244 F.R.D. 169 | W.D.N.Y. | 2007
DECISION & ORDER
PRELIMINARY STATEMENT
By Order of Hon. Michael A. Telesca, United States District Judge, dated July 18, 2006, this consolidated securities class action litigation has been referred to this Court for the supervision of pretrial discovery and the hearing and disposition of all non-dispositive
Currently before the Court are two competing motions for appointment as lead plaintiff and for approval of lead counsel. (Docket # 35-16; # 36-9). One has been filed by the Police and Fire Retirement System of the City of Detroit (“the Detroit Police & Fire Group”) (Docket # 35-16), and the other has been filed by the Ironworkers St. Louis District Council Pension Fund and Structural Ironworkers Local # 1 Annuity, Pension and Welfare Funds (collectively, “the Pension & Welfare Group”) (Docket # 36-9). Since the motions were argued, the Pension & Welfare Group filed a supplemental memorandum seeking to withdraw the joint application of both Ironworkers pension funds for appointment as lead plaintiff and seeking instead to appoint only Structural Ironworkers Location # 1 Annuity, Pension and Welfare Fund (the “Structural Ironworkers Fund”) as lead plaintiff. (Docket # 68).
Defendants take no position on the pending motions.
FACTUAL BACKGROUND
To date, four separate class action complaints have been filed by various individuals and institutional investors against Bausch & Lomb, Inc. alleging securities fraud violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78t(a) (the “Securities Exchange Act”), and Rule 10b-5 promulgated thereunder.
Plaintiffs also maintain that as a result of the allegedly false and misleading statements, Bausch & Lomb’s stock traded at an artificially inflated level, and during that time various Bausch & Lomb officers and directors knowingly sold their own Bausch & Lomb securities for substantial profit. In December 2005, Bausch & Lomb announced its intention to restate its financial statements for the preceding five-year period and later disclosed that a rare eye infection had been reported among users of its ReNu brand contact lens solution. Following those disclosures, the price of Bausch & Lomb securities dropped significantly, allegedly causing plaintiffs economic injury.
DISCUSSION
The pending motions for appointment of lead plaintiff and approval of lead counsel are governed by the Private Securities Litigation Reform Act (hereinafter “the PSLRA”), which applies to “each private action arising under the [Securities 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)(l). Prior to the enactment of the PSLRA, lead plaintiff status in securities class actions was generally determined by which party first filed suit. This rule invariably resulted in a “race to the courthouse” in an effort by counsel to gain lead plaintiff status for their client. See H.R.Conf.Rep. No. 104-369 (1995), as reprinted in 1996 U.S.C.C.A.N. 730; S.Rep. No. 104-98 (1995), as reprinted in 1996 U.S.C.C.A.N. 679; see also In re Olsten Corp. Sec. Litig., 3 F.Supp.2d 286, 294
Under the PSLRA, the court is required to “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.” 15 U.S.C. § 78u-4(a)(3)(B)(i). The Act provides that a statutory, rebuttable presumption arises that the “most adequate plaintiff’ is the “person or group of persons” that:
(aa) has either filed the complaint or made a motion [for appointment as lead counsel];
(bb) in the determination of the court, has the largest financial interest in the relief sought by the class; and
(ec) otherwise satisfies the requirements of Rule 23 of the Federal Rule of Civil Procedure.
15 U.S.C. § 78u-4(a)(3)(B)(iii)(I); see, e.g., Constance Sczesny Trust v. KPMG LLP, 223 F.R.D. 319, 323 (S.D.N.Y.2004); In re Olsten Corp. Sec. Litig., S F.Supp.2d at 294. That presumption may be rebutted by another member of the purported class “only upon proof ... that the presumptively most adequate plaintiff — (i) will not fairly and adequately protect the interests of the class; or (ii) is subject to unique defenses that render such plaintiff incapable of adequately representing the class.” 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II); see, e.g., Constance Sczesny Trust v. KPMG LLP, 223 F.R.D. at 323; In re Olsten Corp. Sec. Litig., 3 F.Supp.2d at 295-95.
In the case at bar, the Detroit Police & Fire Group and the Structural Ironworkers Fund have timely moved pursuant to the PSLRA to be appointed as lead plaintiff.
A. Financial Interest: Although the PSLRA identifies the plaintiff with the “largest financial interest” as the presumptive lead plaintiff (provided it satisfies the requirements under Rule 23), the statute does not define how a party’s financial interest should be determined. In making that determination, courts within this Circuit commonly utilize a four-factor test that examines: “(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 during the class period.” In re Olsten Corp. Sec. Litig., 3 F.Supp.2d at 295 (citing Lax v. First Merchants Acceptance Corp., 1997 WL 461036 (N.D.Ill.1997)); see, e.g., Gesenhues v. Checchi, 2006 WL 1169673, *2 (S.D.N.Y.2006); Montoya v. Mamma.com Inc., 2005 WL 1278097, *1 (S.D.N.Y.2005); Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust v. LaBranche & Co., Inc., 229 F.R.D. 395, 404 (S.D.N.Y.2004); In re Initial Pub. Offering Sec. Litig., 214 F.R.D. 117, 121 (S.D.N.Y.2002). Both pension funds applying for lead plaintiff appointment in this case cite this test to maintain that they have
The Structural Ironworkers Fund asserts that during the Class Period, it purchased 3,900 shares of Bausch & Lomb common stock at a cost of $295,086 and suffered a loss of $71,326 on the sale of the same number of shares. Having sold all the shares it purchased during the Class Period, the net shares purchased amount to zero. (Docket # 36-13; # 36-14). The Detroit Police & Fire Group does not contest that calculation.
By contrast, the Detroit Police & Fire Group alleges that during the Class Period, it (1) purchased 13,200 shares of Bausch & Lomb common stock and $721,000 par value Bausch & Lomb convertible bonds; (2) purchased 2,200 net shares of Bausch & Lomb common stock and sold an aggregate $389,000 par value convertible bonds; (3) expended $323,449 in net funds (total expenditures offset by sale proceeds) to purchase the common stock and expended total funds of $2,076,074 to purchase Bausch & Lomb securities (common stock and debt securities); and (4) suffered losses of $263,084 employing a last-in, first-out (“LIFO”) methodology.
At first glance, it would appear that Detroit Police & Fire has the greater financial interest in this litigation. Considering only the transactions involving Bausch & Lomb common stock during the Class Period, Detroit Police & Fire claims a loss of $230,352 (Docket # 35-18), as compared to the $71,326 loss asserted by the Structural Ironworkers Fund. That analysis is incomplete, however, because it fails to properly account for its purchases and sales of debt securities during the Class Period. In addition to the shares of Bausch & Lomb common stock, Detroit Police & Fire also purchased $721,000 par value Bausch & Lomb convertible bonds at a cost of $1,008,429. (Docket # 35-18). During the same period, Detroit Police & Fire sold $1,110,000 par value convertible bonds, yielding total proceeds of $1,480,873 and net proceeds of $472,441. (Id.). Simply stated, Detroit Police & Fire sold more bonds than it purchased and generated more proceeds than it spent during the Class Period. Under this analysis, Detroit Police & Fire arguably benefitted from the artificially inflated prices complained of in this lawsuit.
Detroit Police & Fire argues that its sales of debt securities should be disregarded because certain of the bonds were purchased prior to the Class Period at a cost higher than that for which they were sold during the Period. Even so, the fact remains that Detroit Police & Fire sold more bonds than it purchased at allegedly inflated prices during the Class Period. Thus, even if it ultimately suffered a loss, that loss was less than it would have been had the bonds been trading at fair market value.
Even when the Class Period transactions involving Bausch & Lomb common stock are combined with those involving bonds, Detroit Police & Fire still gained more from the sales of those securities than it spent to acquire them. Because Detroit Police & Fire received more proceeds from the sales of Bausch & Lomb securities than it expended during the Class Period (the third Olsten factor), Detroit Police & Fire is actually a “net gainer,” as well as being a “net seller” (the second Olsten factor). Courts have consistently rejected applications for lead plaintiff status made by “net sellers” and “net gainers,” recognizing that they may in fact have profited, rather than suffered, as a result of the inflated stock prices. See, e.g., Frank v. Dana Corp., 237 F.R.D. 171, 172
I agree with the rationale of those courts finding that net sellers and net gainers, such as Detroit Police & Fire, are ill-suited to serve as lead plaintiffs. If nothing else, its status as a net gainer may “subject [it] to unique defenses that render such plaintiff incapable of adequately representing the class.” 15 U.S.C. § 78u — 4(a)(3)(B)(iii)(II).
Having found that Detroit Police & Fire should be removed from consideration, the Structural Ironworkers Fund has the largest financial interest and is therefore presumptively the most adequate lead plaintiff.
B. Structural Ironworkers Fund Satisfies the Requirement of Rule 23: This Court now turns to the question of whether the Structural Ironworks Fund otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure. Rule 23 sets forth four prerequisites that a party must satisfy to serve as a class representative: numerosity, commonality, typicality, and adequacy. Fed.R.Civ.P. 23(a). Only two of these factors — typicality and adequacy — are relevant to a motion for appointment as lead plaintiff. See Weinberg v. Atlas Air Worldwide Holdings, Inc., 216 F.R.D. 248, 252 (S.D.N.Y.2003) (“The moving plaintiff must make only a preliminary showing that the adequacy and typicality requirements under Rule 23 have been met”) (citing In re Crayfish Co. Sec. Litig., 2002 WL 1268013, *4 (S.D.N.Y.2002); Weltz v. Lee, 199 F.R.D. 129, 133 (S.D.N.Y.2001)); In re Olsten Corp. Sec. Litig., 3 F.Supp.2d at 296. Indeed, “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 v. Atlas Air Worldwide Holdings, Inc., 216 F.R.D. at 252 (quoting In re Party City Sec. Litig., 189 F.R.D. 91, 106 (D.N.J.1999)).
The typicality requirement is satisfied 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, 506 U.S. 1088, 113 S.Ct. 1070, 122 L.Ed.2d 497 (1993). The claims of the representative party need not, however, be identical to those of all class members in order to be considered typical. See Weinberg v. Atlas Air Worldwide Hold
Here, the Structural Ironworkers Fund, like each of the other plaintiffs and potential class members in this litigation, seeks to hold Bausch & Lomb liable for the consequences of its alleged violations of the federal securities laws. The course of events giving rise to the Structural Ironworkers Fund’s claims is the same course of events giving rise to the claims of other class members. Examination of the four complaints that thus far comprise this consolidated action, as well as the two motions for appointment of lead counsel that have been withdrawn, reveal the reliance by all named plaintiffs and class members, including the Structural Ironworkers Fund, on similar legal theories in support of their securities claims against Bausch & Lomb. Finally, all allege economic injury from the same purported wrongdoing.
Moreover, the Structural Ironworkers Fund, a large public pension fund with 3,600 members and $505 million in assets (Docket # 49-2 at 113), is a sophisticated institutional investor and appears well-suited to serve as a lead plaintiff in a securities class action. See In re Veeco Instruments, Inc., 233 F.R.D. 330, 332-33 (S.D.N.Y.2005) (“[T]he PSLRA was passed, at least in part, to increase the likelihood that institutional investors would serve as lead plaintiffs in actions such as this one”); Bassin v. deCODE Genetics, Inc., 230 F.R.D. 313, 315-16 (S.D.N.Y.2005) (noting that purpose of PLRA is to attract institutional investors). Finally, as discussed below, I find that the Structural Ironworkers Fund is represented by competent, experienced counsel which appears more than able to prosecute this litigation. For these reasons, I conclude that the Structural Iron-workers Fund has satisfied the requirements of Federal Rule 23.
C. Presumption is Not Rebutted: As previously noted, the most adequate lead plaintiff presumption may be rebutted by another member of the purported class upon proof that the presumptive lead plaintiff “(aa) will not fairly and adequately protect the interests of the class; or (bb) is subject to unique defenses that render such plaintiff incapable of adequately representing the class.” 15 U.S.C. § 78u — 4(a)(3)(B)(iii)(II). I find nothing in the record to question the Structural Ironworkers Fund’s ability to adequately represent the class.
D. Selection of Lead Counsel: The PSLRA permits the most adequate plaintiff to “select and retain counsel to represent the class,” subject to approval by the court. 15 U.S.C. § 78u-4(a)(3)(B)(v). The Structural Ironworkers Fund has selected and retained the law firm of Leraeh, Coughlin, Stoia, Geller, Rudman and Robbins LLP (“Leraeh Coughlin”), a firm specializing in securities class actions. Having reviewed the firm’s resume, the pleadings in this action and the papers submitted in connection with these motions, I find that it is qualified to represent the class members in this securities litigation. Leraeh Coughlin has successfully served as lead counsel or co-lead counsel in numerous complex securities class actions and is otherwise well-qualified and free of conflicts.
CONCLUSION
For the foregoing reasons, it is the Decision and Order of this Court that the motion filed by the Structural Ironworkers Local # 1 Annuity, Pension and Welfare Funds for appointment as lead plaintiff and approval of lead counsel (Docket # 36-9) is GRANTED. The motion for similar relief filed by the Police and Fire Retirement System of the City of Detroit (Docket # 35-16) is DENIED.
IT IS SO ORDERED.
. The change in application reflects the expectation of the other fund, the Ironworkers St. Louis District Council Pension Fund, that it would be moving for lead plaintiff status in several other class action securities litigations in the near future and would be "spread too thin” to actively prosecute this case. (Docket # 68 at 1).
. Certification to proceed as a class action has not been determined, as no motions for class certification have yet been filed.
. Two other motions for appointment as lead plaintiff were filed, one by plaintiffs Helen Sarnoff and Anne Dayton (Docket # 35-9) and the other by plaintiffs M.H. Kim and Jae R. Lee (Docket # 35-22). Shortly after filing their motion, plaintiffs Sarnoff and Dayton withdrew their motion. (Docket # 32). Similarly, in response to the motion submitted by the Detroit Police & Fire Group, plaintiffs Kim and Lee withdrew their motion, maintaining that the Detroit Police & Fire Group lias the largest financial interest in this action and should be appointed as lead plaintiff. (Docket #41).
Neither plaintiff group has sought to renew its motion following the Pension & Welfare Group’s request to remove the Ironworkers St. Louis Fund from its application for appointment as lead plaintiff; nor has either plaintiff group otherwise responded to that application.
. The loss calculated on a FIFO (first-in, first-out) basis is greater, but LIFO, not FIFO, is the preferred methodology in these determinations. See, e.g., In re Pfizer Inc. Sec. Litig., 233 F.R.D. 334, 338 n. 3 (S.D.N.Y.2005) ("[FIFO] has fallen out of favor in this District because of its tendency to overstate the losses of institutional investors and to understate gains made from stock during the class period”); In re eSpeed, Inc. Sec. Litig., 232 F.R.D. 95, 101 (S.D.N.Y.2005) ("more recently, courts have preferred LIFO and have generally rejected FIFO as an appropriate means of calculating losses in securities cases”) (internal quotations omitted).
. Detroit Police & Fire argues that plaintiffs Kim & Lee have a larger financial interest when the Ironworkers St. Louis Fund is disregarded. (Docket #71 at 1). Although this may be true, they have withdrawn their motion for appointment as lead counsel.
. The Pension & Welfare Group’s reply papers adequately address the concern raised by Detroit Police & Fire whether the individual who signed the certification on behalf of the Structural Iron-workers Fund was authorized to act on behalf of the fund. (See Docket # 49-2).
. In correspondence recently submitted to this Court, Detroit Police & Fire alleges that the Leraeh Coughlin firm should be disqualified as lead counsel because it also represents plaintiffs in another pending matter in New York State Supreme Court, Monroe County, Palmer v. War-