In Re The Mills Corporation Securities Litigation

7/16/2009 - Over $200 million recovered for Class, pending Court approval of Settlements

Class consists of purchasers of Mills common stock and preferred stock (series B, C, E & G) from February 27, 2001 through August 10, 2006, who held after October 31, 2005 and were injured thereby.

Final Settlement Hearing is set for November 19, 2009 (rescheduled from October 8, 2009).

Proof of Claim and Release Forms must be postmarked by December 31, 2009 (extended from November 12, 2009).

CLICK HERE FOR NOTICE OF SETTLEMENTS AND FINAL SETTLEMENT HEARING
 

CLICK HERE FOR PROOF OF CLAIM AND RELEASE FORM
 

CLICK HERE FOR LEAD PLAINTIFFS’ STIPULATION OF SETTLEMENT WITH THE MILLS DEFENDANTS ($165 MILLION, PLUS INTEREST)
 

CLICK HERE FOR LEAD PLAINTIFFS’ STIPULATION OF SETTLEMENT WITH ERNST & YOUNG LLP ($29.75 MILLION)
 

CLICK HERE FOR LEAD PLAINTIFFS’ STIPULATION OF SETTLEMENT WITH THE KANAM DEFENDANTS ($8 MILLION)
 

CLICK HERE FOR LEAD PLAINTIFFS’ CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

Background of the Case

From 2000 to 2005, The Mills Corporation (“Mills”), an owner and developer of “shoppertainment” centers throughout the United States and in Europe, publicly reported the financial results of an apparently rapidly growing, highly-profitable company. Between 2000 and 2004, Mills’s publicly-reported net income increased nearly 700%, from $34.4 million to $232 million, and its Funds From Operations (FFO) — a key metric used by investors to evaluate Real Estate Investment Trusts (REITs), such as Mills — more than doubled, increasing from $105.3 million to $260.5 million. Mills’s common stock price also rose dramatically during the this period, increasing from $26 per share at the end of 2001 to more than $63 per share by the end of 2004 — an increase of more than 140% in just three years.

On October 31, 2005, Mills announced that its third quarter 2005 results would be “substantially below expectations” and its third quarter conference call would be delayed to “allow the Company additional time to evaluate the accounting for several items in its third quarter results.” Shortly thereafter, on November 9, 2005, Mills issued a press release reporting its financial results of the quarter ended September 30, 2005, and the nine months ended September 30, 2005, which included declines in net operating income, FFO and net income. These announcements resulted in significant declines in the prices of Mills common and preferred stock.

Then, on January 6, 2006, Mills announced that it would restate its financial statements for 2000 through 2004, and for the first three quarters of 2005, and the Company estimated that the restatement would be in the range of $25 million over this time period. On August 10, 2006, however, Mills announced that it would be filing a restatement that would, at a minimum, reduce the company’s previously-reported net income for the years 2003 through 2005 by $210 million and would reduce its shareholders’ equity as of September 30, 2005 by $295 million. Mills also announced on August 10, 2006, that the projected costs on its key development project — Meadowlands Mills, which had been described as the company’s “crown jewel” — would be approximately $2.0 billion, an increase of $800 million over what had been publicly projected in August and November 2005. With the August 10 disclosures, the prices of Mills common stock and preferred stock fell precipitously, causing hundreds of millions of dollars of losses for investors.

Class action lawsuits are filed

Beginning on or about January 20, 2006, four class action complaints were filed in the United States District Court for the Eastern District of Virginia against Mills, Mills LP, and certain executives and directors of Mills. The actions were styled Berlin v. The Mills Corporation, et al., Case No. 1:06-cv-00077 (GBL-TRJ); Berkey v. The Mills Corporation, et al., Case No. 1:06-cv-00247 (GBL-LO); Rudolph v. The Mills Corporation, et al., Case No. 1:06-cv-00265 (BL-BRP); and Elliott v. Mills Corp., et al., Case No. 1:06-cv-00304 (GBL-BRP). By Order entered March 31, 2006, the Court consolidated these actions and all subsequently filed related actions. By Memorandum Order entered June 1, 2006, the Court appointed the Iowa Public Employees’ Retirement System (“IPERS”) and the Public Employees’ Retirement System of Mississippi (“MPERS”) as Co-Lead Plaintiffs (“Lead Plaintiffs”) and approved their selection of the law firms of Barrack, Rodos & Bacine and Bernstein Litowitz Berger & Grossmann LLP as Co-Lead Counsel (“Lead Counsel”). Thereafter, several additional putative class cases were filed, which were also consolidated with the initial four cases.

The Consolidated Complaints filed by Lead Plaintiffs

Lead Counsel, on behalf of Lead Plaintiffs and the Class, undertook a vigorous and extensive prosecution of the case. In addition to reviewing materials in the public domain relating to Mills and the restatement of its financial statements, Lead Counsel conducted its own lengthy investigation, which included retaining a private investigation firm, consulting with a practitioner in the REIT industry, and interviewing people with knowledge about what occurred within Mills. On July 27, 2007, Lead Plaintiffs filed a 266-page Consolidated Complaint (the “Complaint”) that asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder and Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities Act”). The Complaint generally alleged violations of the federal securities laws through, among other things, misstatements and omissions by the Mills corporate entities, by E&Y and by other Mills officers and directors in filings made by Mills and Mills LP with the Securities and Exchange Commission (“SEC”), as well as press releases and conference calls with analysts and investors. In addition to the “regular” types of defendants, Lead Counsel also developed — including through travel to Germany to meet with KanAm investors — and then alleged control person claims against various KanAm entities. The Complaint sought to proceed on behalf of a class consisting of all persons who purchased or otherwise acquired Mills’s publicly traded securities, including Mills’s common stock and preferred stock, during the period from February 27, 2001 through August 10, 2006, and who retained securities through October 31, 2005, and who were damaged thereby, excluding certain named persons and entities.

On September 13–14, 2007, Defendants filed thirteen (13) separate motions to dismiss the Complaint; on October 29, 2007, Lead Plaintiffs filed an omnibus memorandum in opposition to those motions to dismiss; and on November 19, 2007, reply briefs were filed in support of the motions. By Order entered December 7, 2007, the Court granted the motions to dismiss but allowed Lead Plaintiffs leave to re-plead by January 18, 2008.

On January 18, 2008, Lead Plaintiffs filed their 200-page Consolidated Amended Class Action Complaint (the “Amended Complaint”), once again asserting claims under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder and Sections 11 and 15 of the Securities Act.

On February 22–25, 2008, each of the Defendants filed motions to dismiss the Amended Complaint; on March 21, 2008, Lead Plaintiffs filed an omnibus memorandum in opposition to the motions to dismiss; and on April 4, 2008, Defendants filed their reply papers in support of their respective motions to dismiss. By Order entered April 28, 2008, the Court denied Defendants’ motions to dismiss in their entirety. On May 9, 2008, Defendants filed their respective Answers to the Amended Complaint.

Prosecution of the Case through Discovery, Class Certification and the Mills Settlement

Immediately after the denial of Defendants’ motions to dismiss, Lead Plaintiffs embarked on a multi-phased prosecution of the case.

First, Lead Plaintiffs started to undertake a massive discovery program, which began in earnest in early July 2008. Lead Counsel first reviewed and analyzed millions of pages of documents produced by Mills, using a state-of-the-art database service to help them manage, code and categorize the documents. This was an intensely labor-intensive process, which required thousands and thousands of hours by lawyers at both of the Lead Counsel firms, with some assistance from attorneys at other plaintiffs’ firms, in order for them to be able to start depositions in September 2008. Lead Counsel also undertook inspections, and engaged in meet and confer discussions and filed motions to compel, to obtain the full scope of documents that Lead Plaintiffs needed from Mills, from E&Y (including working papers for its audits of Mills as well as its audits of various KanAm-related entities), from the KanAm defendants, and from various third parties. In this course of this discovery effort, Lead Counsel took fact witness depositions of former Mills employees, certain KanAm representatives, and the senior and next senior level of E&Y personnel on its audits of Mills.

Second, on August 15, 2008, Lead Plaintiffs filed their motion for class certification seeking (i) to certify the Action as a class action, (ii) to certify Lead Plaintiffs and additional named plaintiffs C. Bickley Foster, Frederic Elliott and Vernon E. Rudolph as Class Representatives, and (iii) to certify Lead Counsel as Class Counsel (the “Class Motion”). Defendants made two primary arguments in response to the Class Motion. First, Defendants argued that the Class should not include any purchasers of Mills’s preferred stock, based on their contention and supporting expert affidavits that the preferred stock did not trade in an efficient market and, therefore, could not take advantage of the fraud-on-the-market theory of reliance. Second, Defendants made arguments concerning the end of the Class Period. E&Y asserted that the Class Period as against E&Y could not continue after the statement made by Mills in an SEC filing of January 6, 2006, that told investors they should no longer rely upon any of Mills’s prior financial statements or upon E&Y’s audit opinions. All of the other Defendants asserted that the Class Period as to them should not extend past Mills’s SEC filing of February 23, 2006, which touched off a rash of analyst reports, many of which emphasized that investors were essentially “flying blind” by that point.

In opposing the Class Motion, E&Y submitted an expert’s affidavit that focused solely on the market for Mills’s preferred stock, using a variety of metrics and tests, which concluded that the market was inefficient. E&Y further cited many cases in which courts had ruled that once a company issues a statement that investors may not rely on prior audit opinions, investors cannot make claims against the auditor from that point forward. Mills also submitted an expert report, both on the preferred stock market and its claimed inefficiency and citing the many analyst reports before and after February 23, 2006, in support of the argument that investors after that point could not longer reasonably rely on statements made by Mills about its financial condition and, therefore, could not assert Section 10(b) claims on behalf of purchasers after that date.

Lead Plaintiffs countered with an expert of their own, and Lead Counsel worked closely with him in preparing first an opening report on these issues, and later in a rebuttal report after Lead Counsel had reviewed the defendants’ expert reports. In addition to submitting and reviewing expert reports, Lead Counsel also engaged in depositions of the experts.

Third, Lead Plaintiffs, through Lead Counsel, engaged in settlement talks with Mills, which involved the preparation of mediation statements, damages analyses and a series of talks and mediation sessions before former Judge Daniel Weinstein. Eventually, on November 12, 2008, after having had day-long mediation and information sessions on April 2, July 23, and November 10, 2008, Lead Plaintiffs reached a $165 million settlement with Mills the day before oral argument was to be heard on the Class Motion. Thereafter, the settlement documents were finalized, and Lead Plaintiffs continued to prosecute the claims against E&Y and the KanAm defendants after a 6-week hiatus.

Continued Prosecution of the Case against E&Y and the KanAm Defendants

On January 9, 2009, Lead Plaintiffs filed a motion to amend the Amended Complaint, substituting certain KanAm Defendants in place of the KanAm Defendants previously named in the Complaint and Amended Complaint (the “Motion to Amend”). Attached to Lead Plaintiffs’ submission was a copy of Lead Plaintiffs’ proposed Second Amended Class Action Complaint (the “Second Amended Complaint”).

The KanAm Defendants filed a motion seeking a limited and partial discovery stay (the “Stay Motion”). Then, on February 4, 2009, the KanAm Defendants filed an opposition to the Motion to Amend and a motion to dismiss the proposed Second Amended Complaint should the Court grant leave for the Second Amended Complaint to be filed, to which Lead Plaintiffs responded in a brief filed on February 5, 2009.

On February 6, 2009, the Court heard argument on Lead Plaintiffs’ Motion to Amend, as well as the KanAm Defendants’ Stay Motion. Thereafter, on February 9, 2009, the Court entered an order granting the Motion to Amend and denying the Stay Motion.

On February 26, 2009, the Court heard argument on the Class Motion as against E&Y and the KanAm Defendants, and stated at the conclusion of the Hearing that (a) Lead Plaintiffs had met their burden to establish the appropriateness of certifying a Class through August 10, 2006, and (b) the Court would grant the Class Motion and issue an order and memorandum opinion consistent with the Court’s findings. The Court would subsequently issue its order and memorandum opinion concerning the Class Motion on March 31, 2009.

At the same hearing, the Judge also heard argument on Lead Plaintiffs’ motion for preliminary approval of the settlement with Mills, and stated at the conclusion of that portion of the Hearing that he would grant the motion.

On February 27, 2009, the Court heard argument on the KanAm Defendants’ motion to dismiss the Second Amended Complaint, and stated at the conclusion of the argument that the Court would issue an order denying the KanAm Defendants’ motion. Thereafter, on March 3, 2009, the Court entered an order denying the KanAm Defendants’ motion to dismiss the Second Amended Complaint. On March 13, 2009, the KanAm Defendants filed their Answer to Lead Plaintiffs’ Second Amended Complaint.

On March 18, 2009, E&Y and the KanAm Defendants filed in the United States Court of Appeals for the Fourth Circuit (the “Court of Appeals”) Petitions for Permission to Appeal from the Court’s ruling on the Class Motion, to which Lead Plaintiffs responded on March 20, 2009, with a motion to dismiss the Petitions and on March 30, 2009, with a brief in opposition to the Petitions.

On March 20, 2009, E&Y filed a motion in the District Court to stay certain proceedings in the litigation pending determination by the Court of Appeals of E&Y’s Rule 23(f) Petition. By an Order of the Court, Lead Plaintiffs were directed to file their response to the stay motion on April 1, 2009, E&Y could file a reply brief on April 2, 2009, and argument was set on the motion for April 3, 2009.

However, on April 1, 2009, after Lead Plaintiffs, through Lead Counsel, had engaged in extensive discussions with E&Y in mediation sessions before Judge Weinstein on December 8, 2008, and March 18, 2009, and through a series of further discussions, Lead Plaintiffs reached a settlement with E&Y that obligated E&Y to pay $29.75 million in settlement of the claims raised against E&Y. Lead Plaintiffs and E&Y notified the Court of this agreement, and E&Y agreed that it would withdraw its motion to stay proceedings in the District Court, and would take action before the Court of Appeals to seek deferral of proceedings in that Court on E&Y’s Rule 23(f) Petition.

Thereafter, after Lead Plaintiffs, through Lead Counsel, engaged in extensive discussions with the remaining KanAm Defendants in mediation sessions before Judge Weinstein on December 10, 2008, and April 14, 2009, and through a series of further discussions, Lead Plaintiffs reached a settlement with the remaining KanAm Defendants to dismiss the claims against them and related KanAm persons and entities in exchange for an $8 million payment.

In all, during the course of litigating this case, Lead Counsel reviewed and analyzed nearly 6 million pages of documents, took more than 25 fact witness depositions, and prepared to take at least 20 others. In connection with the Class Motion, Lead Counsel provided written discovery and defended the depositions of each of the Plaintiffs, participated in depositions of the Lead Plaintiffs’ outside account manager, submitted two expert reports and participated in the three expert depositions. After full briefing, Lead Counsel also prepared for and presented oral argument on the Class Motion.

The Settlements Achieved in the Case

Lead Plaintiffs recovered over $200 million for the benefit of the Class. As noted above, the Settlements were reached in three phases:

  • On November 12, 2008, Lead Plaintiffs reached a settlement with the Mills Defendants to dismiss claims against the Mills Defendants, the company’s former executives and directors, its underwriters and successors, in exchange for a payment of $165 million for the benefit of the Class. The Stipulation of Settlement provided for the $165 million to be paid in three installments, the last of which was made on July 31, 2009. All of the payments include interest from February 1, 2009. The total payments resulting from the Mills settlement will equal $166.2 million.
  • On April 1, 2009, Lead Plaintiffs reached a settlement with Mills’s former auditor, Ernst & Young LLP, to dismiss claims against E&Y and other related persons and entities in exchange for a payment of $29.75 million.
  • On May 11, 2009, Lead Plaintiffs reached a settlement with the KanAm Defendants to dismiss claims against the KanAm Defendants and other related persons and entities in exchange for a payment of $8.0 million.
  • The recovery achieved through these three settlements—which resolve all claims of the Class against all Defendants — has resulted in the largest securities law class action recovery ever achieved in a case pending in the U.S. District Court for the Eastern District of Virginia.