Judge approves $19M settlement in securities safe harbor litigation

A securities class action against Irvine-based Quality Systems Inc. that was initially dismissed by a trial judge has settled for $19 million.

The parties agreed to the settlement, dropping a U.S. Supreme Court writ petition focused on the scope of Private Securities Litigation Reform Act's safe-harbor provision.

Robbins Geller Rudman & Dowd LLP and Bernstein Litowitz Berger & Grossmann LLP will receive $4.75 million in attorney fees under an order issued Monday by U.S. District Judge Cormac J. Carney in Los Angeles.

Lead counsel, which includes Robbins Geller's Darren J. Robbins and Robert R. Henssler Jr., as well as Bernstein Litowitz's David R. Stickney and Benjamin Galdston, represent lead plaintiffs Arkansas Teacher Retirement System and City of Miami Fire Fighters' and Police Officers' Retirement Trust.

Carney's final approval of their settlement with the company ends five years of litigation that accused the software manufacturer of misleading investors.

The lawsuit, which alleged two securities violations, focused on public statements and projections in fiscal years 2012 and 2013 that plaintiffs' attorneys argued misled investors while artificially inflating the company's stock price.

CEO Steven Plochocki, who made $3.8 million by selling most of his stock shortly before the price dropped, also is a defendant. In re Quality Systems, Inc. Securities Litigation, 13-CV01818 (C.D. Cal., filed Nov. 19, 2013).

Plochocki and Quality Systems are represented by a Latham & Watkins LLP team that includes Andrew R. Gray and Peter A. Wald. Latham's Gregory G. Garre was counsel of record for a writ petition filed in January with the U.S. Supreme Court.

Carney dismissed the lawsuit in October 2014 after he concluded the company's forward-looking statements were shielded from liability by the Private Securities Litigation Reform Act because they were accompanied by "sufficiently meaningful" cautionary statements.

However, the 9th U.S. Circuit Court of Appeals reversed him in July 2017, determining the act's safe-harbor provision didn't apply because some of the statements mixed factual claims with future projections.

The factual claims were false and misleading, and the fact that they were accompanied by forward-looking statements doesn't make them eligible for the safe-harbor provision, according to the unanimous opinion written by Judge William A. Fletcher. Judges Richard A. Paez and Stephen Reinhardt, who died in March, concurred. In re Quality Systems, Inc. Securities Litigation, 865 F.3d 1130 (9th Cir. 2017).

Garre's writ said the panel's opinion is "a stark outlier that departs from the tests applied by all other circuits and directly conflicts with results reached by other courts in materially identical circumstances."

"If allowed to stand, the Ninth Circuit's rule will effectively nullify the PSLRA's safe harbor for forward-looking statements," according to the writ. "From now on, every time a company fails to meet its previously-disclosed projections and suffers a stock-price drop, securities plaintiffs will argue that the safe harbor does not apply to a company's forward-looking statements because they were accompanied by false non-forward-looking statements."

In opposition, Robbins and his partner Joseph D. Daley called the 9th Circuit decision "well reasoned" and said the panel "joined five sister Circuits in holding that non-forward-looking statements of past or current facts are not protected by the safe harbor when they are "mixed" with forward-looking projections." They said the writ petition distorts the ruling "to conjure a parade of purported horribles for future litigants."

Six weeks later, the teams reached a settlement with mediator Gregory P. Lindstrom of Phillips ADR. They asked the U.S. Supreme Court to defer action on the writ, and Carney granted class certification for settlement purposes on July 30. His order granting final approval called the $19 million settlement "a highly favorable result in light of the considerable risk, expense, and delay of continued litigation."