254 F.R.D. 24 | D. Mass. | 2008
MEMORANDUM
I. Introduction
Plaintiffs bring this consolidated putative class action against Boston Scientific and alleged fiduciaries of Boston Scientific’s 401(H) Retirement Savings Plan. Plaintiffs assert that Defendants breached their fiduciary duty to the Plan and to participants of the Plan, in violation of ERISA, by imprudently selecting company stock as an investment, despite knowledge that the stock price was artificially inflated. Plaintiffs seek to represent all Plan participants holding Boston Scientific Stock in their individual Plan accounts at any time between May 7, 2004 and January 26, 2006. Presently at issue are (1) Plaintiffs’ Corrected Motion for Class Certification and (2) Robert Hochstadt’s Motion to Intervene and be appointed Lead Plaintiff. For the following reasons, both motions are DENIED.
II. Background
A. Facts
Boston Scientific Corporation (“Boston Scientific”) develops, manufactures, and distributes coronary stents, which are medical de
Participants in the Plan make voluntary payroll contributions, and the company provides matching contributions.
Plaintiffs allege that during the Class Period, Boston Scientific issued a series of misleading public disclosures, which had the effect of artificially inflating the value of company stock.
The first two matters that Defendants purportedly failed to disclose adequately are a Department of Justice investigation concerning Boston Scientific’s 1998 recall of its NORS stent system
The third subject that Defendants allegedly misrepresented concerns the recall of the company’s Taxus stent systems in July and August 2004.
Also contributing to the alleged artificial inflation is a series of four FDA warning letters to Boston Scientific between May and August 2005.
B. Procedural History
In January 2006, Douglas Fletcher, Michael Lowe, Jeffrey Klunke, and Robert Ho-chstadt (collectively “Plaintiffs”) filed separate class action complaints against Boston Scientific and various officers of Boston Scientific (collectively “Defendants”).
On October 10, 2006, Defendants filed a Motion to Dismiss, which was denied in large part on August 28, 2007.
On March 28, 2008, Plaintiff Jeffrey Klunke moved to withdraw from the litigation. Klunke had returned to employment with Boston Scientific and stated that he did not “feel comfortable” remaining in the case.
III. Motion to Certify Class
Plaintiffs now move pursuant to Rule 23 of the Federal Rules of Civil Procedure to certify a class comprised of all participants in the Plan at any time from May 7, 2004 to January 26, 2006.
In a class action lawsuit, as in any lawsuit, Article III standing is a “threshold requirement,” and the representative plaintiff must demonstrate personal injury in fact to certify a class.
It is not enough to have standing at the initiation of an action, however, because “[standing ... must exist at all stages of the proceeding.”
Assuming that Fletcher and Lowe continue to have statutory standing at this stage in the proceedings,
A. Fletcher and Lowe’s Stock Units Purchased During the Class Period
The Supreme Court has made clear in Dura Pharmaceuticals, Inc. v. Broudo that, at least in the securities fraud context, the purchase of artificially inflated stock does not perforce result in an injury at the time of purchase.
While important differences between an ERISA action and an action for securities fraud do exist, the Court’s holding in Dura applies in both contexts. Dura is concerned with the causation element of standing generally and not a “securities specific loss causation.”
Fletcher and Lowe both purchased some Boston Scientific stock units while the stock was artificially inflated, but both Plaintiffs sold all of those shares before the period of artificial inflation ended. Fletcher sold all of his Plan units of company stock in September 2004, and Lowe sold his units in November of the same year
Boston Scientific recalled the Taxus stents in July and August 2004,
B. Net Impact on Fletcher and Lowe’s Company Stock Accounts
Plaintiffs argue that it does not matter whether the value of their investment in company stock was harmed by Defendants’ conduct. As long as an alternative investment would have outperformed Boston Scientific stock during that period, Plaintiffs
The principal difficulty for Plaintiffs is that their overall investment in company stock units would have generated a lower profit had the stock not been artificially inflated during the Class Period. Where a plaintiffs class period sales exceed purchases, the plaintiff has most likely benefit-ted from any alleged inflation in the stock price for that period.
It is undisputed that Plaintiffs Fletcher and Lowe were both “net sellers” during the class period. Fletcher bought 65.47 units and sold 488.58, while Lowe bought 161.41 and sold 5,605.97.
If Boston Scientific stock was higher than it “should have been” throughout the class period, then Plaintiffs made a larger profit than they “should have” earned when they cashed in their old shares. Even assuming that the units Fletcher and Lowe purchased during the Class Period were negatively affected by Boston Scientific’s failure to disclose, any loss by those shares was more than made up for by the artificially high return on their investment in units purchased before the Class Period began.
C. Injury to Plan as a Whole
Plaintiffs contend that individual injury is not required in an action brought pursuant to § 502(a) of ERISA because such an action is brought on behalf of the Plan as a whole.
That Defendants’ breach need not harm the entire Plan does not mean, however, that Plan participants who were not harmed have standing to represent those who were. “Merely because Plaintiffs claim that they are suing on behalf of the respective ERISA plans does not change the fact that they must establish individual standing.”
Given that Plaintiffs sold substantially more shares than they purchased during the period of inflation, they could only have bene-fitted from an overvaluation of Boston Scientific stock. Plaintiffs have failed to demonstrate individual injury in fact and therefore lack Article III standing. Accordingly, Plaintiffs’ Motion for Class Certification is DENIED.
IV. Motion to Intervene
In an attempt to save this Class Action from failing on account of Fletcher and Lowe’s lack of injury, former Interim Lead Plaintiff Robert Hochstadt (“Hochstadt”) moves to intervene and be appointed as a class representative. Hochstadt cashed out his Plan account on June 30, 2007, well after the January 26, 2006 close of the Class Period.
A. Additional Background
The parties offer markedly different characterizations of the circumstances leading to Hochstadt’s initial withdrawal from the case. Plaintiffs maintain that Hochstadt was unable to participate in the case because he started a new job and moved his family to a new state soon before the “small time window allowed by defendants” for depositions.
Defendants counter that it was Plaintiffs’ counsel who had requested to hold depositions the last two weeks before the agreed-upon deadline for depositions.
When Hochstadt stated that he was unavailable to make the one-day trip from his home state of Florida to New York because he could not take time away from his new job, Defendants asked Hochstadt to provide an affidavit explaining why then he was available for a deposition during business hours in Tampa.
B. Analysis
There are two types of intervention under the Federal Rules of Civil Procedure, both of which are sought by Hochstadt: (1) “as of right” intervention;
Whether Hochstadt waited too long before seeking to represent his interest in the litigation depends on what exactly the intervenor must know before the clock starts ticking. Hochstadt asks this court to consider only the time that has passed since he first learned that “his re-entry into the case might be necessary to protect the class,” which Hochstadt claims to have discovered when Defendants questioned Fletcher and Lowe’s standing in their opposition to class certification.
But timeliness turns on when the applicant first learned that he had any interest in the case, not when the applicant decides he might be needed.
2. Prejudice to Existing Parties
Hochstadt argues that Defendants would suffer minimal prejudice because his intervention would simply require them to take one deposition that they had already planned on taking when discovery began. What Ho-chstadt misses is the significant expenses already incurred by Defendants in preparing their opposition to Plaintiffs’ motion to certify, including retention of an expert. Relying on Hochstadt’s withdrawal, Defendants devoted much of their opposition to explaining why Fletcher and Lowe’s status as net sellers makes them improper representatives in this class action. Those efforts would be rendered entirely superfluous if Hochstadt, who has suffered an injury, were permitted to re-enter the litigation. It would be unfair to allow Hochstadt to intervene after Defendants tailored their briefing efforts to the shortcomings of the remaining lead plaintiffs on the reasonable assumption that Hochstadt no longer sought to represent the class.
3. Prejudice to Hochstadt
Hochstadt claims that he and the entire class would suffer “absolute” prejudice if the motion to intervene is denied.
4. Unusual Circumstances
Most importantly, unusual circumstances in this case militate against permitting intervention. Hochstadt had the opportunity to control his own destiny as Interim Lead Plaintiff in this case, but he voluntarily relinquished that role. Plaintiffs now complain that Defendants forced Hochstadt out of the case unfairly, but at the time, Hochstadt represented to this court that he no longer felt able to “fulfill[] his obligations as class representative.” Hochstadt has never explained why he failed to provide Defendants an affidavit clarifying why he could not take time from work to attend a deposition in New York if he was available during business hours in Florida. That Defendants subsequently deposed another Plaintiff in Minneapolis suggests that Defendants may have accommodated Hochstadt’s schedule as well if he had explained himself.
It would be unfair to Defendants to permit Hochstadt to duck in and out of the case at his convenience. Plaintiffs should have foreseen that Fletcher and Lowe potentially posed problems of standing that Hochstadt did not present. If Hochstadt’s professional and family circumstances made it momentarily difficult for him to attend an out-of-state deposition, then he and Plaintiffs’ counsel should have made a greater effort to work out a solution with Defendants. If Ho-chstadt’s difficulty participating in the action is more permanent, then he is probably not the most appropriate class representative in any event. The fact that Hochstadt did not make a great effort to participate in the litigation when he had the opportunity thus militates against intervention now that his presence seems more urgent.
All of the timeliness factors favor Defendants. Hochstadt has known about his interests since at least the beginning of 2006, but voluntarily withdrew from the case. If he desires to pursue his rights further, he may file another action individually or on behalf of a class. Hochstadt’s Motion to Intervene is DENIED.
IV. Conclusion
For the foregoing reasons, Plaintiffs’ Motion to Certify Class and Robert Hochstadt’s Motion to Intervene are DENIED.
AN ORDER HAS ISSUED.
ORDER
For the reasons in the accompanying Memorandum, this court hereby orders that:
1. Plaintiffs Corrected Motion for Class Certification [# 66] is DENIED.
2. Robert Hochstadt’s Motion to Intervene [# 80] is DENIED.
3. This case is DISMISSED for Plaintiffs’ lack of Article III standing.
IT IS SO ORDERED.
. Compl. 1115.
. Id. 1149.
. Id.
. Id. 111150, 55.
. Def.’s Mem. Opp’n Mot. Class Cert. 3.
. Id.
. Id.
. See, e.g., Compl. 11 87.
. Id.
. Id. HU 89-109.
. Id. 1111110-21.
. Id. H11108-09.
. Id. 1121.
. Id. 1111136-43.
. Id. 11134, 138.
. Id.
. Id. 11147.
. Id. 11147.
. Id. 11147.
. Id. 11158.
. Id.
. Mot. Class Cert. 2.
. See Pretrial Order 3.
. See In re Boston Scientific Corp. ERISA Litig., 506 F.Supp.2d 73, 75 (D.Mass.2007) (dismissing Plaintiffs’ ERISA § 502(a)(3) claims, but otherwise denying Defendants’ motion).
. See Def.'s Mem. Opp'n Mot. Cert. 6.
. See Boston Scientific, 506 F.Supp.2d at 75.
. Klunke’s Mot. Withdraw 2.
. Hochstadt’s Mot. Withdraw 1.
. Pis.' Corrected Mot. Cert. 2.
. See Def.'s Opp’n Mot. Cert. 2.
. See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 93-94, 118 S.Ct 1003, 140 L.Ed.2d 210 (1998) (holding that a federal court may not decide a cause of action before resolving questions of Article III jurisdiction, even if the merits question is more readily resolved and the same party would prevail on the merits).
. See O’Shea v. Littleton, 414 U.S. 488, 493, 94 S.Ct. 669, 38 L.Ed.2d 674 (1974).
. See Evans v. Akers, 534 F.3d 65, 67 (1st Cir. 2008).
. Crawford v. Lamantia, 34 F.3d 28, 32 (1st Cir.1994) (emphasis in original).
. In re Boston Scientific Corp., 506 F.Supp.2d at 76 (emphasis added). A majority of Circuits has agreed that cashed-out former employees may still qualify as participants with statutory standing. But courts appear to assume universally that those former employees must actually suffer a loss at distribution. See In re Mut. Funds Inv. Litig., 529 F.3d 207, 216 (4th Cir.2008) ("In short, we conclude that participants in defined contribution plans controlled by ERISA have col-orable claims against the fiduciaries of their plans when they allege that their individual accounts in the plans were diminished ....”) (emphasis added); Lanfear v. Home Depot, Inc., 536 F.3d 1217, 1223 (11th Cir.2008) (noting that a cashed-out former employee’s claim for benefits is "limited to the difference between the benefits actually received and the benefits that would have been received”); Graden v. Conexant Sys., Inc., 496 F.3d 291, 298 (3d Cir.2007) (emphasizing that it was “clear” that the defendants’ breach reduced the value of the plaintiff's distribution); Harzewski v. Guidant Corp., 489 F.3d 799, 807 (7th Cir.2007) (holding that a cashed-out employee has a "claim for benefits measured by the difference between what the retirement account was worth when the employee retired and cashed it out and what it would have been worth then had it not been for the breach of duty”).
. See Ross Aff. HH 15-16, Exs. D & E.
. Because this court finds that Plaintiffs’ lack of injury negates constitutional standing, it need not decide whether a plaintiff who benefits from a defendant’s breach of fiduciary duty also lacks statutory standing. See Crawford, 34 F.3d at 33 (finding no statutory standing where the "plaintiff has failed to show that defendants’ alleged breach of fiduciary duty had a direct and inevitable effect on his benefits” even though plaintiff did have statutory standing when the suit was filed); Caltagirone v. N.Y. Comty. Bancorp, Inc., 257 Fed.Appx. 470, 474 (2d Cir.2007) (“Because these plaintiffs cannot show that they suffered any losses as a result of the alleged fiduciary breaches, neither plaintiff has a colorable claim for benefits with statutory standing to sue.”).
. Cent. States Se. and Sw. Areas Health and Welfare Fund v. Merck-Medco Managed Care, L.L.C., 433 F.3d 181, 199 (2d Cir.2005).
. Raines v. Byrd, 521 U.S. 811, 820 n. 3, 117 S.Ct. 2312, 138 L.Ed.2d 849 (1997).
. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992).
. Id. at 561, 112 S.Ct. 2130.
. See Lewis v. Casey, 518 U.S. 343, 357, 116 S.Ct. 2174, 135 L.Ed.2d 606 (1996); Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 40 n. 20, 96 S.Ct. 1917, 48 L.Ed.2d 450 (1976).
. O’Shea, 414 U.S. at 494, 94 S.Ct. 669; see also Worth v. Seldin, 422 U.S. 490, 502, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975); In re Pharm. Indus. Average Wholesale Price Litig., 263 F.Supp.2d 172, 193 (D.Mass.2003).
. See 544 U.S. 336, 342, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005) (reasoning that "at the moment the transaction takes place, the plaintiff has suffered no loss; the inflated purchase payment is offset by ownership of a share that at that instant possesses equivalent value”).
. Id.
. Id. at 342-43, 125 S.Ct. 1627.
. See Bendaoud v. Hodgson, No.06-cv-1873-NG, 578 F.Supp.2d 257, 169-70, 2008 WL 4335884, at *9 (D.Mass. Sept.24, 2008).
. Id. at 269-70, 2008 WL 4335884 at *9-10.
. See Ross Aff. VII15-16, Exs. D & E.
. See Compl. V 49.
. Compl. VV 136-143.
. See Pis.’ Reply Supp. Mot. Cert. 6.
. See Bendaoud, 578 F.Supp.2d at 271-72, 2008 WL 4335884, at *11.
. Id.; see also Dardaganis v. Grace Capital, Inc., 889 F.2d 1237, 1243 (2d Cir.1989).
. Bendaoud, 578 F.Supp.2d at 271-72, 2008 WL 4335884, at *11.
. See In re Organogenesis Sec. Litig., 241 F.R.D. 397, 401 (D.Mass.2007) (deeming plaintiff inadequate class representative in securities fraud action because he had sold more shares during the period of alleged artificial inflation than he had purchased).
. See Piazza v. EBSCO Indus., Inc., 273 F.3d 1341, 1353 (11th Cir.2001) (finding that ERISA plaintiff alleging undervaluation of company stock had no standing because reduction in benefits distributions to participants who retired during period of undervaluation benefitted participants who, like the plaintiff, retired later).
. Ross Aff. 1113.
. Id.
. Ross Aff. at H1115-16, Exs. D & E. Plaintiff Lowe held 5,445.12 units of company stock when the Class Period began on May 7, 2004. Between May 19, 2004 and August 20, 2004, Lowe purchased 161.41 additional units of company stock. On November 8, 2004, Lowe sold all 5,605.97 units of his company stock. Id. Ex. D. Fletcher held 423.00 units at the commencement of the Class Period and purchased 65.47 units between May 19, 2004 and August 11, 2004. Fletcher then cashed in all 488.58 units on November 8, 2004.
. On November 11, 2004, when Lowe cashed out, the unit price was $23.43. Ross. Aff. Ex. E. At the end of the Class Period, the price of Boston Scientific Stock fund units was $13.92. Ross Aff. 1Í 24. Assuming that the $13.92 amount represents the “true” value of the units throughout the Class Period, the 5,445.12 units Lowe held at the beginning of the Class Period made Lowe $51,783.09 more than they would have made absent the inflation. That number far exceeds even the $4,093.86 Lowe paid for the units he purchased during the Class Period.
. See, e.g., PL’s Reply Supp. Mot. Class Cert. 4.
. See Kuper v. Iovenko, 66 F.3d 1447, 1452 (6th Cir.1995).
. See In re Boston Scientific, 506 F.Supp.2d 73, 76 (D.Mass.2007) (holding Plaintiffs did not lack standing merely because they sought recovery for only a subsection of the plan).
. Loren v. Blue Cross & Blue Shield of Mich., 505 F.3d 598, 608 (6th Cir.2007); see also Glanton ex rel. ALCOA Prescription Drug Plan v. AdvancePCS, Inc., 465 F.3d 1123, 1127 (9th Cir. 2006) (similarly holding that only plaintiffs who suffer individual injury have standing to bring ERISA class action in representative capacity); Cent. States, 433 F.3d at 200 (same); Harley v. Minn. Mining and Mfg. Co., 284 F.3d 901, 906-07 (8th Cir.2002) (same).
. See, e.g., Horvath v. Keystone Health Plan E., Inc., 333 F.3d 450, 456-57 (3d Cir.2003) (holding that statutory standing is enough to seek injunctive relief under ERISA, but requiring plaintiffs to demonstrate individual loss in claims for disgorgement and restitution).
. See In re Boston Scientific, 506 F.Supp.2d at 76 (finding that Plaintiffs have no claim for equitable relief in this case).
. Hochstadt’s Mem. Supp. Mot. Intervene 2.
. Id.
. Hochstadt Mem. Supp. Mot. Intervene 1.
. Id. 4.
. Def. Mem. Opp’n Mot. Intervene 3.
. Id.
. Id.
. Id.
. Id.
. Id. 4.
. Id.
. Id.
. See Fed. R. Civ. Pro. 24(a).
. Id. 24(b).
. Caterino v. Barry, 922 F.2d 37, 40 (1st Cir. 1990). A court must grant intervention as of right if the applicant satisfies all of the following requirements: (1) the application is timely; (2) the applicant has a "direct and substantial interest” in the litigation; (3) the applicant is "so situated that the disposition of the action may as a practical matter impair or impede its ability to protect that interest”; and (4) the applicant’s interest is inadequately represented by the existing parties. Id. at 39-40. There is no question that Hochstadt, as a class member, has a direct interest in this litigation. The interest is clearly not represented by existing parties because the two remaining Plaintiffs have no standing to represent the class. Whether Hochstadt is entitled to intervention as of right thus hinges on whether his application is timely and whether he will be able to protect that interest effectively if not allowed to intervene.
Under the standard for permissive intervention, a court may allow intervention if the application is timely and the applicant’s claim has a question of law or fact in common with the main action. Fed. R. Civ. Pro. 24(b). Permissive intervention is "wholly discretionary,” and a court should consider whether intervention will prejudice the existing parties or delay the action. In re Sonus Network, Inc. Sec. Litig., 229 F.R.D. 229, 345 (D.Mass.2005). Because the question of timeliness and prejudice are identical for both forms of intervention, they will be discussed together.
. Caterino, 922 F.2d at 40; see also Culbreath v. Dukakis, 630 F.2d 15, 20-24 (1st Cir.1980).
. See Hochstadt's Mem. Supp. Mot. Intervene 8.
. Id.
. See Caterino, 922 F.2d at 40 (finding motion to intervene untimely where applicants filed the motion a matter weeks after learning that their interests might be negatively impacted because the applicants had notice three years earlier that the case might affect their interests).
. In re Sonus, 229 F.R.D. at 346; see also Narragansett Indian Tribe v. Ribo, Inc., 868 F.2d 5, 7 (1st Cir.1989) ("Parties having knowledge of the pendency of litigation which may affect their interest sit idle at their peril.”).
. Id. at 346.
. Hochstadt's Mem. Supp. Mot. Intervene 9.
. See In re Sonus, 229 F.R.D. at 346 (noting that the commencement of a class action suspends the statute of limitations).
. In re Sonus, 229 F.R.D. at 344.
. Id. In In re Sonus, a class member sought to intervene and be appointed class representative after the sole class representative withdrew amidst concerns that past drug convictions rendered him an inadequate representative. Id.