Summary
In Rozenboom, Judge Sweet also discussed the potential for manipulation, but nevertheless allowed plaintiffs who had filed timely motions to join together as a group after the 60–day deadline because the parties lacked experience litigating securities class actions. See 2004 WL 816440, at *4.
Summary of this case from Reitan v. China Mobile Games & Entm't Grp., Ltd.Opinion
03 Civ. 8284 (RWS), 89972
April 14, 2004
SAMUEL H. RUDMAN, ESQ., DAVID A. ROSENFELD, ESQ., MARIO ALBA, JR., ESQ., CAULEY GELLER BOWMAN RUDMAN, NY, for Plaintiffs
ANDREW L. BARROWAY, ESQ., STUART L. BERMAN, ESQ., SEAN M. HANDLER, ESQ., SCHIFFRIN BARROWAY, PA, for Plaintiffs
JONATHAN M. PLASSE, ESQ., CHRISTOPHER J. KELLER, ESQ., GOODKIND LABATON RUDOFF SUCHAROW, NY, for Plaintiffs
FRANK F. DORJEE, CASPER F. RONDELTAP, FRIEDRICH M.J. BOTTCHER, JAMES P. CLEAVER, VAN DER MOOLEN HOLDING, N.V., New York, NY, for Defendants
OPINION
Linda Greene ("Greene") and Elizabeth Rick ("Rick") have each moved under the Private Securities Litigation and Reform Act ("PSLRA"), 15 U.S.C. § 78u-4(a)(3), for appointment as lead plaintiff and the appointment of lead counsel in this securities fraud class action. Thereafter, Greene and Rick agreed to jointly represent the class as co-lead plaintiffs, with their respective counsel as co-lead counsel. For the reasons set forth below, Greene and Rick are appointed co-lead plaintiffs and Goodkind Labaton Rudoff Sucharow LLP ("GLRS") and Schiffrin Barroway, LLP ("Schiffrin Barroway") are appointed co-lead counsel. Rick's motion to appoint liaison counsel is denied without prejudice to renewal.
Prior Proceeding's and Background
The instant action was commenced on October 20, 2003 with the filing of a class action complaint against Van der Moolen Holding N.V. ("Van der Moolen"), a securities trading firm, and several of its officers: Friedrich M.J. Bottcher ("Bottcher"), James P. Cleaver, Jr. ("Cleaver"), Frank F. Dorjee ("Dorjee"), and Casper F. Rondeltap ("Rondeltap"). The complaint alleges that Van der Moolen, through one of its four operational segments known as VDM Specialists, acts as a specialist firm on the New York Stock Exchange ("NYSE"). Specialist firms, according to the complaint, are responsible for maintaining a fair and orderly market in one or more specific securities and must adhere to NYSE rules that require specialist firms to refrain from trading on the specialist firm's own account when enough public investor orders exist to pair up naturally, without undue intervention.
The complaint alleges that between October 18, 2001 and October 15, 2003, inclusive (the "proposed class period"), Van der Moolen repeatedly violated its duties by engaging in "front-running" and "trading ahead," both activities by which Van der Moolen is alleged to have improperly made trades in its own interest to the disadvantage of public investors. As a result of these activities, Van der Moolen is alleged to have materially overstated and artificially inflated its earnings, net income, and earnings per share in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b) and 78t(a), and Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder. This class action is brought on behalf of all persons who purchased American Depository Receipt shares ("ADRs") in Van der Moolen during the proposed class period and who were damaged thereby. Van der Moolen ADRS are alleged to have been traded actively on the NYSE throughout the proposed class period.
An ADR "is a receipt that is issued by a depository bank that represents a specified amount of a foreign security that has been deposited with a foreign branch or agent of the depository, known as the custodian. . . . ADRs are tradeable in the same manner as any other registered American security, may be listed on any of the major exchanges in the United States or traded over the counter, and are subject to the Securities Act and the Exchange Act." Pinker v. Roche Holdings. Ltd., 292 F.3d 361, 367 (3d Cir. 2002) (citing Bruce L. Hertz,American Depository Receipts, 600 P.L.I./Comm. 237, 240-41, 242, 246 (1992)). ADRs have "become one of the preferred methods for trading foreign securities in the United States, with the value of ADRs bought and sold annually in the hundreds of billions." Pinker, 292 F.3d at 367 (citation omitted).
Two investors, Greene and Rick, claim to have sustained losses as a result of their investment in Van der Moolen ADRs and have moved for appointment as lead plaintiff and for designation of each investor's choice of lead counsel in the litigation. On December 19, 2003, Greene moved to be appointed as lead plaintiff based on alleged losses of approximately $36,980. On that same date, Rick moved for appointment as lead plaintiff, alleging approximate losses of $6,495. Each movant has submitted a certificate pursuant to 15 U.S.C. § 78u-4(a)(2)(A) in support of her motion.
In addition, Rick has moved for approval of her selection of liaison counsel.
By a letter dated January 13, 2004, the movants announced their intention to jointly represent the class as co-lead plaintiffs with their respective counsel as co-lead counsel, and submitted a stipulation to that effect. No oral arguments were held, and the case was reassigned to this Court on February 27, 2004.
I. Appointment of Lead Plaintiff
In 1995, Congress enacted the Private Securities Litigation Reform Act (the "PSLRA") in order to address perceived abuses in securities fraud class actions. See S. Rep. No. 104-98 (1995), reprinted in 1995 U.S.C.C.A.N. 679; H.R. Conf. Rep. No. 104-369 (1995),reprinted in 1995 U.S.C.C.A.N. 730. The PSLRA was intended to prevent "lawyer-driven" litigation, and to ensure that parties with significant financial interests in the litigation "`will participate in the litigation and exercise control over the selection and actions of plaintiffs counsel.'" In re Oxford Health Plans. Inc. Sec. Litig., 182 F.R.D. 42, 43-44 (S.D.N.Y. 1998) (quoting H.R. Conf. Rep. No. 104-369, at 32, reprinted in 1995 U.S.C.C.A.N. at 731); see also In re Initial Public Offering Sec. Litig., 214 F.R.D. 117, 123 (S.D.N.Y. 2002); In re Donnkenny Inc. Sec. Litig., 171 F.R.D. 156, 157-58 (S.D.N.Y. 1997). This goal could best be achieved, according to Congress, by encouraging institutional investors to serve as lead plaintiffs. See Sofran v. LaBranche Co., Inc., — F. Supp.2d —, 2004 WL 569550, at *4 (S.D.N.Y. Mar. 22, 2004); In re Oxford Health Plans, 182 F.R.D. at 46.
Accordingly, the PSLRA amended the Exchange Act by, among other things, setting forth a procedure governing `the appointment of a lead plaintiff or plaintiffs in "each action arising under the [Exchange Act] 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 the PSLRA amended both the Securities Act of 1933 and the Securities Exchange Act of 1934, cases arising under either statute may provide guidance in interpreting and applying the PSLRA. See Schulman v. Lumenis, Ltd., Nos. 02 Civ. 1989 (DAB) et al., 2003 WL 21415287, at *2 n. 5 (S.D.N.Y. June 18, 2003).
First, the plaintiff who files the initial action must, within 20 days of filing the action; publish a notice to the class informing class members of their right to file a motion for appointment as lead plaintiff. 15 U.S.C. § 78u-4 (a)(3)(A)(i). Plaintiff in this action caused a detailed notice to be published on October 20, 2003 onPR Newswire, which is deemed to satisfy the notice requirement.See Sofran, 2004 WL 569550, at *2 (approving a notice published on PR Newswire).
Within 60 days after publication of the required notice, any member or members of the proposed class may apply to the Court to be appointed as lead plaintiff (s). 15 U.S.C. § 78u-4 (a)(3)(A) — (i). Both Greene and Rick so moved on December 19, 2003, the last of the applicable 60 days; therefore, their motions are timely.
The PSLRA next provides that within 90 days after publication of the notice, the Court shall consider any motion made by a class member and shall appoint as lead plaintiffs the member or members of that class that the Court determines to be most capable of adequately representing the interests of the class members. 15 U.S.C. § 78u-4 (3)(B)(i). In determining the "most adequate plaintiff," the PSLRA provides that:
[T]he court shall adopt a presumption that the most adequate plaintiff in any private action arising under this chapter is the person or group of persons that —
(aa) has either filed the complaint or made a motion in response to a notice . . .;
(bb) in the determination of the court, has the largest financial interest in the relief sought by the class; and
(cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.15 U.S.C. § 78u-4(a)(3)(B) (ill); see also Weinberg v. Atlas Air Worldwide Holdings. Inc., 216 F.R.D. 248, 252 (S.D.N.Y. 2003);Albert Fadem Trust v. Citigroup Inc., 239 F. Supp.2d 344, 347 (S.D.N.Y. 2002).
Once the court "`identifies the plaintiff with the largest stake in the litigation, further inquiry must focus on that plaintiff alone and be limited to determining whether he satisfies the other statutory requirements.'" Sofran, 2004 WL 569550, at *2 (quoting In re Cavanaugh, 306 F.3d 726, 732 (9th Cir. 2002) (The district court's belief that "another plaintiff may be `more typical' or `more adequate' is of no consequence. So long as the plaintiff with the largest losses satisfies the typicality and adequacy requirements, he is entitled to lead plaintiff status, even if the district court is convinced that some other plaintiff would do a better job. ")); see also In re Cendant Corp. Litig., 264 F.3d 201, 262 (3d Cir. 2001) ("Once the court has identified the movant with `the largest financial interest in the relief sought by the class,' it should then turn to the question whether that movant `otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure'. . . ."); Schulman v. Lumenis, Nos. 02 Civ. 1989 (DAB), et al., 2003 WL 21415287, at *4-6 (S.D.N.Y. June 18, 2003) (commenting that the Second Circuit "has not ruled whether the requirements of the most adequate plaintiff presumption are to be applied serially in order, or whether each requirement is applied to the motion or complaint despite its inability to satisfy all of the presumption's requirements," but applying the requirements in sequence).
Both Greene and Rick have moved for lead plaintiff appointment in response to the notice published on October 20, 2003, thereby satisfying the first requirement. By announcing their joint candidacy Greene and Rick have bypassed the traditional contest for lead plaintiff appointment and made the pivotal issue in this matter the propriety of their alliance.
It has become a common phenomenon to see "`groups' of class members who form to be named as lead plaintiffs jointly, and who seek to aggregate their losses to enhance their chances of winning selection as lead plaintiff (and hence, to enhance their counsel's chances of winning selection as lead counsel)." In re MicroStrategy Inc. Sec. Litig., 110 F. Supp.2d 427, 434 (E.D. Va. 2000). The PSLRA plainly allows at least some variations of this practice, permitting a "group of persons" to be deemed the "most adequate plaintiff" under the Exchange Act. 15 U.S.C. § 78u-4 (a)(3)(B) (iii) (I); see also 15 U.S.C. § 78u-4 (a)(3)(B)(i) (indicating 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") (emphasis added); accord In re American Bank Note Holographics, Inc. Sec. Litig., 93 F. Supp.2d 424, 436 (S.D.N.Y. 2000) ("The nomination of a group of investors as co-lead plaintiffs is specifically contemplated by the PSLRA."). Courts are divided, however, as to what sorts of groupings of persons or entities may be appointed lead plaintiff.
Some courts have denied a motion aggregating unrelated class members on the ground that groups of unrelated class members are more likely to abdicate their responsibility to coordinate the litigation to their attorneys, in contravention of the PSLRA's goal to eliminate lawyer-driven litigation. See, e.g., In re Donnkenny, 171 F.R.D. at 157-58; see also In re Razorfish, Inc. Sec. Litig., 143 F. Supp.2d 304, 309 (S.D.N.Y. 2001). Other courts have concluded that a group consisting of previously unrelated persons may be acceptable as a lead plaintiff candidate so long as the group is relatively small and therefore presumptively cohesive. See, e.g., Weltz v. Lee, 199 F.R.D. 129, 133 (S.D.N.Y. 2001); In re Oxford Health Plans, 182 F.R.D. at 46. Still other courts have simply required a group seeking appointment as lead plaintiff to "explain and justify its composition and structure to the court's satisfaction."In re Network Assocs., Inc. Sec. Litiq., 76 F. Supp.2d 1017, 1026 (N.D. Cal. 1999) (citation omitted); see also In re MicroStrategy, no F. Supp.2d at 439 (evaluating various factors and concluding that an institutional investor and a family of investors could seek joint appointment as co-lead plaintiffs).
Greene and Rick did not originally move as a group but instead, nearly a month after the 60-day statutory period had run, announced the formation of an alliance and of a stipulated agreement, subject to the Court's approval, to act as co-lead plaintiffs. What is presented here is whether such a post facto alliance should be permitted.
While the formation of a group of unrelated class members during the 60-day statutory period is arguably justifiable as strategic, the formation of a bartered coalition among movants after the 60-day period has run may also represent a manipulation of the lead plaintiff selection process in a manner that risks "shift[ing] the Court's authority to name lead plaintiffs to counsel, `effectively nullifying' the aim of the Act." Yousefi v. Lockheed Martin Corp., 70 F. Supp.2d 1061, 1069 (C.D. Cal. 1999) (refusing to grant the sole movant's motion to name 137 class members lead plaintiff and to allow those lead plaintiffs to designate "lead plaintiff representatives" on their own). The risk of such manipulation is especially pronounced where, as here, the creation of a coalition among all movants eliminates any opposition and thus, in many cases, eliminates the only source of information a court may have, apart from the movant's own materials, with which to assess whether a movant satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.
In situations where a coalition is formed among some but not all movants after the running of the statutory 60 days, the procedural propriety of permitting such an arrangement may raise additional concerns in light of the PSLRA's strict filing requirement. Moreover, allowing these belated arrangements to proceed may raise timing concerns to the degree that the formation of such coalitions during or even after the briefing process can give rise to added delays in the appointment process, in contravention of the PSLRA's directive that the appointment process proceed in an expedited manner. As one court concluded, it would clearly thwart the purposes of the PSLRA
Courts have been appropriately critical of motions for lead plaintiff appointment filed after the 60-day statutory period and have deemed certain movants ineligible to act as lead plaintiff based solely on the tardiness of their filings. See Shulman v. Lumenis, Ltd., Nos. 02 Civ. 1289 (DAB) et al., 2003 WL 21415287, at *4 (S.D.N.Y. June 18, 2003) (listing cases); Carson v. Clarent Corp., No. 01 Civ. 3361 (CRB), 2001 Wl 1782712, at *2 (N.D. Cal. Dec. 14, 2001) (same). As a result, while under certain circumstances movants may be permitted to clarify or further document their losses or correct any inaccuracies after their initial filing, several courts have declined to allow movants "to supplement their motions to enhance their loss after expiration of the sixty-day period." In re MicroStrategy Inc. Sec. Litig., 110 F. Supp.2d 427, 433 n. 12 (E.D. Va. 2000) (listing cases). It follows from this proposition that permitting movants to combine their candidacies and group their losses after initially filing separate motions may also run contrary to the strict 60-day statutory requirement. But see Schulman, 2003 WL 21415287, at *4 (S.D.N.Y. June 18, 2003) (declining to strike as untimely an amended motion filed jointly by two movants who were seeking to act as co-lead plaintiffs because the movants' original, separate motions had been timely, although the amended motion had been filed after the statutory 60 days had elapsed and without leave of the court).
In general, the appointment of a lead plaintiff pursuant to the PSLRA should be done in an expeditious manner, in keeping with 15 U.S.C. § 78u-4(a)(3)(A)(i) (II) and 78u-4(a)(3)(B)(i). See Newby v. Enron Corp., 206 F.R.D. 427, 440 (S.D. Tex. 2002) (noting that the PSLRA "evidences Congress' intent to expedite [the appointment of lead plaintiff] "); In re MicroStrategy, 110 F. Supp.2d at 433 n. 12 (stating that Congress intended "that lead plaintiff be appointed as early in the litigation as possible"); In re Telxon Corp. Sec. Litig., 67 F. Supp.2d 803, 818-19 (N.D. Ohio 1999) ("The obvious intent of these provisions [ 15 U.S.C. § 78u-4 (a)(3)(A)(i) (II) and 78u-4(a)(3)(B)(i)] is to ensure that the lead plaintiff is appointed at the earliest possible time, and to expedite the lead plaintiff process.") (citations omitted).
if persons seeking appointment as lead plaintiff were allowed to manipulate the size of their financial loss by enlarging the class period or adding additional persons to a "group" in supplemental filings. As in this case, the consequent greater loss asserted would invite additional briefing by the other persons seeking appointment as lead plaintiff, which, in turn, would necessitate responses by the person or group of persons seeking to enlarge their losses. This would effectively render the strict timeliness set forth in the PSLRA meaningless, and would nullify Congress's attempt to expedite the lead plaintiff appointment process.In re Telxon Corp. Sec. Litig., 67 F. Supp.2d 803, 819 (N.D. Ohio 1999).
It is worth noting that the mere fact that movants have chosen to ally themselves and present themselves to the court as candidates for co-lead plaintiffs does not oblige the court to accept the arrangement.See, e.g., In re Donnkenny Inc. Sec. Litig., 171 F.R.D. 156, 157 (S.D.N.Y. 1997) (conferring lead plaintiff status on only one movant, despite agreement reached and communicated to the court by that movant and another movant prior to oral arguments to the effect that they had agreed to propose themselves as co-lead plaintiffs).
Notwithstanding the aforementioned concerns, the joint candidacy of Greene and Rick will be allowed to proceed here. It is well accepted that Congress, in enacting the PSLRA, considered that the statute's aims would be best served by having "institutional plaintiffs with expertise in the securities market and real financial interests in the integrity of the market" as lead plaintiffs. In re Donnkenny, 171 F.R.D. at 157;see also In re Razorfish, 143 F. Supp.2d at 307. As no such institutional investors have stepped forward here and as neither Greene nor Rick has indicated any experience serving as a lead plaintiff in a previous action, this Court concludes that permitting them to be appointed co-lead plaintiffs, rather than appointing Greene alone, may help to ensure stability in the litigation and perhaps the exercise of greater control over the action's progress.
Since their joint financial interests are the only alleged losses before the Court, Greene and Rick are therefore deemed to have the greatest financial interest in the relief sought by the class. All that remains is for both Greene and Rick to make a satisfactory preliminary showing that the relevant requirements of Fed.R.Civ.P. 23 are met.
Rule 23(a) of the Federal Rules of Civil Procedure provides that a party may serve as a class representative only if the following four requirements are satisfied:
(1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
Fed.R.Civ.P. 23(a). Of the four prerequisites to class certification, only two — typicality and adequacy — directly address the personal characteristics of the class representative. Consequently, in deciding a motion to serve as lead plaintiff, "[t]he moving plaintiff must make only a preliminary showing that the adequacy and typicality requirements under Rule 23 have been met."Weinberg, 216 F.R.D. at 252 (citing In re Crayfish Co. Sec. Litig., No. 00 Civ. 6766 (DAB), 2002 WL 1268013, at *4 (S.D.N.Y. June 6, 2002); Weltz, 199 F.R.D. at 133). "In fact, a `wide ranging analysis under Rule 23 is not appropriate [at this initial stage of the litigation] and should be left for consideration of a motion for class certification.'" Weinberg, 216 F.R.D. at 252 (quoting In re Party City Sec. Litig., 189 F.R.D. 91, 106 (D.N.J. 1999)).
Greene and Rick satisfy the typicality requirement. Typicality exists if claims "arise from the same course of events, and each class member makes similar legal arguments to prove the defendant's liability."In re Drexel Burnham Lambert Group. Inc., 960 F.2d 285, 291 (2d Cir. 1992), cert. dismissed sub nom. Hart Holding Co. Inc, v. Drexel Burnham Lambert Group. Inc., 506 U.S. 1088 (1993) (citations omitted). However, the claims of the class representatives need not be identical to the claims of the class to satisfy the typicality requirement. Instead, courts have recognized that "[t]he possibility of factual distinctions between the claims of the named plaintiffs and those of other class members does not destroy typicality, as similarity of legal theory may control even in the face of differences of fact."In re Prudential Securities, Inc. Ltd. Partnerships Litig., 163 F.R.D. 200, 218 (S.D.N.Y. 1995) (citation omitted).
Greene and Rick purchased or acquired Van der Moolen ADRs during the proposed class period at prices alleged to have been artificially inflated by the false and misleading statements purportedly issued by defendants, and they claim to have suffered damages as a consequence. Their claims are therefore typical of those of other class members because their claims and the claims of other class members arise out of the same course of events. See Walsh v. Northrup Grununan Corp., 162 F.R.D. 440, 445 (E.D.N.Y. 1995) (holding that the typicality requirement is satisfied if a movant's claims arise "`from the same event or course of conduct that gives rise to claims of other class members and the claims are based on the same legal theory'") (quoting Dura-Bilt Coro v. Chase Manhattan Corp., 89 F.R.D. 87, 99 (S.D.N.Y. 1981)).
Under Rule 23(a)(4), the representative parties must also "fairly and adequately protect the interests of the class." In order to satisfy the adequacy requirement of Rule 23(a),
(1) there should be no conflict between the interests of the class and the named plaintiff nor should there be collusion among the litigants; and (2) the parties' attorney must be qualified, experienced, and generally able to conduct the proposed litigation.In re AOL Time Warner. Inc. Sec. "ERISA" Litig., No. MDL 1500, 2003 WL 102806, at *2 (S.D.N.Y. Jan. 10, 2003) (quotingJackson v. Foley, 156 F.R.D. 538, 543 (E.D.N.Y. 1994)). As evidenced by the alleged injury Greene and Rick suffered by purchasing Van der Moolen ADRs at prices purportedly inflated by defendants' violations of the federal securities laws, the interests of the proposed co-lead plaintiffs are aligned with those of the members of the class, and there is no suggestion of any antagonism between the interests of Greene and Rick and those of other class members. In addition, the proposed co-lead counsel appear highly qualified, experienced, and able to conduct this litigation in a professional manner. Greene and Rick have accordingly satisfied the adequacy requirement of Rule 23.
Having satisfied the statutory requirements, Greene and Rick are determined to be suitable co-lead plaintiffs.
II. Appointment of Lead Counsel
Pursuant to 15 U.S.C. § 78u-4 (a)(3)(B)(v), the lead plaintiff shall, subject to the court's approval, select and retain counsel to represent the class. In that regard, Greene and Rick each initially selected and retained GLRS and Schiffrin Barroway, respectively, and thereafter proposed that both sets of counsel serve as co-lead counsel for the class. Based on the materials submitted, these firms appear to have extensive experience prosecuting complex actions, including securities class actions, and are well qualified to represent the class. Accordingly, Greene and Rick may select GLRS and Schiffrin Barroway to serve as "co-lead counsel provided that there is no duplication of attorneys' services, and the use of co-lead counsel does not in any way increase attorneys' fees and expenses." In re Donnkenny, 171 F.R.D. at 158.
In light of the selection of GLRS, which — unlike Schiffrin Barroway — has offices within this district, the appointment of liaison counsel, previously requested by Rick, appears unnecessary.
Conclusion
For the reasons stated above, the motions of Greene and Rick to be appointed lead plaintiff are granted and they are designated as co-lead plaintiffs. The co-lead plaintiffs' requests with regard to the appointment of counsel are granted, and GLRS and Schiffrin Barroway are appointed to serve as co-lead counsel. Rick's motion to appoint liaison counsel is denied without prejudice to renewal.
It is so ordered.