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AOL Time Warner, Inc. Opt-Out Litigations

Case Summary

Premium Recoveries Over Class Settlements

Investors in certain securities actions may be able to obtain a significant premium to class recoveries by “opting out” and pursuing individual actions.  In certain circumstances, individual actions can result in higher recoveries than participating as a class member. In litigation over the disastrous Time Warner and America Online merger, institutional investors – from California to Ohio, and all over the world – achieved significant recoveries through individual “opt out” litigations.

Approximately 100 of Robbins Geller’s institutional clients chose to “opt out” of the AOL Time Warner securities fraud class action. By opting out of the class action and filing individual actions, our institutional clients successfully recovered $629 million – approximately 10 times more than they otherwise would have received in the class action settlement, and they received their recovery much earlier than class members received their payments.

“The total losses to all shareholders from the disastrous merger of Time Warner with AOL were enormous – over $200 billion.  Given the potential difficulties of significant asset recovery in the class action, a number of investors made the tactical decision to opt out and pursue potentially higher recoveries on their own. We are pleased to announce what we feel is a solid asset recovery for these investors,” said Michael J. Dowd.

The Regents of the University of California approved a $246 million settlement of the University’s lawsuit against Time Warner. According to a University press release issued on February 28, 2007, “UC opted out of [the] ongoing federal class action to file its own case in state court in April 2003. The University’s net recovery, which will be just over $200 million if the settlement is approved, is estimated to be between 16 and 24 times the amount that it would have received through the class action case.”

The University’s General Counsel Charles Robinson was quoted in the same press release as saying, “Opting out of the federal class action suit allowed the University to assert unique claims that were unavailable in the class action.”

A number of Ohio funds also reached a $144 million settlement with Time Warner, including five Ohio state pension funds and the Ohio Bureau of Workers’ Compensation.  In announcing the Ohio funds’ settlement, former Ohio Attorney General Marc Dann told Bloomberg, “We are sending a loud and clear message to corporate America and to Wall Street: We will not tolerate fraud, stock manipulation or deceit in this state.”

The opting-out option is also taking root abroad. Given the particular challenges inherent in the class action lawsuit, the utility of opting out was not lost on a number of shrewd investment funds in the UK, EU and Australia.

“Funds need to know what their best options are – either to lead a class action with other funds or opt out and pursue potentially higher recoveries by coordinating their cases with other institutional investors. The key is to get the best advice as early in the process as possible in order to have the time to make the decision that is best for your fund and beneficiaries,” said Patrick W. Daniels, who advised a number of UK, EU and Australian funds regarding their options to recover their losses as a result of the misconduct alleged in the case.

Six Australian superannuation funds recovered $11 million for their investors via an opt-out action, including SAS Trustee Corporation, Cbus and Hesta. SAS Trustee Corporation Trustee Ron Davis told Investor Daily that, in addition to the substantial monetary recovery his fund obtained, the settlement was “also a great win for corporate governance because AOL Time Warner was held accountable. Changes resulted and that is now reflected in the higher share price.”

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