Opinion
Nos. 04 Civ. 8564 (RJH), 04 Civ. 8810 (RJH).
April 13, 2005
MEMORANDUM OPINION AND ORDER
Presently before the Court are two securities fraud actions brought against certain officers and directors of Axis Capital Holdings, ("Axis") and Axis itself (collectively, the "defendants") on behalf of a purported class of investors who claim that defendants disseminated false and misleading statements regarding Axis' results and operations from August 6, 2003 to October 14, 2004 (the "Class Period"). The first such class action was filed on October 28, 2004, and is captioned Dolan v. Axis Capital Holdings, Ltd., et al., 04 Civ. 8564 (RJH) (S.D.N.Y., filed October 28, 2004). Notice was published that same day in the Business Wire, a national, business oriented newswire service, as required by 15 U.S.C. §§ 78u-4(a)(3)(A)(i). The other action, Schimpf v. Axis Capital Holdings, Ltd., et al., 04 Civ. 8820 (RJH) (S.D.N.Y., filed November 5, 2004) followed. (hereinafter, the above-captioned actions are referred to as the "Actions").
Dolan and Schimpf have jointly moved for consolidation, appointment as co-lead plaintiffs, and to designate their selection of representation as co-lead counsel pursuant to the procedures set forth by the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4(a)(3)(B) ("PSLRA"). For the reasons set forth below, the Court hereby consolidates the actions, appoints James Dolan and Robert Schimpf as co-lead plaintiffs, and designates the firms of Lerach Coughlin Stoia Rudman Robbins LLP and Schiffrin Barroway ("Schiffrin") as co-lead counsel.
BACKGROUND
As noted, supra, James Dolan filed the first complaint in this matter on October 28, 2004; on that same day, Dolan's counsel, Lerach Coughlin Stoia Rudman Robbins LLP ("Lerach"), caused notice to be published in Business Wire, advising purchasers of Axis stock that (1) a class action against defendants had commenced in the Southern District of New York; (2) the class included all plaintiffs who had purchased Axis stock between August 6, 2003 and October 14, 2004; (3) the complaint asserted claims charging defendants with, inter alia, artificially inflating its stock price by disseminating materially false and misleading statements; and (4) any class member wishing to serve as lead plaintiff and choose lead counsel was required to move the court within sixty days.
On February 14, 2005, Dolan and Schimpf jointly moved to consolidate the Actions and appoint themselves as co-lead plaintiffs, and Lerach and Schiffrin as co-lead counsel. Defendants do not oppose consolidation and take no position on the issue of lead plaintiff or lead counsel.
DISCUSSION
I. Consolidation of the ActionsRule 42(a) provides that a court may order all actions consolidated if they involve "common issues of law or fact." Fed.R.Civ.P. 42(a). In determining the propriety of consolidation, district courts have "broad discretion" although they generally espouse the view that "considerations of judicial economy favor consolidation." Ferrari v. Impath, Inc., 2004 WL 1637053, at *2 (S.D.N.Y. July 20, 2004) (citations and quotations omitted). Consolidation is particularly appropriate in the context of securities class actions if the complaints are "based on the same `public statements and reports'" and defendants will not be prejudiced. Id., 2004 WL 1637053, at *2 (quoting Mitchell v. Complete Mgmt., Inc., 1999 WL 728678, at *1 (S.D.N.Y. Sept. 17, 1999)).
Each of the Actions implicates similar or overlapping claims under Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 (the "1934 Act"), along with Rule 10b-5. In particular, both complaints rest on the same fundamental allegations that defendants made material misrepresentations regarding Axis' participation in allegedly illegal "contingent commission agreements" that were the subject of an investigation by New York's Attorney General. Although Schimpf asserts claims against an additional insider defendant, the complaints are almost identical, and the class periods are coextensive. See In re Olsten Corp. Securities Litigation, 3 F. Supp. 2d 286, 292-93 (E.D.N.Y. 1998) (consolidating cases despite slight differences in claims and alleged class periods). Accordingly, the Actions involve "common issues of law and fact", and are hereby consolidated pursuant to Rule 42(a).
Dolan names Michael A. Butt — Axis' Chariman — and John R. Charman — Axis' Chief Executive Officer — as individual defendants. In addition to Butt and Charman, Schimpf names Andrew Cook, Axis' Chief Financial Officer, as a defendant in his complaint.
II. Appointment of Lead Plaintiff A. The Notice and Filing Requirements Under the PSLRA
The PSLRA sets forth the procedures governing the appointment of lead plaintiffs in "each action arising under the [Securities and Exchange Act of 1934] that is brought as a plaintiff class action pursuant to the Federal Rules of Civil Procedure." 15 U.S.C. § 78u-4(a)(1). As an initial matter, the PSLRA requires the plaintiff in the initial action to cause a notice to be published in a national, business-oriented publication within 20 days of filing the complaint. 15 U.S.C. § 78u-4(a)(3)(A)(i). The notice must inform members of the purported class of (1) the details and pendency of the action; and (2) their right to seek appointment as lead plaintiff within 60 days after the date on which notice is published. Id. Within 90 days after the publication of such notice, a court shall consider any motion made by any class member, regardless of whether they are individually named as plaintiffs in any of the actions, and shall appoint the "most adequate plaintiff" as lead plaintiff. 15 U.S.C. § 78u-4(a)(3)(B)(i). However, if a motion for consolidation has been made, the court should not appoint a lead plaintiff "until after the decision on the motion to consolidate is rendered." See 15 U.S.C. § 78u-4(a)(3)(B)(ii); The Constance Sczesny Trust v. KPMG LLP, et al., 223 F.R.D. 319, 322 (S.D.N.Y. 2004).
Dolan filed the first complaint and caused notice to be published in Business Wire on October 28, 2004. That notice set forth the pendency of the action, the claims asserted therein, the purported class action period and the right of any class member to seek appointment as lead plaintiff. Accordingly, the notice satisfied the requirements of the PSLRA and triggered the sixty-day period in which class members could move to be appointed as lead plaintiff. No party filed an application within that sixty-day period, which expired on December 27, 2004. The instant motion was filed more than a month later, on February 14, 2005, one week after this Court adjourned pre-trial conferences in both actions sine die pending a motion to consolidate. Having now consolidated the Actions, the Court turns to the parties' application to be appointed co-lead plaintiffs.
B. The Most Adequate Plaintiff
In 1995, Congress enacted the PSLRA to address perceived abuses in securities fraud class actions created by lawyer-driven litigation. Ferrari, 2004 WL 1637053, at *3; see H.R. Conf. Rep. No. 104-369 (1995), reprinted in 1995 U.S.C.C.A.N. 730 ("H.R. Conf. Rep. No. 104-369"). Those abuses largely stemmed from the fact that "professional plaintiffs" in securities fraud cases "tended to profit irrespective of the culpability of the defendants, most of whom chose settlement over prolonged and expensive litigation." In re Party City Sec. Litig., 189 F.R.D. 91, 103 (D.N.J. 1999). These professional plaintiffs "[o]ften controll[ed] the securities class actions," and in that way "reaped huge profits, to the detriment of shareholders with more significant financial holdings." Id.
For this reason, the PSLRA was designed to encourage "parties with significant holdings in issuers, whose interests are more strongly aligned with the class of shareholders, [to] participate in the litigation and exercise control over the selection and actions of plaintiffs counsel." Ferrari, 2004 WL 1637053, at *3 (internal citations and quotations omitted). To that end, Congress sought to encourage institutional investors and other class members with large amounts at stake to step forward as the ideal lead plaintiffs in private securities litigation. See H.R. Conf. Rep. No. 104-369.
In relevant part, the PSLRA provides that:
The court . . . shall appoint as lead plaintiff the member or members of the purported plaintiff class that the court determines to be most capable of adequately representing the interests of class members (hereafter in this paragraph referred to as the "most adequate plaintiff"). . . .15 U.S.C. § 78u-4(a)(3)(B)(i). In order to assist courts in identifying the "most adequate plaintiff", and in light of the concerns discussed above, the PSLRA creates a rebuttable presumption that the most adequate plaintiff (1) has "either filed the complaint or made a motion in response to a notice"; (2) has "the largest financial interest" in the relief sought by the class; and (3) satisfies the requirements set forth in Rule 23 of the Federal Rules of Civil Procedure. 15 U.S.C. § 78u-4(a)(3)(B)(iii). Both Dolan and Schimpf contend that they meet all three requirements, and therefore benefit from this presumption.
Although neither filed a motion to be appointed as lead plaintiff prior to the sixty-day deadline, December 27, 2004, both Dolan and Schimpf filed a complaint within the notice period. Skwortz v. Crayfish Co., 2001 U.S. Dist. LEXIS 15532, at * 17 (S.D.N.Y. 2001) ("This Court reads the [PSLRA] to require a complaint or a timely filed motion" within the 60-day period); In re Microstrategy Inc. Sec. Litig., 110 F. Supp. 2d 427, 433 n. 12 (E.D Va. 2000) ("Motions filed after the 60 day period are untimely when made by a class member who has not filed a complaint."); Switzenbaum v. Orbital Sciences Corp., 187 F.R.D. 246, 249-50 (E.D. Va. 1999) (to be considered as a lead plaintiff a party must either file a complaint or make a timely motion to that effect). Both therefore satisfy the first prong of § 78u-4(a)(3)(B)(iii).
Turning to the question of who has the largest "financial interest", the Court will consider: "(1) the number of shares purchased during the class period; (2) the number of net shares purchased during the class period; (3) the total net funds expended during the class period; and (4) the approximate losses suffered." Pirelli Armstrong Tire Corp. v. LaBranche Co., Inc., 2004 WL 1179311, at *7 (S.D.N.Y. May 27, 2004) (quoting Lax v. First Merchants Acceptance Corp., 1997 WL 461036, at *5 (N.D. Ill. Aug. 11, 1997)); The Constance Sczesny Trust, 223 F.R.D. at 323; Ferrari, 2004 WL 1637053, at *4.
Dolan purchased 175 shares of Axis on May 7, 2004 at a price of $27.80 per share, for a total of $4,865; Schimpf purchased 200 shares of Axis on April 22, 2004 at a price of $28.22, for a total of $5,644. ( See Sworn Certifications, attached as Ex. B to Feb. 14, 2005 Decl. of Samuel H. Rudman). Without more information, the Court assumes these amounts to represent the "net shares" purchased and "net funds" expended, respectively. There is no indication that either party has since sold shares, or has otherwise realized a financial loss as a result of his purchase, making it impossible to determine the "approximate losses suffered".
Nonetheless, to this point, no other party has come forward to claim a larger financial interest — or, for that matter, an interest of any kind — in the outcome of this litigation. Thus, it appearing that Dolan and Schimpf have approximately equal — if modest — financial stakes, the Court will consider both parties in light of Rule 23 before reaching a conclusion on whether one, or both, are presumptively the most adequate lead plaintiff(s) under 15 U.S.C. § 78u-4(a)(3)(B)(iii).
Rule 23 sets forth four prerequisites — universally referred to as numerosity, commonality, typicality and adequacy — to be considered in evaluating the propriety of class certification, although only the typicality and adequacy criterions are relevant to the selection of lead plaintiff. The Constance Sczesny Trust, 223 F.R.D. at 323-24. Both Dolan and Schimpf easily meet the typicality requirement here because their "claim[s] arise from the same course of events" and "each class member makes similar legal arguments to prove the defendants' liability" even if there are minor variations in the factual allegations. Id., at 324 (internal citations and quotations omitted). In particular, both Dolan and Schimpf, like the other purported class members in this action, have asserted that they purchased Axis stock during the class period and were injured by false and misleading representations made by defendants in violation of the 1934 Act.
With respect to the question of adequacy, courts typically consider: (1) the size, available resources and experience of the proposed lead plaintiff, Pirelli Armstrong Tire Corp., 2004 WL 1179311, at *20 (citing cases); (2) the qualifications of the proposed class counsel, The Constance Sczesny Trust, 223 F.R.D. at 324 (citing In re Deutsche Telekom Ag Securities Litigation, 229 F. Supp. 2d 277, 282 (S.D.N.Y. 2002)); and (3) any potential conflicts or antagonisms rising among purported class members. In re Deutsche Telekom Ag Securities Litigation, 229 F. Supp. 2d at 282 (citations omitted).
Both Dolan and Schimpf indicate in their certifications that they are willing to assume the responsibilities of lead plaintiff and class representation. Additionally, both have retained competent counsel, and neither has any apparent conflict with other members of the purported class. Thus, the Court finds that both will adequately represent the class, even though neither is an institutional investor. See Pirelli Armstrong Tire Corp., 2004 WL 1179311, at *22 (remarking that some courts have interpreted the PSLRA to favor heavily institutional investors); In re Cable Wireless, PLC Securities Litigation, 217 F.R.D. 372, 376 (E.D. Va. 2003) ("the purpose of the PSLRA's selection-of-lead-plaintiff provision was to get institutional investors involved in the prosecution of securities class action suits").
This leaves the question of structure. In particular, because both Dolan and Schimpf satisfy the three-part test set forth by 15 U.S.C. § 78u-4(a)(3)(B)(iii), the Court must either adopt a co-lead plaintiff structure, or choose either Dolan or Schimpf as lead plaintiff. Having reviewed the record, the Court is unable to find a principled reason to choose one over the other. Thus, and also because the PSLRA contemplates appointing co-lead plaintiffs where a single-plaintiff structure would raise concerns, the Court will appoint Dolan and Schimpf as co-lead plaintiffs. Pirelli Armstrong Tire Corp., 2004 WL 1179311, at *22 (noting that a co-lead plaintiff structure will "help to ensure that adequate resources and experience are available to the prospective class in the prosecution" of the class action); In re Cable Wireless, PLC Securities Litigation, 217 F.R.D. 372, 376 (E.D. Va. 2003) (exercising discretion in appointing an institutional investor as co-lead plaintiff with individual investor to ensure adequate representation); Laborers Local 1298 Pension Fund v. Campbell Soup Co., No. 00 Civ. 152, 2000 WL 486956, at *3 (D.N.J. Apr. 24, 2000) (appointing three separate movants as co-lead plaintiffs and anticipating that each party would bring a "unique perspective" to the litigation); Yousefi v. Lockheed Martin Corp., 70 F.Supp.2d 1061, 1071 (C. D.Cal. 1999) (appointing an individual investor and an institutional investor as co-lead plaintiffs to serve a broad range of interests); In re Oxford Health Plans, Inc. Securities Litigation, 182 F.R.D. 42, 49 (S.D.N.Y. 1998) (commenting that the PSLRA "expressly contemplates the appointment of more than one plaintiff' regardless of whether the groups move jointly or independently).
The Court's primary concern in this case stems from the fact that neither Dolan nor Schimpf is an institutional investor; nor, for that matter, does either have a particularly large financial interest in the case. The co-lead plaintiff structure will address both issues because Dolan and Schimpf will be able to pool financial resources, knowledge and experiences, and may also reap the "benefits of joint decision-making" when pressed with difficult choices. Pirelli Armstrong Tire Corp., 2004 WL 1179311, at *22 (quoting In re Oxford Health Plans. Inc. Securities Litigation, 182 F.R.D. at 45). Moreover, a co-lead structure will provide flexibility and stability to the class, especially if either party drops out of the action or compromises the class in some other fashion, both of which may be more likely where, as here, the lead plaintiffs have a relatively small stake in the outcome of the case. In re Oxford Plans, 182 F.R.D. at 49 (remarking that when a lead plaintiff, as fiduciary for the class, drops out, the settlement prospects grow adversely dim for the remaining class members). Other courts have suggested that a co-lead structure might be warranted under similar circumstances. See, e.g., Piven et al. v. Sykes Enterprises, Inc., 137 F.Supp.2d 1295, 1303 (M.D. Fla. 2000) ("[C]o-lead plaintiffs might be appropriate in cases where. . . . two smaller [non-institutional] investors with equal losses exist in the absence of a plaintiff with a larger interest.") (citation omitted); Gluck et al. v. Cellstar Corp., 976 F.Supp. 542, 549-50 (N.D. Tex. 1997) ("Co-Lead Plaintiffs might be appropriate in certain situations, such as [in the case of] . . . two or more smaller investors with roughly equal interests where there is no plaintiff with a significantly larger interest.")
The Court is mindful of the fact that disagreements may arise throughout this action, and therefore reserves the right to modify this co-lead plaintiff structure in the event that litigation is stalled, expenses become unnecessarily duplicative or wasteful, or the structure becomes otherwise unmanageable. In the meantime, the action shall proceed with Dolan and Schimpf as co-lead plaintiffs.
III. Appointment of Lead Counsel
Dolan and Schimpf have further moved to designate their selected law firms as co-lead counsel, asking the Court to appoint Lerach and Schiffrin. The PSLRA provides that the "most adequate plaintiff shall, subject to the approval of the court, select and retain counsel." 15 U.S.C. § 78u-4(a)(3)(B)(v). Resumes submitted by the Dolan and Schimpf indicate that both firms have served as lead counsel in several securities fraud class actions, and are otherwise well qualified and free of conflicts. Accordingly, the Court appoints Lerach and Schiffrin as co-lead counsel.
IV. Conclusion
The Court consolidates the Actions, appoints Dolan and Schimpf as co-lead plaintiffs, and designates Lerach and Schiffrin as co-lead counsel. Plaintiffs shall file a consolidated complaint within 30 days of the date of this Order. Defendants shall move or answer within 30 days after the filing of the consolidated complaint.
The caption of these consolidated actions shall hereinafter be referred to as "In re Axis Capital Holdings Ltd. Securities Litigation". All relevant documents and submissions shall be maintained as one file under Master File No. 04 Civ. 8564 (RJH). Any other actions now pending or later filed in this district that arise out of or are related to the same facts as alleged in the above cases shall be consolidated for all purposes, if and when they are brought to this Court's attention, whether by application to the Court or otherwise.
SO ORDERED.