Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 1 of 29 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ALABAMA

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1 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 1 of 29 FILED 2011 Nov-04 PM 02:40 U.S. DISTRICT COURT N.D. OF ALABAMA UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ALABAMA SUZANNE GOLDBERG, JULI MADACEY, MICHELLE REEVES, and KRISTA WALSH,individually and on behalf of a class of similarly situated persons, Plaintiffs Case No. 2:10-cv HGD v. CLAYTON COLLEGE OF NATURAL HEALTH, INC., MAGNOLIA CORPORATE SERVICES, INC., et al, Defendants. BRIEF IN SUPPORT OF PLAINTIFFS MOTION FOR PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT AND APPROVAL OF CLASS NOTICE

2 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 2 of 29 TABLE OF CONTENTS Page INDEX OF AUTHORITIES... iv I. INTRODUCTION...1 II. FACTUAL AND PROCEDURAL BACKGROUND...2 A. Description of Litigation CCNH Closed In July 2010 Without Providing A Means For Students To Recover Prepaid Tuition Plaintiffs Asserted Breach Of Fiduciary Duty, Negligence And Other Claims In This Action Commenced In November The CCNH Defendants Have Contested This Action Discovery Has Been Undertaken, Including Production Of More Than 20,000 Pages Of Documents The CCNH Defendants Are Insured By A Directors And Officers Liability Insurance Policy With Depleting Limits Plaintiffs Moved For Class Certification Pursuant To Rule 23 (b)(3) The Parties Agreed To Participate In A Non-Binding Mediation B. Description Of The Settlement The Parties Participated In Good-Faith Mediation Efforts The Settlement Includes Agreement As To Appointment Of Class Representatives And Class Counsel The Settlement Provides Substantial Benefits to Class Members i-

3 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 3 of 29 -iia. The Settlement Creates A $2.31 Million Common Fund....8 b. The Settlement Also Provides Tuition Discount Opportunities At Two Other Natural Health Schools c. The Settlement Requires Class Counsel To Apply For An Award Of Fees And Reimbursement For Expenses, And For Compensation For Class Representatives III. ARGUMENT...12 The Settlement Meets The Standards For Approval Under Rule 23 A. A Two-Step Approval Process Is Appropriate...12 B. The Settlement Class Satisfies The Requirements Of Rule 23(b)(3) C. The Settlement Has No Obvious Deficiencies or Inequities D. The Settlement Is Within The Range Of Possible Approval The Settlement Is One That Falls Within the Range of What the Court Might Approve Following a Fairness Hearing The Likelihood Of Success At Trial The Range of Possible Recovery and The Point On Or Below The Range of Possibly Recovery At Which A Settlement Is Fair, Adequate and Reasonable The Complexity, Expense and Duration of Litigation The Substance and Amount of Opposition to the Settlement The Stage of Proceedings at Which the Settlement Was Achieved The Judgment of Experienced Counsel....21

4 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 4 of 29 E. The Court Should Approve The Proposed Notice IV. CONCLUSION iii-

5 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 5 of 29 INDEX OF AUTHORITIES Page Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997) Bennett v. Behring Crop., 737 F.2d 982 (11 th Cir. 1984)...17 Cotton v. Hinton, 559 F.2d 1326 (5 th Cir. 1977)...17 Dalton v. Cardworks Servicing, LLC, 2010 U.S. Dist. LEXIS (S.D. Ala. 2010)...12 Denney v. Jenkens & Gilchrist, 230 F.R.D. 317 (S.D.N.Y. 2005)...14 Smith v. WM. Wrigley Jr, Co., 2010 U.S. Dist. LEXIS (S.D. Fla. 2010)... 13,18 Tulsa Prof l Collection Servs., Inc., v. Pope, 485 U.S. 478 (1988)...22 Fed. R. Civ. P. 23(a)...14 Fed. R. Civ. P. 23(b)(3)...6,15,22 Fed. R. Civ. P. 23(e)... 2,12-13,21 Fed. R. Civ. P. 26(a)(1) Newberg on Class Actions, 13: Man. Complex Lit Man. Complex Lit iv-

6 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 6 of 29 I. INTRODUCTION Plaintiffs Suzanne Goldberg and Juli Madacey ( Plaintiffs ) 1 are asking the Court to grant preliminary approval of a class action settlement pursuant to Rules 23(b)(3) and 23(e) of the Federal Rules of Civil Procedure and to approve the form and manner of a notice regarding the settlement in this action arising from the closing of the Birmingham-based Clayton College of Natural Health ( CCNH ) in July As the Court is aware, this action was stayed on September 22, 2011 to permit the parties to proceed to a non-binding mediation conducted by Rodney Max. As a result of mediation efforts that culminated in an all-day mediation effort with Mr. Max on October 24, 2011, Plaintiffs and Defendants CCNH, Magnolia Corporate Services, Inc., Lloyd Clayton, Jeff Goin, William Fishburne, and Kay Channell (the CCNH Defendants ), together with their insurer, RSUI Indemnity Company ( RSUI ) agreed to a settlement, a copy of which is attached to this brief as Exhibit 1. The settlement on behalf of a class of approximately 14,000 students active at the time CCNH closed in July 2010 is contingent upon final approval by this Court pursuant to Rule 23(e) of the Federal Rules of Civil Procedure. To this end, Plaintiffs, with the concurrence of the CCNH Defendants, are seeking an Order granting 1 Two other Plaintiffs, Michelle Reeves and Krista Walsh, were not able to participate in the mediation efforts that resulted in the settlement described here due to personal obligations and are not presently able to serve as class representatives, but they along with approximately 14,000 persons are eligible to benefit from the settlement. -1-

7 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 7 of 29 preliminary approval of the class action settlement and directing Plaintiffs to provide notice of the settlement to all members of the settlement class. A copy of the proposed notice is attached to this brief as Exhibit 2. As described further below, the settlement provides a means for a settlement class of approximately 14,000 persons who were enrolled in but had not graduated or withdrawn from CCNH in a distance education program as of July 2010 to make a claim for benefits. The settlement would create a $2.31 million settlement fund, along with the opportunity for more than $12.6 million in tuition discounts at other natural health programs, for the benefit of members of the settlement class. Importantly, the settlement provides a prompt and orderly means for members of the settlement class to secure a recovery arising from the circumstances of CCNH s closure that otherwise might be unattainable for numerous reasons, including the inherent difficulties in collecting from a defunct entity such as CCNH as well as the terms of a director and officers insurance policy issued by RSUI to CCNH Defendants, which among other provisions, has insurance limits that are eroded by defense fees and expenses. -2-

8 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 8 of 29 II. FACTUAL AND PROCEDURAL BACKGROUND A. Description of Litigation. 1. CCNH Closed In July 2010 Without Providing A Means For Students To Recover Prepaid Tuition. This putative class action was filed by former students of CCNH following the school s abrupt closure in July From approximately 1980 until its closure, CCNH provided distance education certificate and degree programs in natural health subjects from its Birmingham-based headquarters to thousands of adults throughout the country. The vast majority of CCNH s active students at the time of its closure had enrolled in self-paced programs that were to be completed within five years of enrollment. CCNH provided faculty and administrative support to its distance education students from its offices in Birmingham. CCNH required students to prepay tuition for its self-paced programs, and charged tuition ranging from approximately $2,000 to $15,000 depending on the program or programs in which a student enrolled. As of July 2010, Plaintiffs and other members of the Class had prepaid millions of dollars in tuition for classes that CCNH had not yet provided. Following its closure in July 2010, CCNH failed to provide a means for its thousands of students to either complete the self-paced programs they had been -3-

9 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 9 of 29 pursuing or recover the tuition that they had paid to the school Plaintiffs Asserted Breach Of Fiduciary Duty, Negligence And Other Claims In This Action Commenced In November In November 2010, Plaintiffs commenced this putative class action against the CCNH Defendants. Plaintiffs nine-count complaint asserts claims for breach of fiduciary duty, conversion, negligence, and breach of contract, among other causes of action. R.1. In August 2011, Plaintiffs moved for leave to file a First Amended Complaint alleging additional facts adduced during discovery. R The CCNH Defendants Have Contested This Action. The CCNH Defendants have contested this action. In February 2011, the individual defendants Lloyd Clayton, Jeff Goin, Bill Fishburne, and Kay Channell filed a motion to dismiss the claims personally stated against them. R. 8. CCNH and its related entity, Magnolia Corporate Services, Inc., answered the Complaint, but denied allegations, including those relating to class certification. R A limited number of students approximately 1,400 elected to pursue a teach out opportunity offered by CCNH pursuant to which students who completed and submitted all of the coursework for their programs by January 31, 2011 could attain the certificate or degree offered in the program in which they had been enrolled. -4-

10 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 10 of Discovery Has Been Undertaken, Including Production Of More Than 20,000 Pages Of Documents. Since entry of this Court s Rule 16 Scheduling Order on April 15, 2011, R. 26, the parties have engaged in active written and deposition discovery. CCNH has produced nearly 20,000 pages of documents responsive to Plaintiffs document requests, including substantial electronically stored information, including s. CCNH s former landlord, accountants and employees have produced additional documents responsive to Plaintiffs subpoenas. Plaintiffs have deposed a number of former CCNH officials, including the school s former registrar, director of accounts receivable, chief financial officer, and chief operating officer. The CCNH Defendants deposed Plaintiff Suzanne Goldberg. Plaintiffs have also produced hundreds of pages of documents and answered dozens of interrogatories. 5. The CCNH Defendants Are Insured By A Directors And Officers Liability Insurance Policy With Depleting Limits. In accordance with Rule 26(a)(1) of the Federal Rules of Civil Procedure, the CCNH Defendants have produced one insurance agreement under which an insurance business may be liable to satisfy all or part of a possible judgment in this action: a directors and officers liability insurance policy (the Policy ) issued by RSUI Indemnity Co., which has defended the lawsuit to date under a reservation of rights. The Policy provides a maximum of $3.5 million in potential insurance to the CCNH -5-

11 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 11 of 29 Defendants with defense costs and expenses included in such limits. 3 The Policy contains numerous terms, conditions and exclusions that may impact on the availability of any coverage available remaining after expenditure of defense fees and costs. 6. Plaintiffs Moved For Class Certification Pursuant To Rule 23(b)(3). In September 2011, Plaintiffs moved for class certification. R. 37 & 38. In moving for class certification, Plaintiffs noted that the uniformity of the predicament faced by Plaintiffs and others similarly situated each of whom indisputably prepaid CCNH advance tuition for programs that are now indisputably closed makes this case well-suited for class certification. R. 38, pp 1-2. In moving for class certification, Plaintiffs contended that the case satisfies all requirements for class certification pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure. Id. The class numbers in the thousands, establishing numerosity and making joinder impracticable. Id. There are issues of fact and law common to the class arising from uniform practices regarding collection of advance tuition for programs, and all class members have been similarly affected by the closure of CCNH s programs and the failure to return tuition. Id. Common issues predominate over any individual issues. 3 In connection with the mediation efforts that resulted in the settlement for which preliminary approval has been sought, Plaintiffs were informed by CCNH Defendants that nearly $400,000 in defenses fees and costs had been generated to date, reducing the potential coverage available under the Policy to $3.1 million. -6-

12 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 12 of 29 Id. The claims of the proposed class representatives are typical of the claims of those in the class they seek to represent, and the representatives and class counsel will adequately and fairly protect the interests of each class member. Id. 7. The Parties Agreed To Participate In A Non-Binding Mediation. Shortly after Plaintiffs filing of the motion for class certification, this Court granted the parties joint motion for stay pending a non-binding mediation to be conducted in late October R. 40. B. Description Of The Settlement. 1. The Parties Participated In Good-Faith Mediation Efforts. Following the Court s granting of a stay, the parties participated in numerous mediation meetings in October 2011 conducted by Rodney Max. In addition to participation by all parties in the mediation conducted on October 24, 2011, attorneys for Plaintiffs and the CCNH Defendants attended several pre-mediation meetings with Mr. Max intended to pave the way for successful settlement negotiations. On October 24, 2011, the parties participated in an extensive mediation that lasted nearly 12 hours and resulted in a settlement agreement. In addition to Plaintiffs counsel and the CCNH Defendants counsel, Plaintiffs Suzanne Goldberg and Juli Madacey attended the mediation, along with Defendants Lloyd Clayton, Jeff Goin,William Fishburne, and Kay Channell, and two representatives of RSUI. The -7-

13 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 13 of 29 settlement agreement, achieved through the arm s-length negotiations conducted by Mr. Max without collusion, is attached to this brief as Exhibit The Settlement Includes Agreement As To Appointment Of Class Representatives And Class Counsel. The settlement includes agreement as to appointment of Suzanne Goldberg and Juli Madacey as Class Representatives, and Thomas H. Howlett and Dean M. Googasian as Class Counsel. As previously addressed in Plaintiffs motion for class certification, these individuals are able to fairly and adequately represent the interests of the class. R. 37 & R The Settlement Provides Substantial Benefits to Class Members. The settlement submitted to the Court for preliminary approval creates a $2.31 million settlement fund, plus provides potential tuition discounts at other natural health programs totaling in a range of $12.6 million to more than $60 million, to a settlement class comprised of approximately 14,000 adults who were enrolled in but had not graduated or withdrawn from CCNH in a distance education program as of July a. The Settlement Creates A $2.31 Million Common Fund. The settlement provides a $2.31 million common fund in cash for the class. This money is to be held in escrow, with any interest earned to benefit the class. From this common fund, at least $1.33 million will be paid directly to class members under -8-

14 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 14 of 29 the proposed distribution. Under the settlement, the common fund will be distributed equitably to all class members who submit valid claims in accordance with a formula described in detail in the proposed notice, which is attached at Ex Pursuant to the settlement, a class of approximately 14,000 persons who were enrolled in but had not graduated from CCNH in a distance education program as of July 2010 will be entitled to submit a claim. The proposed notice attached at Exhibit 2 contains a proposed claim form. A Claims Administrator, whom the parties have agreed upon and Plaintiffs are asking the Court to appoint, 5 will then determine 4 In brief, claimants will be divided into three groups of students were who were enrolled in but had not graduated or withdrawn from CCNH as of July The three claimant groups will be referred to as Group A, Group B and Group C. Group A will include students who enrolled in a program at CCNH less than five years prior to the school s closure in light of CCNH s five-year time period for completion of self-paced programs. Group B will include students who enrolled in a program more than five years before the school closed and had not completed their program. Group C will include all students who completed the program in which they were enrolled during the teach-out offered by CCNH between the closure of the school in July 2010 and the end of January During the claim process, Group B claimants will have an opportunity to be moved into Group A through the claims process by demonstrating to the Claims Administrator: (1) submission of coursework within 12 months of the closure of the school; (2) submission of coursework between 12 and 36 months of the closure and good cause for not submitting coursework more recently; or (3) compelling circumstances for not submitting coursework within 36 months of the school s closure. All class members in Group A and Group B will be entitled to a settlement payment from the common fund. Pursuant to the notice, each Group A claimant will be entitled to a pro rata share of 100 percent of the tuition paid by the claimant to CCNH in connection with enrollment in any program that the claimant did not complete; each Group B claimant will be entitled to a pro rata share of 25 percent of the tuition paid by the claimant to CCNH in connection with any program that the claimant did not complete. Members of Group A, Group B, and Group C all will be entitled through the claim process to become eligible for tuition discounts at other natural health programs. 5 The parties have agreed to the appointment of GCG, Inc. as claims administrator in this matter, and, accordingly, Plaintiffs respectfully request that the Court appoint GCG in this role. GCG is one of the nation s leading claims administrators with more than 1,000 employees in 10-9-

15 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 15 of 29 whether the claim is valid and timely. The Claims Administrator also will reply to each claimant in a writing that will state where applicable the amount of tuition paid by the student according to CCNH s records, whether the claimant is designated as Group A, Group B, or Group C, and, for Group A and Group B, the claimant s My Tuition Amount. The claimant will then have the ability to dispute the tuition amount and group designation if the claimant believes either to be in error. The Claims Administrator will consider any disputes, and make a final determination on the correct tuition amount and group designation. Once the deadline passes for claims and all disputes regarding claims are resolved by the Claims Administrator, the tuition claims will be totaled, and proportionate shares will be determined by the administrator for claimants in Group A and in Group B. Each Group A and Group B claimant will then receive a check representing his or her share of the settlement funds based upon the total amount of tuition claims submitted and the formula described in the notice and described above. offices across the United States. A brochure relating to GCG is attached as Exhibit 3. GCG s management team is led by a group of formerly practicing attorneys on both plaintiffs and defense side who have extensive experience and qualifications. Id. -10-

16 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 16 of 29 b. The Settlement Also Provides Tuition Discount Opportunities At Two Other Natural Health Schools. The settlement also provides substantial tuition discount opportunities ranging from $900 to $4,500, exclusive of books, as well as potential credit transfers for interested class members at two other schools of natural health in the United States that are not related in any way to CCNH. These schools have agreed to provide discounts as a means of assisting former CCNH students interested in pursuing further education in another available program. The aggregate benefit to the settlement class available through these tuition discounts ranges from $12.6 million to more than $60 million, depending on the number of claimants taking advantage of the discounts and the programs in which they elect to enroll. 6 6 Specifically, the settlement provides tuition discounts at Global College of Natural Medicine (GCNM) for all class members who submit valid claims before the deadline. Class members who submit valid claims will be entitled to receive discounts of more than 40% off certificate, diploma, bachelor s, master s and Ph.D. programs in holistic health. In addition, class members enrolling in degree programs at GCNM will be eligible for credit transfer consideration for courses completed at Clayton College with additional tuition reductions possible. These tuition discounts and credit transfer opportunities will be available to class members at GCNM through December 31, The settlement also provides tuition discounts at Natural Healing Institute of Naturopathy, Inc. (NHI) for all class members who submit valid claims before the deadline. Class members who submit valid claims will be entitled to enroll in certificate and practitioner programs at tuition rates that are approximately 50-75% lower than the fee schedule for other students. Class members will also be eligible for transfer credit consideration for courses completed at Clayton College. These tuition discounts and credit transfer opportunities will be available to class members at NHI through December 31,

17 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 17 of 29 c. The Settlement Requires Class Counsel To Apply For An Award Of Fees And Reimbursement For Expenses, And For Compensation For Class Representatives. The settlement also requires Class Counsel at or prior to the fairness hearing to apply for an award of attorney fees, class representative compensation, and reimbursement of expenses. The CCNH Defendants have agreed not to contest or object to a request of attorney fees that does not exceed $775,000, total expenses that do not exceed $200,000, and class representative compensation that does not exceed $1,000 per class representative. 7 III. ARGUMENT The Settlement Meets The Standards For Approval Under Rule 23 This Court should grant preliminary approval to this class settlement and hold a hearing to consider final approval of the class settlement under Rule 23(e) because the settlement is fair, reasonable, and adequate. A. A Two-Step Approval Process Is Appropriate. Federal district courts in the 11 th Circuit have established that court approval of a class action settlement involves a two-step process: granting preliminary approval and subsequently holding a fairness hearing. See, e.g. Dalton v. Cardworks Servicing, 7 It is worth noting that Plaintiffs Suzanne Goldberg and Juli Madacey expended considerable time and effort in connection with pursuit of this action, including, but not limited to, personal travel from Boston and Detroit to participate in the mediation and other proceedings in Birmingham, Alabama that required time away from their full-time jobs. -12-

18 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 18 of 29 LLC, 2010 U.S. Dist. LEXIS , at *5-6 (S.D. Ala. 2010); Smith v. WM. Wrigley Jr, Co., 2010 U.S. Dist. LEXIS 67832, at *5 (S.D. Fla. 2010). For preliminary approval, courts look simply to whether the proposed settlement and plan of distribution are within the range of possible approval and whether notice to the settlement class of its terms and conditions, and the scheduling of a formal fairness hearing... will be worthwhile. 4 Newberg on Class Actions, 13:64. If there are no obvious deficiencies or inequities in the settlement and plan of distribution, the Court should approve the settlement preliminarily, order notice given to the Class, and schedule a hearing: If the preliminary evaluation of the proposed settlement does not disclose grounds to doubt its fairness or other obvious deficiencies, such as unduly preferential treatment of class representatives or segments of the class, or excessive compensation for attorneys, and appears to fall within the range of possible approval, the court should direct that notice under Rule 23(e) be given to the class members of a formal fairness hearing, at which arguments and evidence may be presented in support of and in opposition to the settlement. Id., quoting Man. Complex. Lit., Here, the Court should preliminarily approve the settlement and order notice to the class because the settlement has no obvious deficiencies and is well within the range of possible approval. -13-

19 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 19 of 29 B. The Settlement Class Satisfies The Requirements Of Rule 23(b)(3). In connection with granting preliminary approval of a settlement, the Court can properly determine that the proposed class is proper for settlement purposes. See Man. Complex Lit ; Amchem Products, Inc. v. Windsor, 521 U.S. 591, 620 (1997). See also Denney v. Jenkens & Gilchrist, 230 F.R.D. 317, 347 (S.D.N.Y. 2005)( Courts have frequently certified settlement classes on a preliminary basis, at the same time as the preliminary approval of the fairness of the settlement, and solely for the purposes of settlement, deferring final certification of the class until after the fairness hearing. ). Here, as demonstrated in Plaintiffs motion for class certification, this action plainly satisfies the four requirements in Rule 23(a) numerosity, commonality, typicality and adequacy of representation and the requirements of Rule 23(b)(3) of the Federal Rules of Civil Procedure. R. 37 & R. 38. Through the mediation, the parties have agreed to a settlement that encompasses a class of all persons who were enrolled in but had not graduated or withdrawn from CCNH in a distance education program as of July 2010, when the school closed without providing a means for students to complete self-paced programs or receive back tuition. Ex. 1. The Court has great discretion in determining whether to certify a class. Amchem, 521 U.S. at 624. In these circumstances, the settlement class is suitable for -14-

20 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 20 of 29 certification, and the Court should certify the settlement class pursuant to Rule 23(b)(3) for purposes of granting preliminary approval of the settlement. C. The Settlement Has No Obvious Deficiencies or Inequities. The Court should grant preliminary approval because the settlement has no obvious deficiencies or inequities. Obvious deficiencies in a settlement include unfair treatment of class members in connection with distribution, unfair preference of class representatives, or excessive attorney fees. Amchem, 521 U.S. at 621. None of these deficiencies exist here. The settlement treats class members in an equitable manner. Class members who paid more tuition to CCNH will receive a higher settlement payment than class members who paid less in tuition. Class members who were the most directly affected by the school s sudden closure those who had enrolled within five years and were actively completing coursework will be eligible for higher settlement payments in proportion to the amount of tuition incurred than class members who had not completed coursework for many years prior to the school s closure. The settlement does not unfairly benefit the class representatives, who will receive limited additional compensation of up to $1,000 for considerable efforts that included travel to Birmingham for participation in mediation efforts that required days away from their jobs. -15-

21 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 21 of 29 The settlement does not involve excessive attorney fees or costs. The settlement provides a total potential benefit to the class ranging from $14.9 million to more than $60 million, when taking into account all potential tuition discounts available to class members at other natural health programs. The settlement has generated a $2.31 million fund to be held in escrow that will go to the class. Plaintiffs counsel undertook the representation of Plaintiffs on a contingent fee basis, agreeing to advance costs and receive a fee out of any eventual recovery as determined by the Court should the case be certified as a class action. The fee request in the amount of $775,000 complies with those contingent fee arrangement and is reasonable. The fees requested are approximately one-third of the $2.31 million settlement fund created by the settlement, and the fees represent less than 1.5 percent of the total potential benefit created by the settlement. 8 Defendants have agreed not to oppose the fee and costs request. D. The Settlement Is Within The Range Of Possible Approval. The Court should grant preliminary approval because the settlement is well within the range of possible approval. 8 Similarly, the settlement does not involve excessive costs. The request for cost reimbursement of up to $200,000 includes $50,000 in costs already incurred, plus an allocation of costs to be incurred in connection with the mailing of notice and the administration of claims. If the costs incurred following the mailing of notice and administration of claims is less than $200,000, any remaining amount would go the benefit of the class. -16-

22 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 22 of The Settlement Is One That Falls Within the Range of What the Court Might Approve Following a Fairness Hearing. At this preliminary stage, the Court need not conduct the full and searching review necessary to provide final approval of the settlement, and it may consider whether the settlement is one that may fall within the range of what the Court might approve under Rule 23. In order to approve a class action settlement, the court must find that it is fair, adequate and reasonable and is not the product of collusion between the parties. Bennett v. Behring Crop., 737 F.2d 982, 986 (11 th Cir. 1984) (citing Cotton v. Hinton, 559 F.2d 1326, 1330 (5 th Cir. 1977). Determining the fairness of the settlement is left to the sound discretion of the trial court, and will not be overturned absent a clear showing of abuse of that discretion. Id. In Bennett, the Eleventh Circuit identified the factors to consider in determining whether a settlement is fair, adequate and reasonable: (1) the likelihood of success at trial; (2) the range of possible recovery; (3) the point on or below the range of possible recovery at which a settlement is fair, adequate and reasonable; (4) the complexity, expense and duration of litigation; (5) the substance and amount of opposition to the settlement; and (6) the stage of proceedings at which the settlement was achieved. Id. The Court may also consider the judgment of experienced counsel. Smith, 2010 U.S. Dist. LEXIS 67832, at *6. Here, the settlement is fair, -17-

23 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 23 of 29 adequate and reasonable, and resulted from arm s length negotiations between experienced counsel following extensive discovery. 2. The Likelihood Of Success At Trial. The settlement is fair, reasonable and adequate when weighed against the likelihood of success at trial. While Plaintiffs counsel believe that they would have prevailed on any dispositive motions, there is always significant risk in continuing litigation. Defendants are represented by experienced and competent counsel who have raised legal and factual issues which, if successful by motion, at trial, or on appeal, could substantially reduce or completely eliminate a potential recovery for the class. The amount and form of relief offered to class members in the settlement is substantial in comparison to these risks. As outlined above, the settlement offers the class a potential total benefit of between $14.9 million and more than $60 million, including $2.31 million in cash in a common fund and an aggregate range of tuition discounts totaling $12.6 million to more than $60 million at other natural health programs. 3. The Range of Possible Recovery and The Point On Or Below The Range of Possibly Recovery At Which A Settlement Is Fair, Adequate and Reasonable. The range of possible recovery weighs heavily in favor of concluding that the -18-

24 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 24 of 29 settlement is fair, adequate and reasonable. While the anticipated damages of the class exceed the amount provided in the settlement, there is no guarantee that Plaintiffs would obtain any judgment at trial against the CCNH Defendants. Even if Plaintiffs were to obtain a judgment in excess of the benefits provided under the settlement, funds likely would not be available from which Plaintiffs could seek to completely satisfy such a judgment due to the depleting nature of RSUI s insurance policy and other terms and conditions. CCNH itself is a defunct entity with no apparent ability to satisfy a judgment through any assets. 4. The Complexity, Expense and Duration of Litigation. The complexity, expense and duration of further litigation weigh heavily in favor of concluding that the settlement is fair, adequate and reasonable. This is a complex case involving a multitude of legal issues, most of which have not yet been litigated and adjudicated, including, but not limited to, the viability of claims against individual defendants. Continuing the litigation also will continue the expenses for both sides, reducing the net potentially available for recovery by the class. Thus, the expense of continuing the litigation to Plaintiffs is doubly vexing because it increases expenses to the class while simultaneously reducing the amount of insurance coverage potentially available under RSUI s depleting policy. The significant delay inherent in continuing the litigation also weighs in favor -19-

25 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 25 of 29 of approving the settlement. More than a year has already passed since the closure of CCNH. In addition to providing cash payments, the settlement also provides an opportunity for class members to continue their education in natural health at a substantial savings without further delay. 5. The Substance and Amount of Opposition to the Settlement. The time for this Court to appropriately consider the substance and amount of opposition to the settlement will be when the Court is considering granting final approval of the settlement, at which point class members will have been notified of the settlement and will have been afforded an opportunity to express their views for the Court s consideration. The notice attached at Exhibit 2 clearly describes the procedure for class members to object to the settlement, ask to speak at the fairness hearing, or exclude themselves from the settlement. 6. The Stage of Proceedings at Which the Settlement Was Achieved. The settlement was achieved after completion of extensive discovery, including taking the depositions of many key witnesses as well as review of thousands of pages of documents relating to the claims and defenses at issue in this case. At this stage in the proceedings, the legal and factual issues are well known to both sides and the Court. This is not a situation in which a settlement is quickly proposed when the facts relating to liability or damages are unclear or undiscovered. However, as discussed -20-

26 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 26 of 29 above, the litigation is still at an early enough stage in the proceedings such that a settlement now would avoid substantial expense involved with continued litigation, as well as the risk of adverse rulings on many important issues that have not yet been litigated. 7. The Judgment of Experienced Counsel. Experienced counsel who have completed substantial discovery and carefully evaluated the strength of their proofs and evidence believe the settlement is in the best interests of the class. While Class Counsel remain confident that they could obtain a significant judgment in the event the case proceeds to trial, Counsel having thoroughly evaluated the evidence and law on both sides also believe that a settlement now is in the best interests of the class for numerous reasons, including the depleting nature of CCNH s lone insurance policy. E. The Court Should Approve The Proposed Notice. Under Rule 23, settlement or dismissal of a class action requires court approval, and the rule sets forth certain procedures that must be followed. Fed. R. Civ. P. 23(e). The Court must direct that notice of the settlement be given in a reasonable manner to all class members bound by the settlement and may approve the settlement only after a hearing and finding that the settlement is fair, reasonable and adequate. Id. Here, the parties have agreed on the form of a notice to be sent by first class -21-

27 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 27 of 29 mail to all class members advising them of the settlement, the request for fees and costs, their right to opt out or object to the settlement and how to do so, and the means and dates by which they must assert a claim in order to participate in the settlement benefits. The proposed notice would advise class members of a January 31, 2012 deadline for submission of claim forms, exclusion requests and objections. It would also inform class members of a fairness hearing scheduled for February 15, 2012 at 10 a.m. The attached notice faithfully tracks exemplar notices created by the Federal Judicial Center, and provides in plain language all information necessary to advise Class Members of their rights and options. Plaintiffs are asking the Court to approve the notice and to order that the notice be sent by first class mail to the last known addresses of class members. Notice by direct mail satisfies due process and publication notice is not required. See, e.g. Tulsa Prof l Collection Servs., Inc., v. Pope, 485 U.S. 478, 489 (1988). Plaintiffs will also place the notice on Class Counsel s informational website relating to the lawsuit. IV. CONCLUSION For the foregoing reasons, Plaintiffs respectfully request that the Court enter an order: a. Certifying the case pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure as a class action for settlement purposes on behalf of a class of all individuals who were enrolled in but had not graduated from CCNH in a distance education program as of -22-

28 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 28 of 29 July 2010; b. Granting preliminary approval for a class action settlement; c. Approving the class notice and ordering it sent by first class mail to the last known addresses of all class members; d. Appointing Thomas H. Howlett and Dean M. Googasian as Class Counsel; e. Appointing Suzanne Goldberg and Juli Madacey as Class Representatives; f. Appointing GCG, Inc., as claims administrator; g. Scheduling a hearing on February 15, 2012 or another date convenient to the Court to consider final approval of the settlement; and h. Granting whatever other or further relief the Court deems just under the circumstances. Respectfully submitted, THE GOOGASIAN FIRM, P.C. By /s/ Thomas H. Howlett Thomas H. Howlett (P57346) Dean M. Googasian (P53995) Attorneys for Plaintiffs 6895 Telegraph Road Bloomfield Hills, MI / thowlett@googasian.com dgoogasian@googasian.com Quinn, Connor, Weaver, Davies & Rouco, LLC Glen M. Connor -23-

29 Case 2:10-cv HGD Document 42 Filed 11/04/11 Page 29 of 29 Dated: November 4, 2011 Richard Paul Rouco Attorneys for Plaintiffs 2700 Highway 280, Suite 380 Birmingham, AL (205) CERTIFICATE OF SERVICE I hereby certify that on November 4, 2011, I electronically filed the foregoing paper with the Clerk of Court using the CM/ECF system which will send notification of such filing to counsel of record via ECF. /s/ Thomas H. Howlett -24-

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53 Case 2:10-cv HGD Document 42-2 Filed 11/04/11 Page 2 of 14 UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA IF YOU WERE A STUDENT AT CLAYTON COLLEGE OF NATURAL HEALTH AS OF JULY 2010 YOU COULD GET A PAYMENT FROM A CLASS ACTION SETTLEMENT. A federal court authorized this notice. This is not a solicitation from a lawyer. A settlement will provide a settlement fund to pay claims of former students of Clayton College of Natural Health along with other benefits. The settlement resolves a lawsuit over whether Clayton College of Natural Health, its management company Magnolia Corporate Services, Inc., and others (collectively referred to as Clayton College ) are liable to plaintiffs for actions taken in connection with the operation of the school and in connection with the closure of the school after accepting prepaid tuition in advance for classes and education that Clayton College could not provide because the school closed. Court-appointed lawyers for the students will ask the Court to approve the settlement and payments to class members. The Court will also be asked to approve payment from the settlement fund of legal fees and expenses for investigating the facts, litigating the case, and negotiating the settlement. The two sides disagree on how much money could have been won, if any, if students went to trial. Your legal rights are affected whether you act, or don t act. Read this notice carefully. YOUR LEGAL RIGHTS AND OPTIONS IN THIS SETTLEMENT Submit A Claim Form By January 31, 2012 The only way to get a payment and qualify for other benefits. Exclude Yourself By January 31, 2012 Get no payment. This is the only option that allows you to ever be part of any other lawsuit against Clayton College or anyone else about the legal claims in this case. Object By January 31, 2012 Write to the Court about why you don t like the settlement. Go to a hearing on February 15, 2012 Ask to speak in Court about the fairness of the settlement. Do Nothing Get no payment. Give up rights. These rights and options and the deadlines to exercise them are explained in this notice. The Court in charge of this case still has to decide whether to approve the settlement. Payments will be made and other benefits will become available if the Court approves the settlement and after appeals are resolved. Please be patient. QUESTIONS? Call Claims Administrator at (888) ccnhclaims@gcginc.com - Or go to Page 1 of 10

54 Case 2:10-cv HGD Document 42-2 Filed 11/04/11 Page 3 of 14 What This Notice Contains BASIC INFORMATION. PAGE 3 1. Why did I get this notice package? 2. What is this lawsuit about? 3. Why is this a class action? 4. Why is there a settlement? WHO IS IN THE SETTLEMENT.. PAGE 3 5. How do I know if I am part of the settlement? 6. Are there exceptions to being included? 7. I m still not sure if I am included. THE SETTLEMENT BENEFITS WHAT YOU GET.. PAGE 4 8. What does the settlement provide? 9. How much will my payment be? HOW YOU GET A PAYMENT OR OTHER BENEFITS SUBMITTING A CLAIM FORM PAGE How can I get a payment or other benefits? 11. When would I get my payment or other benefits? 12. What am I giving up to get a payment or benefits or stay in the class? EXCLUDING YOURSELF FROM THE SETTLEMENT... PAGE How do I get out of the settlement? 14. If I don t exclude myself, can I sue for the same thing later? 15. If I exclude myself, can I get money from this settlement? THE LAWYERS REPRESENTING YOU. PAGE Do I have a lawyer in this case? 17. How will the lawyers be paid? OBJECTING TO THE SETTLEMENT... PAGE How do I tell the Court that I don t like the settlement? 19. What s the difference between objecting and excluding? THE COURT S FAIRNESS HEARING... PAGE When and where will the Court decide whether to approve the settlement? 21. Do I have to come to the hearing? 22. May I speak at the hearing? IF YOU DO NOTHING... PAGE What happens if I do nothing at all? GETTING MORE INFORMATION Are there more details about the settlement? 25. How do I get more information? UNDERSTANDING YOUR PAYMENT AND BENEFITS PAGE 7 QUESTIONS? Call Claims Administrator at (888) ccnhclaims@gcginc.com - Or go to Page 2 of 10

55 Case 2:10-cv HGD Document 42-2 Filed 11/04/11 Page 4 of 14 BASIC INFORMATION 1. Why did I get this notice package? Clayton College s records show that you were enrolled as a student at Clayton College when the school closed in July The Court sent you this notice because you have a right to know about a proposed settlement of a class action lawsuit, and about all of your options, before the Court decides whether to approve the settlement. If the Court approves it and after objections and appeals, if any, are resolved, settlement benefits will become available and an administrator will make the payments that the settlement allows. You will be informed of the progress of the settlement. This package explains the lawsuit, the settlement, your legal rights, what benefits are available, who is eligible for them, and how to get them. The Court in charge of the case is the United States District Court for the Northern District of Alabama, and the case is known as Goldberg, et al., v. Clayton College of Natural Health, et al, Civil Action No CV HGD. 2. What is this lawsuit about? Clayton College was a for-profit holistic health college licensed by the State of Alabama. For many years, Clayton College charged tuition in advance for entire programs, requiring students to pay in full for certificate, bachelor, masters and Ph.D. programs. In July 2010, after accepting substantial amounts of prepaid tuition, Clayton College abruptly closed its doors and went out of business, making it impossible for students to complete their education at Clayton College. Clayton College did not provide any refunds to students of the prepaid tuition. Plaintiffs filed this lawsuit to obtain a recovery from Clayton College for their damages. 3. Why is this a class action? In a class action, one or more people called Class Representatives (in this case, Suzanne Goldberg and Juli Madacey) sue on behalf of other people who have similar claims. The people together are a Class or Class Members. The students who sued and all the Class Members like them are called the Plaintiffs. The companies and individuals they sued (in this case including Clayton College of Natural Health, Inc., Magnolia Corporate Services, Inc., Lloyd Clayton, Jeff Goin, Bill Fishburne and Kay Channell) are called the Defendants. One court resolves the issues for everyone in the Class except for those who exclude themselves from the Class. U.S. Magistrate Judge Harwell G. Davis, III is in charge of this class action. 4. Why is there a settlement? The Court did not decide in favor of Plaintiffs or Defendants. Plaintiffs think they could have won if they went to trial. Defendants think the Plaintiffs would not have won anything from a trial. But there was no trial. Instead, both sides agreed to a settlement. That way, they avoid the cost of a trial, and the people affected will get compensation. The Class Representatives and the attorneys think the settlement is best for all Class Members. The settlement provides a benefit to the class now. This benefit must be compared to the risk that no recovery might be achieved. Even if Plaintiffs were successful at trial and on any appeal, there would be risks that a smaller or no recovery might be obtained. The proposed settlement includes substantial proceeds from an insurance policy covering the Defendants. The insurance policy pays the costs of the defense, so the amount of insurance money available to pay damages to Plaintiffs declines as Clayton College continues to defend the case. If the case had proceeded to trial and appeals, the insurance may have been depleted completely and this may have significantly reduced or eliminated any potential recovery. QUESTIONS? Call Claims Administrator at (888) ccnhclaims@gcginc.com - Or go to Page 3 of 10