In re Nice Systems Securities Litigation
- Reporters:
- , ,
- Before:
- Lechner
OPINION
This is an action for securities fraud brought on behalf of purchasers of American Depository Shares (“Nice ADSs”) of Nice Systems, Ltd. (“Nice Systems”), seeking damages for violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended,
Currently pending is a motion for the appointment of lead plaintiffs (the “Lead Plaintiffs Motion”) and approval of the selection of liaison counsel and lead counsel (the “Lead Counsel Motion”), pursuant to § 21D(a)(3) of the Exchange Act, as amended,
Background
A. Procedural History
The instant action is a consolidation of Marvin Frank v. Nice Systems, Ltd., David
On 19 April 1999 and 3 May 1999, the Defendants moved for an extension of time within which to answer the Frank Action complaint and the Bell Action complaint, respectively. Defendants’ request for an extension was granted, and Defendants were allowed until 21 May 1999 to submit an answer.
On 21 May 1999, the Proposed Lead Plaintiffs submitted the Lead Plaintiffs and Lead Counsel Motions and requested the consolidation of the Frank and Bell Actions. As stated, the Frank Action and the Bell Action were consolidated by an order, dated 24 May 1999.
B. Facts
1. The Defendants
Nice Systems is an Israeli corporation with its principal executive offices located in Tel Aviv, Israel. Nice Systems is a global provider of computer telephony integrated (“CTI”) logging, quality measurement, and workflow solutions for voice, data and facsimile transmissions. See id. Nice Systems maintains a headquarters in the United States located in Secaucus, New Jersey. Nice ADSs are traded on the Nasdaq National Market System.
David Arzi (“Arzi”) is the Chairman of the Board of Directors for Nice Systems. Arzi announced his plans to retire from his position as Chairman of the Board on approximately 31 December 1998.
Benjamin Levin (“Levin”) is the President and Chief Executive Officer, and a Director of Nice Systems. Levin is expected to succeed Arzi as Chairman of the Board of Directors upon his retirement.
Mordechai Golan (“Golan”) is the Chief Financial Officer and a Director of Nice Systems. Golan is expected to succeed Levin as President.
Arzi, Levin and Golan (the “Individual Defendants”) as a result of their positions of control and authority are alleged to have been responsible for the content of various Securities and Exchange Commission (“SEC”) filings, press releases and public statements.
2. The Proposed Lead Plaintiffs
The Proposed Lead Plaintiffs are a group of individuals consisting of Marvin Frank, (“Frank”)named plaintiff in the Frank Action, and class members Jeremy Eisenberg (“Eisenberg”), Brian Glogower (“Glogower”), Gregory Guinn (“Guinn”), Jain Pradeep (“Pradeep”), Daniel Laser (“Laser”), Rubin Jeffrey (“Jeffrey”) and Mark R. and Jane Smith (the “Smiths”). The Proposed Lead Plaintiffs have all reviewed the Complaint and have expressed a willingness to serve as lead plaintiffs in the instant action.
Eisenberg purchased 100 Nice ADSs on 22 September 1998 at $30 1/4 per share. It appears Eisenberg still holds all 100 Nice ADSs.
Glogower purchased 500 Nice ADSs on 5 May 1998 at $43 1/8 per share. Glogower sold all five hundred of his Nice ADSs on 22 December 1998 for $21 3/16 per share.
Guinn purchased twenty Nice ADSs on 2 July 1998 at $37 1/2 per share. It appears Guinn still holds all twenty of his Nice ADSs.
Pradeep purchased 200 Nice ADSs on 29 June 1998 at $37 7/8 per share. Pradeep sold all 200 Nice ADSs on 30 December 1998 for $21 3/8 per share.
Laser purchased Nice ADSs as follows:
Purchase Date No. Shares Price per sh
7 May 1998 200 $36.125
26 May 1998 50 $40.88
2 June 1998 200 $35.25
2 June 1998 100 $34.94
4 June 1998 25 $34.50
27 August 1998 100 $30.50
23 September 1998 200 $30.00
Between 7 May 1998 and 23 September 1998, Laser purchased a total of 875 Nice ADSs. Laser sold 200 Nice ADSs for $39.50 per share on 11 May 1998, 300 Nice ADSs for $38.12 per share on 20 July 1998, and 100 Nice ADSs for $32.50 per share on 14 September 1998. It appears Laser still holds 275 Nice ADSs.
Rubin purchased 499 Nice ADSs on 19 May 1998 for $39 3/4 per share. It appears Rubin still holds all 499 shares.
The Smiths purchased thirty Nice ADSs on 24 September 1998 for $29.9375. It appears the Smiths still hold all thirty Nice ADSs.
3. The Factual Allegations
Nice Systems was founded in 1986, and completed an initial public offering in Israel in 1991. See Complaint H 22. In 1996, Nice Systems completed a $20 million initial public offering in the United States. See id. A follow-on offering of $98 million in the United States was completed in 1997. See id.
The ordinary shares of Nice Systems (the “Nice Ordinary Shares”) are traded on the Tel Aviv Stock Exchange and the Nice ADSs are actively traded on the Nasdaq. See Complaint 1122. Nice Systems develops, designs, manufactures, markets and services products that provide logging, monitoring, quality measurement and workflow solutions for voice, data and facsimile transmissions. See id. Nice Systems asserts its products are used by a broad range of customers, such as call centers, air traffic control sites, public safety entities, financial institutions and intelligence agencies. See id.
During the initial years of its operations, Nice Systems derived a substantial portion of its revenues from the development of Communications Intelligence (“COMINT”) products. See Complaint H23. Currently, however, Nice Systems derives the majority of its revenues from the sale of its CTI products, which are designed to protect businesses and customers against the risks posed by lost or misinterpreted voice, facsimile or data transmissions. See id. The call center business is the fastest growing market served by Nice Systems, and represents the' greatest growth potential for Nice Systems. See id.
In order to capture a greater share of the call center market, Nice Systems acquired Dees Communications, Ltd., a Canadian corporation, in exchange for 435,000 Nice ADSs and $8 million in cash (the “Dees Acquisition”).
The Complaint alleges Nice Systems raced to the market with upgrades to the Nice-
The Complaint alleges Nice Systems materially misstated the abilities of the NiceUniverse products. See Complaint H26. The Complaint further alleges Nice Systems failed to disclose the Nice Universe products were not ready for commercial distribution, were plagued with numerous “bugs” which hindered their commercial utility, and as a result did not comply with the system requirements of the largest distributors of Nice Systems. See id. The truth concerning the NiceUniverse products was not disclosed until 24 September 1998, when Nice Systems announced NiceUniverse did not meet the needs of its customers. See id. Nice Systems stated it was forced to stop manufacturing and marketing the NiceUniverse products and would need to completely revamp the NiceUniverse product line to make it commercially viable. See id.
The Complaint alleges several press releases and submissions to the SEC were materially false and misleading. The alleged misleading statements made during the Class Period are as follows.
Ip February 1998 Press Release
On 4 February 1998, Nice Systems issued a press release (the “4 February 1998 Press Release”), published on PR Newsmre, in which it announced the introduction of NiceUniverse at the 1998 Call Center Trade Show. See Complaint 1128. According to the 4 February 1998 Press Release, Nice Systems “unveiled the newest release of its call center performance measurement solution, NiceUniverse, version 3.0____ The product is integrated with Nice’s NiceLog and NiceCLS systems, and supports the industries leading switches including Nortel, Lucent and Aspect.” Id. Commenting on the introduction of NiceUniverse version 3.0, Company spokesman Morgan Sturdy (“Sturdy”), head of Nice System’s North American Sales Division stated, in part:
The focus of our application is to address the compliance, performance and risk management issues of the call center. Our goal is to offer clients logging and monitoring systems that are easily integrated with existing computer network and telecom environments.
Id. (emphasis in the Complaint).
The Three March 1998 Press Release
On 3 March 1998, Nice Systems issued a press release (the “3 March 1998 Press Release”), published on M2 Presswire, announcing its acquisition of IBS Corporation, a California-based maker of software used by call centers. See Complaint 1131. In connection with acquisition of IBS Corporation, Levin stated:
We believe that the acquisition of IBS, following the acquisition of Canadian based Dees Communications in September 1997, will support our ongoing expansion into the fast growing call center market. With IBS’s technology, products and customer base, and Nice’s CTI logging and quality measurement solutions, we now have the broadest range of call center logging and quality solutions in the market.
Id. (emphasis in the Complaint).
The 28 April 1998 Press Release
On 23 April 1998, Nice Systems issued a press release (the “23 April 1998 Press Release”), on PR Newswire, concerning the ability of its NiceUniverse products to integrate with its customers pre-existing systems. See Complaint 1! 32. The 23 April 1998 Press Release stated Nice Systems had completed the installation of it NiceUniverse quality measurement system at Advanta Mortgage. See id. According to the 23 April 1998 Press Release, “this installation showcases Nice’s newest Computer Telephony Integrated (CTI) quality measurement solution, NiceUniverse 3.0, fully integrated with Aspects Automated Call Distributor (ACD).” Id. The 23 April 1998 Press Release further stated:
*212 Advanta, a provider of mortgage and home equity loans, will use the system to monitor its agents to identify agent training requirements and improve agent performance levels in the call center. Integrated with Advanta’s Windows 95 network, NieeUniverse allows multiple reviewers to playback [sic] recorded agent transactions and analyze the call center’s performance levels using the systems powerful evaluation tools.
* H* # ❖ # ❖
Integration with lading PBX/ACDs is a core component of our business strategy. We are pleased to introduce a truly reliable quality assurance solution tightly integrated with Aspect’s ACD.
Id.
The 6 May 1998 Press Release
On 6 May 1998, Nice Systems issued a press release (the “6 May 1998 Press Release”), on PR Newswire, announcing record results for the first quarter of 1998. See Complaint 1133. Commenting upon the performance of Nice Systems in the first quarter of 1998, Levin stated:
The first quarter of 1998 shows that Nice continues to benefit from its technological leadership and strong competitive position. In addition to other sectors, we are focusing on the call center market which is expected to grow significantly in the coming years.
Id. (emphasis in the Complaint).
The 18 May 1998 Press Release
On 18 May 1998, Nice Systems issued a press release (the “18 May 1998 Press Release”), on PR Newswire, concerning the ability of the NieeUniverse system to integrate with its customers pre-existing systems. See Complaint H36. The 18 May 1998 Press Release stated Electric Insurance Company had implemented the NieeUniverse quality measurement system. See id. The 18 May 1998 Press Release further stated the NieeUniverse system was fully integrated with the Microsoft Windows-NT network and Lucent PBX operated by Electric Insurance Company. See id.
The 26 June 1998 Form 20-F
On or about 26 June 1998, Nice Systems, pursuant to the Exchange Act, filed its Form 20-F with the SEC for the year ended 31 December 1997 (the “26 June 1998 Form 20-F”). See Complaint II38. The 26 June 1998 Form 20-F allegedly contained the following misleading statements concerning the NiceUniverse product line:
NieeUniverse, introduced in February 1998, is a quality measurement solution that automates call center agent monitoring and screen capture. The system provides objective evaluation tools and helps identify training requirements for call center agents. NieeUniverse uses a switch-independent CTI interface that integrates with ACDs and PC networks. This enables NieeUniverse to monitor and record agent sessions (voice and screen) on a user-defined schedule and store them in compressed digital format. Sessions are later retrieved by the reviewers from their network PCS and agent performance is graded using customized on-screen templates. From these templates and other data, NieeUniverse generates detailed reports, statistics and graphs to help identify training requirements and set relevant benchmarks for call center agents.
* Hs * * * *
The Company’s CTI systems are generally sold with a warranty, the term of which is usually one year after shipment. Longer warranty periods are applicable to sales of certain international and governmental markets. Broader warranty and service coverage is provided in certain instances and is usually made available to customers through the Company’s distributors on a contractual basis for an additional charge. After the expiration of the warranty period, customers may purchase a renewable maintenance agreement with the Company’s dealers [that] generally provides for maintenance, upgrades of standard system software and on-site repair or replacement. The Company often receives a certain percentage of the value of such agreements in consideration for its commitment for backup support to its dealers. To date the*213 Company has not experienced, any significant product returns or requests for repairs.
Id. (emphasis in the Complaint).
The 5 August 1998 Press Release
On 5 August 1998, Nice Systems issued a press release (the “5 August 1998 Press Release”), on PR Newswire, announcing record results for the second quarter of 1998. See Complaint K 42. Commenting upon the performance of Nice Systems in the second quarter of 1998, Levin stated:
“Results for the second quarter reflect our improved position in the call center market. Our strategic decision to focus on call centers in 1998, highlighted by the acquisition of Dees Communications last year and the acquisition of the assets of IBS this quarter, is paying off handsomely. Our leading position in the North American call center market is consistent with Nice’s dominance in the financial institutions and the air traffic control markets.”
Mr. Levin also reported that the Company is currently strengthening its professional and technical services and capabilities in the North American market by moving key professionals from Israel to the US. “We are bringing more experts closer to this booming market. These changes should improve our ability to respond better to customers’ needs in a very dynamic and growing market.”
Id. (quoting Levin) (emphasis in the Complaint).
The 17 August 1998 Press Release
On 17 August 1998, Nice Systems issued a press release (the “17 August 1998 Press Release”), on PR Newswire, concerning the ability of the NiceUniverse system to integrate with its customers’ pre-existing systems. See Complaint H45. Levin stated: “The call center market is an immense and growing business sector worldwide. It generates high margins and has the potential of increasing our revenues significantly by the turn of the century.” Id.
The 8 September 1998 Press Release
On 8 September 1998, Nice Systems issued a press release (the “8 September 1998 Press Release”) on PR Newswire announcing the launch of its Professional Services Division. See Complaint 1146. In connection with this announcement, Sturdy stated:
In today’s competitive call center environment, customer-service oriented companies are looking for more than just great technology when improving their operations. Our suite of value-added professional services provide [sic] customers a comprehensive program that encompasses implementation, technical training and call center consultative services that go beyond the technology.
Id. (emphasis in the Complaint).
The £4 September 1998 Press Release
The Complaint alleges that Nice Systems disclosed its true operating condition in a press release, dated 24 September 1998 (the “24 September 1998 Press Release”).
Commenting on the third quarter performance of Nice Systems, Levin stated:
We have decided to act swiftly to modify our product offering for the low-end and mid-range market and to base it on our well-received high-end solution, providing better offering to the market. As a result, we anticipate a six-month delay in revenues for this product. Nice is planning to release a new and enhanced quality measurement solution for the low-end to mid-range market at the end of 1998. We anticipate that Nice will return to its previous growth rate in the beginning of 1999.
See Complaint 1148 (emphasis in the Complaint).
The Complaint alleges that, during the Class Period, Defendants materially misled the investing public and artificially inflated the price of Nice ADSs. See Complaint 1153. The Complaint further alleges the 4 February 1998 Press Release, 3 March 1998 Press Release, 23 April 1998 Press Release, 6 May 1998 Press Release, 18 May 1998 Press Release, 26 June 1998 Form 20-F, 5 August 1998 Press Release, 17 August 1998 Press Release and 8 September 1998 Press Release were false and misleading and omitted facts necessary to make the statements included therein not false and misleading. See id.
The Complaint asserts Defendants failed to disclose material information that was known to them at the time of the challenged press releases and SEC submissions. See Complaint H 53. The alleged withheld material information included:
(i) the NieeUniverse systems were not “easily integrated with existing ... telecom environments”;
(ii) the NieeUniverse systems had not been certified by distributors, and therefore the systems could not be effectively sold by such distributors;
(iii) as a result of the initial negative feedback from customers concerning the NieeUniverse products, Nice Systems did not have a reasonable basis for claiming its revenues would continue to grow or for stating its products would remain in demand;
(iv) as a result of customer dissatisfaction, Nice Systems would be forced to quickly upgrade its Nice Universe products before abandoning most them entirely;
(v) Nice Systems attempted to gain market share in the call center market, a market it believed to be highly competitive, by selling products Nice Systems knew did not suit the needs of its customers;
(vi) many customers had complained about their NieeUniverse systems such that Nice Systems could not truthfully state it had not experienced any significant product returns or requests for repairs; and
(vii) at the time the 26 June 1998 Form 20-F was published, Nice Systems had sent technical support staff to the United States to remedy material problems Nice Systems was then experiencing.
See Complaint H 53.
Discussion
A. The Private Securities Litigation Reform, Act of 1995
Congress enacted the Private Securities Litigation Reform Act,
Prior to the enactment of the PSLRA, 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. See Milestone I,
The purpose behind the PSLRA is to “ ‘empower investors so that they, not their lawyers, control private securities litigation’ by allowing the Court to ensure the transfer of ‘primary control of private securities litigation from lawyers to investors.’ ” See Chill,
Specifically, the PSLRA provides a method for identifying the plaintiff or plaintiffs who are the most strongly aligned with the class of shareholders, and most capable of controlling the selection and actions of counsel. See Conference Report at 731; see also Fischler v. AmSouth Bancorp.,
The PSLRA added to the Exchange Act § 21D (“Section 21D”), as amended,
Shall cause to be published in a widely-circulated national business-oriented publication or wire service, a notice advising members of the purported class—
(I) of the pendency of the action, the claims asserted therein, and the purported class period;
(II) that, not later than 60 days after the date on which the notice is published, any member of the purported class may move the Court to serve as lead plaintiff of the purported class.
The PSLRA also altered the procedure by which the lead plaintiff for the purported class is appointed. As stated, pursuant to the PSLRA, the plaintiff who is “first to file” is no longer assured of the lead plaintiff position. Section 21D(a)(3)(B)(i) provides:
Not later than 90 days after the date on which a notice is published ... the court shall consider any motion made by a purported class member in response to the notice, including any motion by a class member who is not individually named as a plaintiff in the complaint or complaints, and 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 the class members ...
The selection of the most adequate plaintiff under the PSLRA is governed by a rebuttable presumption:
[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 under subparagraph (A)(i);
*216 (bb) in the determination of the court, has the largest financial interest in the relief sought by the class; and
(cc) otherwise satisfies the requirement of Rule 23 of the Federal Rules of Civil . Procedure.
This presumption of adequacy
may be rebutted only upon proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff—
(aa) will not fairly and adequately protect the interest of the class; or
(bb) is subject to unique defenses that render such plaintiff incapable of adequately representing the class.
The PSLRA further provides that once the most adequate plaintiff is selected, the “most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class.” Title
B. Appointment of Lead Plaintiffs
1. The Notification Requirement
In the instant case, the notification requirement has been met. The Frank Action was the initial action filed. Pursuant to Section 21D(a)(3)(A)(i), the plaintiff in the Frank Action published the notice of pendency of the instant action (the “Notice of Pendency”) in a widely-circulated national business-oriented wire service, the Business Wire.
A motion for the appointment of lead plaintiff must be filed within sixty days of the publication of the Notice of Pendency. See
2. The Largest Financial Interest Requirement
It appears Proposed Lead Plaintiffs, as a group,
(1) the number of shares purchased; (2) the number of net shares purchased; (3) the total net funds expended by the plaintiffs during the class period; and (4) the approximate losses suffered by the plaintiffs.
First Merchants Acceptance Corp.,
During the Class Period, the Proposed Lead Plaintiffs purchased 2,524 Nice ADSs. See Certifications of Proposed Lead Plaintiffs, Attached to Weiss Aff. at Exhs. A, B. Collectively, the Proposed Lead Plaintiffs expended $93,633.88 on their purchases of Nice ADSs during the Class Period. See id. Proposed Lead Plaintiffs collectively assert that no other applicant or applicant group has sustained greater financial losses in connection with the purchase and/or sale of Nice ADSs during the Class Period. See Moving Brief at 9.
3. Rule 28 Requirements
The Proposed Lead Plaintiffs appear to “otherwise satisf[y] the requirements of
One or more members of a class may sue or be sued as representative parties on behalf of all only if (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 defense 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.
“A wide-ranging analysis under
Accordingly, “discovery regarding the[ ] elements [of
A fact-specific inquiry is nonetheless necessary under
The Proposed Lead Plaintiffs have sufficiently demonstrated, at this preliminary stage, the requisite typicality and adequacy. The typicality requirement under
permits the court to assess whether the class representatives themselves present those common issues of law and fact that justify class treatment, thereby tending to assure that the absent class members will be adequately represented.
Eisenberg v. Gagnon,
It appears the claims of the Proposed Lead Plaintiffs are typical of the Class. The Proposed Lead Plaintiffs assert the typicality requirement has been met because the Proposed Lead Plaintiffs and the absent members of the Class have similar legal claims arising out of the alleged false statements of the Defendants in the press releases and 26 June 1998 Form 20-f. See Moving Brief at 11 (citing Weiss,
Similarly, the adequacy of representation is not in issue. In this Circuit, the adequacy of the class representative depends upon the following two factors:
(1) the plaintiffs attorney must be qualified, experienced, and generally able to conduct the proposed litigation, and (2) the plaintiff must not have interests antagonistic to the class.
Weiss,
Adequacy, for purposes of the lead plaintiff determination, is contingent upon both the existence of common interests between the proposed lead plaintiffs and the class, and a willingness on the part of the proposed lead plaintiff to vigorously prosecute the action.
It appears the Proposed Lead Plaintiffs do not have interests antagonistic to the Class. Indeed, as presented, the Proposed Lead Plaintiffs appear to have the largest financial interest, having purchased 2,524 Nice ADSs at a cost of $93,633.88. See Certifications of Proposed Lead Plaintiffs, attached to Weiss Aff. as Exhs A, B. This financial stake in the litigation provides an adequate incentive for the Proposed Lead Plaintiffs to vigorously prosecute the action. See Milestone I,
Irrespective of the amount of money at stake, it appears, as asserted by the Proposed Lead Plaintiffs, that their “interests are squarely aligned with the absent class members, because each movant: (i) purchased Nice ADSs; (ii) during the relevant time period; and (iii) suffered damages thereby.” See Moving Brief at 11. It appears the goals of the Proposed Lead Plaintiffs in pursuing the litigation against Nice Systems and the Individual Defendants also do not diverge from those of the Class. In addition, review of the firm resumes of Counsel for the Proposed Lead Plaintiffs (the “Proposed Counsel”), demonstrates Proposed Counsel are qualified, experienced and able to conduct this litigation in a professional manner. See Proposed Counsel Firm Resumes, attached to Weiss Aff. as Exhs. D, E.
4. Presumption Not Rebutted
The presumption of adequacy has not been rebutted. As observed, the presumption may be overcome by showing the Proposed Lead Plaintiffs will not “fairly and adequately protect the interest of the [C]lass,” or are “subject to unique defenses that render [the Proposed Lead Plaintiffs] incapable of adequately representing the Class.”
As discussed, in the instant action, the adequacy of the Proposed Lead Plaintiffs has not been challenged. Absent such a challenge, the presumption of adequacy survives as to the group of the Proposed Lead Plaintiffs. See Zuckerman,
5. Propriety of Multiple Lead Plaintiffs
The fact that a group, as opposed to a single individual, is proposed as lead plaintiff does not necessarily render the Proposed Lead Plaintiffs inadequate. The PSLRA expressly provides a “group of plaintiffs” may be deemed most adequate plaintiffs. See
While the PSLRA does not limit the number of proposed lead plaintiffs, a “rule of reason prevails.” See Chill,
The assertion can legitimately be made that the larger the number of proposed Lead Plaintiffs, the greater the dilution of the control that those Plaintiffs can maintain over the conduct of the putative class action ....
D’Hondt,
detract from the [PSLRA’s] fundamental goal of client control, as it would inevitably delegate more control and responsibility to the lawyers for the class and make the class representative more- reliant on the lawyers.
Gluck,
One court, in appointing co-lead plaintiffs, reasoned that multiple lead plaintiffs allows for “diverse representation.” See Oxford,
Where multiple lead plaintiffs have divergent interests, the leadership of a class may be divided, and rendered factious. While the PSLRA refers to “a person or group of persons” as capable of serving as the lead plaintiff, the surrounding statutory language forecloses the appointment of multiple groups or multiple persons not part of a cohesive group. Significantly, apart from the sole reference to a “group of persons,” the PSLRA is worded in the singular, providing a mechanism for the appointment of “the most adequate plaintiff,” not the most adequate plaintiffs. See
When considering the Lead Plaintiffs Motion, the policies behind the PSLRA must be recognized. The composition of the Proposed Lead Plaintiffs must be scrutinized carefully.
In the instant action, the Proposed Lead Plaintiffs consist of nine individuals: Frank, named plaintiff in the Frank Action, and class members Eisenberg, Glogower, Guinn, Pradeep, Laser, Jeffrey and the Smith. Although the interests of Proposed Lead Plain
The Proposed Lead Plaintiffs request the appointment of nine individuals as lead plaintiffs. The finite boundaries of the Class Period and review of the allegations presented in the instant case demonstrate the appointment of nine lead plaintiffs does not present any benefit that could not be achieved by the appointment of a lesser number. Further, it appears the appointment of a lesser number of Proposed Lead Plaintiffs will further a fundamental goal of the PSLRA — the empowerment of a unified force to control the litigation. See Conference Report at 683, 685; Gluck,
In the instant case, Proposed Lead Plaintiffs have sought the appointment of Guinn, Eisenberg and the Smiths as part of a group alleged to have the greatest financial interest in the instant litigation. See Moving Brief at 9. Guinn, however, purchased only 20 Nice ADSs during the Class Period. This purchase represents only .8% of the $93,633.88 expended by the Proposed Lead Plaintiffs on Nice ADSs.
In addition, Eisenberg purchased only 100 Nice ADSs during the Class Period, while the Smiths purchased only 30 Nice ADSs during the Class Period. These purchases represents only 3.23% and .959%, respectively, of the $93,633.88 expended by the Proposed Lead Plaintiffs on Nice ADSs.
The relatively small interest of Guinn, Eisenberg and the Smiths in the instant litigation appears to distinguish their interests from those of the remaining Proposed Lead Plaintiffs. The PSLRA was designed to provide a method for identifying the plaintiff or plaintiffs who are most strongly aligned with the shareholder class. See Conference Report at 731; Fischler,
As mentioned, there has been no objection raised to the Lead Plaintiffs motion submitted by the Proposed Lead Plaintiffs. District Courts, however, have an obligation to review applications for the appointment of lead plaintiff and to appoint as lead plaintiff the member or members of the purported plaintiff class who are “most capable of representing the interests of the class members.”
While the PSLRA does not set an outside limit on the appointment of lead plaintiffs, the rule of reason, see Chill,
C. Appointment of Lead Counsel
The approval of lead counsel pursuant to Section 21D(a)(3)(B)(v) is not governed by the same statutory guidelines which control the lead plaintiff determination. See In re Milestone Scientific Sec. Litig.,
[Congress] does not intend to disturb the court’s discretion under existing law to approve or disapprove the lead plaintiffs choice of counsel when necessary to protect the interests of the plaintiff class.
Conference Report at 690-91. The exercise of such discretion necessitates an inquiry into
The judgment of a lead plaintiff or proposed lead counsel is not dispositive in the appointment of lead counsel. Approval of lead counsel necessarily requires an independent evaluation of, among other considerations, the effectiveness of proposed class counsel to ensure the protection of the class. See Milestone II,
The PSLRA, however, does not expressly prohibit the lead plaintiff from selecting more than one law firm to represent the class. See
The potential for duplicative services and the concomitant increase in attorneys’ fees work against the approval of more than one law firm, especially in cases in which one law firm has the proven ability to adequately manage and litigate securities class actions. See Milestone II,
The limitation in the PSLRA of total attorneys’ fees to “a reasonable percentage of the amount of damages and prejudgment interest actually paid to the class,” see
It appears, moreover, “a court’s expertise is rarely at its most formidable in the evaluation of counsel fees.” Cendant,
It is not possible, during the preliminary stages of litigation, to evaluate the potential
Additionally, where more than one lead counsel are appointed, there is the potential they may ultimately seize control of the litigation, an occurrence the PSLRA intended to foreclose. As discussed, the PSLRA was designed, in part, to effectuate the transfer of control of securities class actions from the lawyer's to the investors. See Conference Report at 685. Accordingly, those seeking the appointment of more than one law firm must demonstrate the lead plaintiff will be able to withstand any limitation on, or usurpation of, control, and effectively supervise the law firms acting as lead counsel. See Milestone II,
The selection of counsel by a lead plaintiff also must be the product of independent, arms length negotiations. This Circuit has observed: “[T]he lead attorney position is coveted as it is likely to bring its occupant the largest share of the fees generated by the litigation.” Garr v. U.S. Healthcare, Inc.,
Not only should the proposed counsel fees be the result of hard-bargaining, but the initial selection of counsel should also be the result of independent decision-making by the lead plaintiff. In Milestone II, it was observed “ ‘unless there has been active, effective client participation in the [selection] process, it is possible that the counsel arrangement may simply reflect bargaining among lawyers for their own stake in the case, and not serve the best interests of the class.’ ” Id.,
In the instant case, Proposed Lead Plaintiffs designated Milberg Weiss to serve as Lead Counsel for the Class. See Moving Brief at 12. In addition, Proposed Lead Plaintiffs designated Cohn Lifland to serve as liaison counsel. Neither the Moving Brief nor the proposed order submitted for the appointment of lead plaintiffs and the selection of lead and liaison counsel sets forth the proposed duties or functions of the proposed firms.
As stated, counsel for the Class is chosen by the lead plaintiff, subject to the approval of the court. See
As stated, Proposed Lead Plaintiffs also seek approval of Cohn Lifland to serve as liaison counsel, but do not set forth the role Cohn Lifland will play if approved to serve in that capacity. It appears the responsibilities of liaison counsel typically involve “advising lead counsel on local procedural matters, coordinating administrative matters, distributing communications between the Court and other counsel, convening meetings of counsel and advising parties of developments in the
The Cendant court observed “[qualified lead counsel will be surely capable of performing these ministerial tasks____ Accordingly, all motions for appointment of liaison counsel are denied.” See id.,
As mentioned, Milberg Weiss is a law firm with extensive experience in the litigation of securities class actions. See Firm Resume, attached to Weiss Aff. as Exh. D. There is nothing to suggest Milberg Weiss would not be capable of handling the administrative tasks presented by the litigation of the instant matter. The instant matter appears to allege a cause of action with clearly defined boundaries. Further, the potential class size and possible damages does not appear to warrant the approval of liaison counsel. Mil-berg Weiss may, however, in its capacity as lead counsel, distribute non-duplicative work assignments to non-lead counsel so as to facilitate the orderly and efficient prosecution of the instant action. See Milestone II,
There has been no compelling reason presented in the instant case for the appointment of liaison counsel.
Conclusion
For the foregoing reasons, the Lead Plaintiffs Motion is granted in part and denied in part; the Lead Counsel Motion is granted in part, and denied in part.
Notes
. In support of the Lead Plaintiffs and Lead Counsel Motions, the Proposed Lead Plaintiffs submitted:
1) Memorandum of Law in Support of Proposed Nice Systems Lead Plaintiffs' Motion for Appointment as Lead Plaintiffs and for Approval of Proposed Nice Systems Lead Plaintiffs’ Selection of Liaison Counsel and Lead Counsel (the "Moving Brief”); and
2) Affidavit of Richard H. Weiss in Support of the Lead Plaintiffs and Lead Counsel Motions (the "Weiss Aff.”) with attached exhibits.
Defendants, by letter, dated 26 May 1999 took no position with respect to the pending Lead Plaintiffs and Lead Counsel Motions.
. The facts are derived from the class action complaint (the “Complaint”) filed before the consolidation of this matter on 24 May 1999, in Marvin Frank v. Nice Systems, Ltd., David Arzi, Benjamin Levin and Mordechai Golan, Civil Action No. 99-1307 (AJL), attached as exhibit A to the Weiss Affidavit. The Complaint filed in the Frank Action is relied upon herein because Marvin Frank, named plaintiff in the Frank Action, is moving for appointment as lead plaintiff. In addition, all of the Proposed Lead Plaintiffs have stated they have reviewed the complaint filed in the Frank Action. See Certifications of Proposed Lead Plaintiffs, attached to Weiss Aff. as Exhs. A, B.
. Nice ADSs represent one ordinary share, nominal value one new Israeli Shekel per share.
. The Proposed Lead Plaintiffs seek to represent a class (the "Class”) consisting of all persons who purchased NICE ADSs between 4 February 1998 and 24 September 1998 (the "Class Period”) and who suffered damages. See Complaint Í 16. It is alleged that the members of the Class are so numerous that joinder of all members would be impracticable. See id. 117. Throughout the Class Period, Nice ADSs were actively traded on the Nasdaq. See Complaint H17. While the exact number of members of the Class is not known, it is alleged there are hundreds, and possibly thousands, of members. See id.
. It is alleged the Dees Acquisition was important to the growth plans of Nice Systems because it provided Nice Systems with call center monitoring, quality measurement training and agent productivity enhancement products. See Complaint H 24.
. This date marks the close of the Class Period.
. The PSLRA did not completely eliminate the “race to the courthouse,” however. As detailed below, plaintiffs who are first to file suit are obligated to provide notice to other purported class members of the asserted claims and the purported class period. See
. The PSLRA does not define "widely-circulated” or “wire service.” See
. Certain of members of the Proposed Lead Plaintiffs group appear to have purchased a relatively small number of shares. Guinn, for example, purchased only twenty Nice ADSs during the Class Period. Similarly, the Smiths purchased only thirty Nice ADSs during the Class Period, and Eisenberg purchased only 100 Nice ADSs during the class period. The Proposed Lead Plaintiffs have not offered any explanation as to why Guinn, Eisenberg and the Smiths were included as representatives of the largest financial interest. There has been, however, no objection raised to the inclusion of Guinn, Eisenberg and the Smiths in the group of the Proposed Lead Plaintiffs. In the absence of such an objection, the analysis will proceed as to whether the group, as presented by Proposed Lead Plaintiffs, meets the requirements for appointment as lead plaintiffs. See
. For purposes of the lead Plaintiffs Motion, the assertion of the Proposed Lead Plaintiffs is accepted as true. Although the Proposed Lead Plaintiffs have not presented a calculation of their estimated damages, no other individual or group has moved for appointment as lead plaintiff in this matter, and there has been no objection to the claim of the Proposed Lead Plaintiffs that they have the largest financial stake in this litigation.
. A defendant or defendants may not object to the adequacy or typicality of the proposed lead plaintiff at this preliminary stage of the litigation. See. Gluck,
However, the determination that the Proposed Lead Plaintiffs meet the requirements of
. At this preliminary stage, an examination of the remaining requirements of
In any event, it appears, at this stage, the requirements of numerosity and common questions of law or fact are satisfied. See
. It is recognized that Milberg Weiss, pursuant to Rule 101.1(c) of tire Local Rules of Civil Procedure, must select local counsel. This, however, does not support the need for the formal approval of liaison counsel in the instant case.