdles also stand in the path to success. Although securities claims are
considered to be well suited for class-wide treatment, class certification motions raise complex
procedural issues and are almost always highly contested by the defendants. See, e.g., DeHoyos,
240 F.R.D. at 290 (discussing the challenges of class certification, including choice of law). In
the Provident case, for example, plaintiffs’ class certification motion included a comprehensive
21
choice-of-law analysis and comparison of the laws of the fifty states, as well as nearly 4,000
pages of evidentiary support. (See Billitteri Dkt. No. 118-131) Securities America and
Ameriprise will undoubtedly seek Fifth Circuit review under Rule 23(f) if the Court grants class
certification, and appeal any judgment in plaintiffs’ favor, creating additional risk and delay.
See, e.g. Schwartz, 2005 WL 3148350, at *32 n.3 (citing cases in which jury verdicts for
substantial damages in securities actions were reversed on appeal). This settlement “give[s] the
Plaintiffs hard cash, a bird in the hand.” In re Enron Corp. Securities, Derivative & “ERISA”
Litig., 228 F.R.D. 541, 566 (S.D. Tex. 2005).
E. The Range of Possible Recovery Weighs in Favor of Approval

The amount of the settlement is well within the range of reasonable recovery, which
weighs in favor of approval. Courts have used the median value of prior settlements as a
benchmark for analyzing this factor. See In re Education Testing Services Proaxis Principles of
Learning & Teaching: Grades 7-12 Litig., 447 F. Supp. 2d 612, 623-24 (E.D. La. 2006).
Empirical evidence of the amount of prior settlements in securities class action cases confirms
the reasonableness of this settlement. The data provided by several organizations that report
securities class action settlements shows that a recovery of $80 million on losses of $200 million
is in fact well above the range of reported outcomes in other securities cases:
• Cornerstone Research reports that in 2010, the median settlement amount for
securities class action settlements was $11.3 million. Apx 80. Cornerstone’s review of all
securities class actions filed since January 1, 1996 (when the PSLRA went into effect) shows that
more than half settled for less than $10 million and only 7% settled for more than $100 million.
Apx 81.
• NERA Economic Consulting has reached similar conclusions, reporting that the
median settlement amount in 2010 was $11.1 million—a number that NERA says is “an all-time
high” and “a strong indicator of trends in the typical settlement.” Apx 62.
• PricewaterhouseCoopers LLP recently reported that “[t]he overall number of
22
settlements increased in 2010, while the total value of settlements fell.” Apx 123. Only 6% of
settlements in 2010 fell within the range of $50 million to $99 million, and another 6% settled
for $100 million or more. Apx 124.
• In 2009, NERA reported on SEC settlements in cases related to alleged Ponzi
schemes reached between July 31, 2002 and March 1, 2009. NERA discovered that of the
largest Ponzi scheme cases during this time period, “most have little or no SEC settlements to
date.” Apx 162-68.
NERA also reports that the average proportion of claimed damages investors have
received in securities class action settlements since 2002 ranges from 2.2% to 3.1%. In 2010 it
was 2.4%. Apx 68. The Settlement Class Members in this case will receive a gross recovery of
approximately 40% of their losses, which is significantly more than the average amount investors
recover in securities settlements. Although the settlement will not compensate class members for
all of their damages, “compromise is the essence of a settlement ...; inherent in compromise is a
yielding of absolutes and an abandoning of highest hopes.” Cotton, 559 F.2d at 1330 (citation
omitted). Given the insolvency of the issuers of the securities, Securities America’s limited
financial resources, and the challenge of proving Ameriprise’s liability as a control person, the
immediate benefit that Settlement Class Members will receive far “outweigh[s] the risk of an
uncertain, potentially protracted and costly litigation.” DeHoyos, 240 F.R.D. at 291.
F. The Opinions of Settlement Class Counsel, Class Representatives and Absent

Class Members
Courts give substantial weight to the opinion of the attorneys who prosecuted the case
and negotiated the settlement. See Reed, 703 F.2d at 175 (“[T]he value of the assessment of able
counsel negotiating at arm’s length cannot be gainsaid. Lawyers know their strengths and they
know where the bones are buried.”); see also Klein, 705 F. Supp. 2d at 649 (“The Fifth Circuit
has repeatedly stated that the opinion of class counsel should be accorded great weight.”).
“Class counsel’s opinion should be presumed reasonable because they are in the best position to
evaluate fairness due to an intimate familiarity with the lawsuit.” Turner v. Murphy Oil USA,
23
Inc., 472 F. Supp. 2d 830, 852 (E.D. La. 2007); see also Vaughn, 627 F. Supp. 2d at 748 (“The
counsel for the parties in this case are experienced in class action litigations, and their opinion
that the settlement should be approved and is fair to the class is entitled to weight.”).
Settlement Class Counsel strongly recommend the settlement and believe it is in the best
interest of all Settlement Class Members. Apx 28. The Representative Plaintiffs also support the
settlement. Apx 213-228. The Court should also consider the opinions of absent class members,
who have until June 24 to object to or comment on the settlement. While there will undoubtedly
be objections from investors who would prefer to recover more, “a settlement is not ‘a wish-list
of class members that the Defendants must fulfill.’” DeHoyos, 240 F.R.D. at 309 (citation
omitted); see also id. at 293 (“General objections without factual or legal substantiation do not
carry weight.”); In re AOL Time Warner, Inc. Securities & “ERISA ” Litig., No. MDL 1500,
2006 WL 903236, at *15 (S.D.N.Y. Apr. 6, 2006) (rejecting “unsupported” objections that failed
to “provide[] a legal or factual basis for the alleged insufficiency of the Settlement” or to
“consider the legal or factual context in which the Settlement was reached.”). And the Fifth
Circuit is “clear that a settlement can be approved despite opposition from class members,
including the named plaintiff.” Ayers, 358 F.3d at 373; see also Reed, 703 F.2d at 174-75
(affirming the district court’s approval of a settlement despite “the objections of twenty-three of
twenty-seven named plaintiffs and nearly forty percent of the 1,517 member class”); Cotton, 559
F.2d at 1331 (“A settlement can be fair notwithstanding a large number of class members who
oppose it.”).
VIII. CONCLUSION
Representative Plaintiffs respectfully request that the Court approve the settlement as fair,
adequate and reasonable settlement.
24
Dated: June 14, 2011 Respectfully submitted,
GIRARD GIBBS LLP
By: /s/ Daniel C. Girard
Daniel C. Girard
Amanda M. Steiner
Dena C. Sharp
601 California Street, 14th Floor
San Francisco, CA 94108
Tel: (415) 981-4800
Susan Salvetti
Sona R. Shah
ZWERLING, SCHACHTER &
ZWERLING, LLP
41 Madison Avenue
New York, NY 10010
Tel: (212) 223-3900
Dan Drachler
ZWERLING, SCHACHTER &
ZWERLING, LLP
1904 Third Avenue, Suite 1030
Seattle, WA 98101
Tel: (206) 223-2053
Interim Co-Lead Plaintiffs’ Counsel
Lewis T. LeClair
McKOOL SMITH P.C.
State Bar No. 12072500
300 Crescent Court, Suite 1500
Dallas TX 75201
Tel: 214.978.4984
Fax: 214.978.4044
Liaison Plaintiffs’ Counsel
Ari H. Jaffe
KOHRMAN JACKSON & KRANTZ, PLL
One Cleveland Center, 20th Floor
Cleveland, OH 44114
Tel: (216) 696-8700
Plaintiffs’ Counsel
25

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Case 3:10-cv-01833-F Document 117 Filed 06/14/11 Page 1 of 32 PageID 2684

THE UNITED STATES DISTRICT COURT

MEMORANDUM IN OF LAW IN SUPPORT OF PLAINTIFFS’ MOTION

II. BACKGROUND OF THE LITIGATION AND SETTLEMENT 2

III. MATERIAL TERMS OF THE SETTLEMENT 2

A. The Settlement Classes 2

B. The Settlement Fund 3

C. Allocation of the Settlement Fund 3

D. The Release of Settlement Class Members’ Claims 4

E. Attorneys’ Fees and Expenses and Administrative Costs 4

IV. THE SETTLEMENT NOTICE SATISFIED RULE 23 AND DUE PROCESS 5

V. THE COURT SHOULD CERTIFY THE SETTLEMENT CLASSES 6

A. The Settlement Classes Are Sufficiently Numerous 7

B. Common Questions of Law and Fact Predominate 7

1. The Texas Securities Act Claims Asserted in Provident 8

2. The Federal Securities Act Claims Asserted In Provident and

3. The Breach of Fiduciary Duty Claim Asserted in Provident 10

4. The Negligence Claim Asserted in Medical Capital 11

C. The Representative Plaintiffs’ Claims Are Typical 11

D. The Representative Plaintiffs Adequately Represent the Classes 12

E. A Class Action Is Superior 13

VI. THE COURT SHOULD APPOINT SETTLEMENT CLASS COUNSEL 15

VII. THE SETTLEMENT IS FAIR, REASONABLE AND ADEQUATE AND

A. The Absence of Fraud and Collusion Weighs In Favor of Settlement 16

B. The Complexity, Expense and Likely Duration of the Litigation Weigh in

C. The Stage of the Proceedings Weighs in Favor of Approval 19

D. The Probability of Success on the Merits Weighs in Favor of Approval 20

E. The Range of Possible Recovery Weighs in Favor of Approval 22

F. The Opinions of Settlement Class Counsel, Class Representatives and

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