Case Name: Robinson, et al. v. Audience, Inc., et al.
Case No.: 2012-1-CV-232227

This is a securities class action by the shareholders of defendant Audience, Inc. (“Audience”) arising out Audience’s May 9th, 2012 initial public offering (“IPO”). Plaintiffs Brent T. Robinson, Boyd Deel, Dorothy Kasian, and Daren Nowak allege that Audience’s prospectus and registration statement contained false and misleading statements in violation of sections 11 and 15 of the Securities Act of 1933. Plaintiffs sue Audience and several of its officers and directors.

I. Factual and Procedural Background

In the operative First Amended Complaint (“FAC”), plaintiffs allege that Audience provides voice and audio solutions in mobile devices, and is heavily reliant on its relationship with non-party Apple Inc. (“Apple”), which accounted for 82% and 75% of Audience’s revenue in fiscal years 2010 and 2011, respectively. Plaintiffs allege that Audience’s May 2012 registration statement represented that “[t]hrough close, long-term relationships with [original equipment manufacturers or “OEMs”], we gain both a unique understanding of their product roadmaps and an ability to influence design decisions,” and Audience touted its processors as having been incorporated in mobile device models sold by leading OEMs such as Apple. The registration statement further stated that Audience “work[s] closely with OEMs throughout their design processes, using our proprietary AuViD graphical design tools to integrate our solutions into their mobile devices, which enables us to improve design efficiency, increase productivity and establish differentiated design relationships with OEMs.” The registration statement also discussed an August 6th, 2008 agreement with Apple for Audience to “develop, supply and support a custom version of one of our processors and related software to Foxconn and Protek for use in certain mobile phones” and “an additional license agreement with [Apple] in 2010 relating to a new generation of our processor IP[.]”

The FAC alleges that 6,060,707 shares of Audience common stock were sold to the public at $17 per share during the IPO, raising over $103 million in gross proceeds for Audience and the selling shareholders; however, after the market closed on September 6, 2012, Audience issued a press release announcing that Apple, its key client, likely would not use Audience’s earSmart voice isolation/noise cancellation technology in its much anticipated iPhone 5, expected to launch in mid-to-late September 2012.

Plaintiffs allege that the registration statement was misleading because it failed to disclose that (1) Audience’s relationship with Apple was not as close as indicated by its statements, and Audience did not have a unique understanding of Apple’s products and (2) as demonstrated by the advanced technology required and the alterations to hardware and software necessary for the improved audio capabilities of the iPhone 5, together with the short lead-time between the IPO and the leaking of information revealing significant changes in the relationship with Apple, Apple had decided to replace Audience’s earSmart technology in the iPhone 5 and had decided to handle the function in-house, integrating its own voice isolation/noise cancellation technology into its mobile devices.

The FAC asserts two causes of action for (1) violation of Section 11 of the Securities Act of 1933 (against all defendants) and (2) violation of Section 15 of the Securities Act of 1933 (against Audience and the individual defendants). On January 16, 2015, the Court issued an order granting plaintiffs Robinson and Kasian’s motion for class certification, appointing these plaintiffs as class representatives, and certifying the following class: “All persons or entities who acquired Audience common stock pursuant and/or traceable to the Registration Statement and Prospectus (Registration No. 33-179016) issued in connection with the Company’s May 9, 2012 IPO (the “Class”). Excluded from the Class are defendants and their families, the officers, directors and affiliates of the defendants, at all relevant times, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which defendants have or had a controlling interest.”

After a year of litigation and two rounds of mediation with the assistance of experienced mediators, the parties reached an agreement in principle in July of 2015. Thereafter, Plaintiffs sought preliminary approval through this Court and the matter was scheduled for a preliminary approval hearing on November 13, 2015. At that time, the Court requested supplemental briefing to fully address the potential recovery by individual class members, more information about the requested fees associated with the claims administration procedure, revisions to the proposed class notice and an amended proposed order setting forth the full process to be employed by the claims administrator in providing notice to the class. The matter was continued to December 11, 2015 to allow the Plaintiffs to address these issues. Following review of the supplemental briefing, the Court issued its Order Granting Preliminary Approval on December 11, 2015.

Plaintiffs now move for Final Approval of Class Action Settlement.

Legal Standard

Generally, “questions whether a settlement was fair and reasonable, whether notice to the class was adequate, whether certification of the class was proper, and whether the attorney fee award was proper are matters addressed to the trial court’s broad discretion.” (Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 234-235, citing Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794.)

In determining whether a class settlement is fair, adequate and reasonable, the trial court should consider relevant factors, such as the strength of plaintiffs’ case, the risk, expense, complexity and likely duration of further litigation, the risk of maintaining class action status through trial, the amount offered in settlement, the extent of discovery completed and the stage of the proceedings, the experience and views of counsel, the presence of a governmental participant, and the reaction of the class members to the proposed settlement.

(Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at pp. 244-245, internal citations and quotations omitted.)

The list of factors is not exclusive and the court is free to engage in a balancing and weighing of factors depending on the circumstances of each case. (Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at p. 245.) The court must examine the “proposed settlement agreement to the extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties, and that the settlement, taken as a whole, is fair, reasonable and adequate to all concerned.” (Ibid., quoting Dunk v. Ford Motor Co., supra, 48 Cal.App.4th at p. 1801, internal quotation marks omitted.)

The burden is on the proponent of the settlement to show that it is fair and reasonable. However “a presumption of fairness exists where: (1) the settlement is reached through arm’s-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small.”

(Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at p. 245, citing Dunk v. Ford Motor Co., supra, 48 Cal.App.4th at p. 1802.)

Provisions of the Settlement

Pursuant to the Stipulation of Settlement, all class members who do not opt out of the settlement will release claims pertaining to acts that were alleged or could have been alleged in this action in exchange for defendants’ creation of an escrow account funded by a $6,050,000 payment from Audience’s directors and officer’s liability insurer(s). This fund will be treated as a “Qualified Settlement Fund” within the meaning of Treasury Regulations section 1.468B-1 and will be controlled solely by Plaintiffs’ counsel Robbins Geller Rudman & Dowd LLP subject to oversight by this Court. The class’s costs and expenses, including costs of claims administration and notice; attorney fees and/or expenses to be awarded to plaintiffs’ counsel (in an amount to be determined by the Court during proceedings separate from its approval of the settlement); and any award to plaintiffs for their time and expense in representing the class (also to be determined by the Court in separate proceedings) shall be paid from the settlement.

Without further order of the Court, class counsel may use the fund to pay certain costs associated with claims administration and notice, escrow fees and costs, and certain tax-related expenses not to exceed $400,000 prior to the effective date. This amount corresponds to the $400,000 that the claims administrator estimates will be needed to administer the notice, claims processing, and settlement distribution aspects of the proposed settlement. As provided in the Notice of Proposed Settlement of Class Action (“Notice”), plaintiffs’ counsel will apply for an award of 30% of the settlement fund, plus expenses not to exceed $140,000. In addition, each of the plaintiffs may seek payment of up to $2,500 for their time and expenses incurred in representing the class.

The parties have chosen Gilardi & Co. LLC to act as claims administrator. Within 90 days after the mailing of the Notice, class members must submit a proof of claim substantially in the form and content of Exhibit A-2 to the Stipulation of Settlement or be barred from receiving any payments from the settlement. The claims administrator will determine the extent to which claims are allowed, calculate authorized claims, and oversee the distribution of the settlement fund in accordance with the “Plan of Allocation,” which is not a part of the Stipulation of Settlement, but is set forth in the Notice.

The Plan of Allocation states that shares of Audience common stock were valued at $17 per share during Audience’s IPO and at $6.82 per share when this action was filed. For shares sold prior to the date this action was filed, the claim per share is the lesser of (i) the purchase price per share less the sales price per share or (ii) $17 less the sales price per share. For shares retained or sold on or after the date this action was filed, the claim per share is the lesser of (i) the purchase price per share less $6.82 or (ii) $17 less $6.82. For shares purchased after the close of trading on the date this action was filed, the recovery is zero. In the likely event that the settlement fund is insufficient to cover the total claim of each claimant, then each claimant shall receive the percentage of the fund that his or her claim bears to the total of all authorized claims. If a class member has more than one purchase, acquisition, or sale of Audience common stock during the class period, all transactions will be matched on a first-in, first-out (“FIFO”) basis for purposes of calculating a claim. Claims will be limited to the amount of the claimant’s total market loss, and if a claimant has an overall market gain, his or her recovery will be zero. No distribution shall be made to claimants who would otherwise receive less than $10.

In connection with the prior motion for preliminary approval of the class action settlement, the Court found that the proposed settlement provides a fair and reasonable compromise to Plaintiffs’ claims. While the Court invited supplemental briefing on the potential size of the class and the estimated amount per share that the Claimants would receive from the net settlement fund, the Court ultimately concluded that the Plaintiffs had properly addressed these issues in their supplemental filing (Response to the Court’s Order Requesting Additional Information) and concluded that the settlement was reached following extensive discovery and investigation by experienced counsel who negotiated at arms-length with the assistance of two experienced mediators. The final moving papers properly address the factors set forth above including the likelihood of prevailing at trial, the maximum potential recovery to class members and the risks and expenses associated with proceeding with the litigation. The Court finds no reason to deviate from this finding now, especially in light of the Plan of Allocation, the estimated benefit to Class Members and the fact that there are no objections or opt outs to the settlement.

According to the final approval papers, more than 9900 copies of the Notice of Proposed Settlement of Class Action (“Notice”) were sent to potential Class Members and their nominees that explain the terms of the Settlement, the Plan of Allocation, counsel’s request for an award of attorney’s fees and expenses, as well as the options of Class Members to object or opt out. The deadline to object and/or opt out was March 30, 2016 and the papers indicate that not a single individual objected or opted out. The Declaration of Carole Sylvester (Director of Claims Administrator, Gilardi and Co. LLC) sets forth the steps taken by the Administrator to provide Notice to potential class members. In sum, a total of 9917 Claim Packages were sent to potential Class Members and Gilardi also established and continues to maintain a toll-free number to accommodate inquiries and a website dedicated to the litigation. Summary Notice was also published in Investor’s Business Daily and transmitted over the PR Newswire on January 8, 2016. The Court finds that Notice was properly provided to potential Class Members and the steps taken by the Administrator were reasonable and sufficient to provide Notice.

Plaintiffs are also seeking an incentive award in the amount of $2500 for each of the representative plaintiffs. The rationale for making enhancement or incentive awards to named plaintiffs is that they should be compensated for the expense or risk they have incurred in conferring a benefit on other members of the class. An incentive award is appropriate if it is necessary to induce an individual to participate in the suit. Criteria courts may consider in determining whether to make an incentive award include: 1) the risk to the class representative in commencing suit, both financial and otherwise; 2) the notoriety and personal difficulties encountered by the class representative; 3) the amount of time and effort spent by the class representative; 4) the duration of the litigation and; 5) the personal benefit (or lack thereof) enjoyed by the class representative as a result of the litigation. These “incentive awards” to class representatives must not be disproportionate to the amount of time and energy expended in pursuit of the lawsuit. (Cellphone Termination Fee Cases (2010) 186 Cal. App. 4th 1380, 1394-1395, quotation marks, brackets, ellipses, and citations omitted.) The Court has reviewed the Declarations of Brent Robinson and Dorothy Kasian and approves the request for an incentive award for each in the amount of $2500. The Court did not see a Declaration for Daren Nowak or Boyd Deel. As there does not appear to be any information about the involvement by Nowak or Deel, the Court is not in a position to approve their requested incentive award.

The Court also has an independent right and responsibility to review the requested attorney’s fees and only award so much as it determines reasonable. (See Garabedian v. Los Angeles Cellular Telephone Co. (2004) 118 Cal.App.4th 123, 127-128.) The amount of attorney’s fees requested by Class Counsel is 30% of the settlement fund or $1,815,000. According to the moving papers, Class Counsel and their paraprofessionals spent over 3800 hours in prosecuting the lawsuit with a combined lodestar of $2,194,357.75. Counsel argues that the requested fee of $1,815,000 represents an approximate 17% reduction of this total lodestar figure. The moving papers also detail the efforts taken in prosecuting the case and the expenses incurred of $96,181.79. In further support of the request for attorney’s fees, Class Counsel has submitted the Declarations of John K. Grant (Robins, Geller, Rudman and Dowd LLP), Corey D. Holzer (Holzer and Holzer LLC), Stephen J. Oddo (Robins Arroyo LLP) and Francis Bottini (Bottini and Bottini, Inc.) which indicate the hourly rates and amount of time spent by each of the respective firms in prosecuting the lawsuit. The Grant Declaration provides a summary of the time spent by each timekeeper, the hourly rates, information relevant to the expertise of counsel in handling class actions and a breakdown of the expenses incurred by the firm. Similar information is provided in the remaining three Declarations referenced above. After a careful review of the information provided by counsel and recognizing the risks inherent in pursuing the litigation together with the benefit received by the Proposed Class, the Court approves the request for attorney’s fees in the cumulative sum of $1,815,000. The Court further approves the request for expenses and costs in the sum of $96,181.79.

For the reasons set forth above, the Motion for Final Approval of Class Action Settlement is GRANTED.