In re Sonus Networks, Inc.
MEMORANDUM AND ORDER
I. SUMMARY
On February 16, 2005, the court certified this case as a class action with Anthony Scibelli as the sole Class Representative. On May 16, 2005 class member-Daniel Higgins filed a Motion to Intervene and Be Appointed Class Representative after Scibelli withdrew when it was revealed that he had been convicted of selling cocaine and resisting arrest.
Even before these revelations, the court recognized that substantial issues existed with regard to the adequacy of the original two proposed class representatives, Scibelli and Gary Roberts. Therefore, on January 6, 2005 the court ordered that plaintiffs propose any new class representative(s) by January 31, 2005. That Order stated that in the absence of any additional proposed class representatives, the issue of the adequacy of Scibelli and Roberts might be “dispositive.” Neither Higgins nor his counsel, who were actually controlling the litigation, heeded this warning.
For the reasons described in detail in this Memorandum, Higgins’ motion to intervene is untimely. In addition, it would be unfairly prejudicial to the defendants and injurious to the interests of justice to allow him to intervene now. Therefore, his requests to intervene as of right or as an exercise of the court’s discretion are being denied.
As the previously certified class now lacks the required class representative, it is being decertified. The parties are being ordered
II. BACKGROUND
This is a putative class action on behalf of all purchasers of Sonus Networks, Inc. (“So-nus”) common stock during the period from December 11, 2000 through January 16, 2002, against Sonus and certain of its officers and directors (the “individual defendants”) for violations of the Securities Exchange Act of 1934 (the “1934 Act”).
Originally, seven lawsuits were filed against Sonus and the individual defendants.
• On November 29, 2002, the court appointed Roberts and Scibеlli Lead Plaintiffs and consolidated the seven cases under a single master file, Civil Action No. 02-11315-MLW. On March 3, 2003, Roberts and Scibelli filed a Consolidated Amended Class Action Complaint against Sonus and the individual defendants.
As requested by Lead Plaintiffs, Milberg Weiss Bershad Hynes & Lerach (“Milberg”) and Bernstein Liebhard & Lifshitz (“Bernstein”) were appointed lead counsel, and Moulton & Gans, P.C. (“Gans”) was appointed as Liaison Counsel. Gans is a solo practitioner.
On April 22, 2003, Sonus and the individual defendants filed a motion to dismiss the Consolidated Amended Class Action Complaint. After а hearing on May 11, 2004, the court denied this motion.
The court also ordered Roberts and Scibelli to file a motion for class certification by July 30, 2004. Having been educated to understand that there would be meaningful issues concerning the propriety of class certification, the court limited discovery to that issue.
On July 30, 2004, Roberts and Scibelli filed a Motion for Class Certification. Sonus filed a memorandum opposing certification on September 10, 2004. The court received Scibelli and Roberts’s Reply Memorandum on September 30, 2004, as well as a Sur-reply filed by Sonus on October 5, 2004. Thе contested issues in the briefing papers dealt primarily with whether Roberts and Scibelli were suitable class representatives and seemed to be substantial. See
Accordingly, on January 6, 2005, the court issued an Order stating that:
In deciding whether to grant “lead plaintiffs” Gary Lynn Roberts and Anthony Scibelli’s Motion for Class Certification (Docket No. 56), the issue of whether Roberts and Scibelli are adequate class representatives may be dispositive. This issue may be rendered moot if the plaintiffs seek to add or substitute new parties as class representatives. Accordingly, it is hereby ORDERED that if the рlaintiffs wish to seek leave to amend their complaint to add or substitute a new party as lead plaintiff, they shall do so by January 31, 2005.
As subsequently explained, in issuing the Order the court “tried to make vividly clear that if plaintiffs or plaintiffs’ counsel ... had another possible party that they wanted the court to consider, [the court] wanted that party identified by” January 31, 2005. See May 19, 2005 Tr. at 18. This Order was
The Lead Plaintiffs, however, did not heed this warning. Rather, on January 31, 2005, Roberts and Scibelli reiterated their belief that they were adequate class representatives and did not seek leave to propose additional lead plaintiffs within the period of time allowed by the court. Instead, they stated that “[i]f after hearing this matter the court finds [that Roberts and Scibelli are inadequate], Lead Plaintiffs seek leave to propose additional Class Members to serve as Class Representatives.” Response to Court’s Order Concerning Class Representatives.
The court conducted a hearing on the motion for class certification on February 14, 2005. The hearing began with the recently raised issues of whether class counsel had impermissible conflicts of interest because they also represented other plaintiffs in another class action against Sonus and whether those possible conflicts of interest had been disclosed to Roberts and Scibelli so they could make a fully informed decision on whether Milberg and Bernstein were the most appropriate counsel for themselves and the putative class they were seeking to represent. Such disclosure was important, in part, because of the “PSLRA’s mandate that class representatives, and not lawyers, must direct and control the litigation.” Berger v. Compaq Computer Corporation,
Roberts had filed an affidavit stating that the attached schedule included all of his So-nus stock transactions. However, discovery demonstrated that the schedule was incomplete and that Roberts could not recall whether the schedule wаs attached to the affidavit when he signed it and he attested to the schedule’s accuracy. Discovery also indicated that Roberts did not discuss potential legal fees with Milberg, and had testified that he did not believe he could properly ask his attorneys if sources for the complaint were reliable or, indeed, who they were. Therefore, the court found that Roberts was not qualified to perform the crucial responsibility required of a class representative, directing and controlling the litigation rather than unduly deferring to lead counsel. See February 14, 2005 Tr. at 75-79.
The court, hоwever, did find that Scibelli was an adequate class representatives, although it recognized the existence of issues that could result in reconsideration of that decision. Most significant was the question of whether Scibelli was a “Day Trader” who did not, like other putative class members, rely on the integrity of the market. If this were true, Scibelli could be vulnerable to defenses that made his claim atypical and his representation of the class possibly inadequate. See
On February 16, 2005, the court issued an Order certifying the proposed class and appointing Scibelli as Class Representative. It did not, however, approve the proposed class
On February 24, 2005, Milberg and Bernstein filed affidavits and a memorandum in support of their position that they should be approved as Lead Counsel. On March 3, 2005, however, Scibelli moved for the court to approve: (1) the withdrawal of Milberg and Bernstein as Lead Counsel in this case; and (2) the appointment of Gans as Lead Counsel. Until this time, Gans had been serving as Liaison Counsel. Defendants did not oppose this motion.
On March 9, 2005, the court conducted another hearing. It was then established that the schedule of Roberts’ Sonus transactions was not attached to his affidavit when he attested, under oath, that the schedule was accurate and complete. See March 9, 2005 Tr., 4. Rather, a Milberg paralegal prepared the erroneous schedule filed with the court from documents Roberts provided. Id. at 6. Counsel from Milberg, Richard Weiss, Esq., was uncertain whether any attorney had reviewed the affidavit and schedule to determine whether they were reliablе before they were filed. Id. at 8-9. The court stated that the foregoing confirmed that Roberts, as a person who would verify the accuracy of an incomplete document, was not an appropriate class representative, id. at 11, and stated that it was “profoundly disturbed by the way that the Milberg firm had the Roberts affidavit prepared.” Id. at 27. The court noted the anomaly of a plaintiff in a case alleging false and misleading statements relying upon such statements himself in an effort to be appointed a class representative and expressed the hope that it would not again “see anything else like that in this or other eases.” Id. at 27-28.
The court also expressed concern about whether Milberg and Bernstein had adequately addressed with their clients their possible conflicts of interest. Id. at 28. However, after being assured that Gans had been, in effect, serving as a third lead counsel, the court approved her appointment as sole Lead Counsel, subject to possible reconsideration after receiving an affidavit concerning her qualifications. Id. at 28; Mar. 10, 2005 Order.
Counsel for Sonus, Jeffrey Rudman, Esq., then informed the court that Scibelli had, in 1991, been convicted of selling crack cocaine. See March 9, 2005 Tr., 29-31. Mr. Rudman stated that he did not ask Scibelli about his criminal history at his deposition and that he had learned about the conviction after the February 14, 2005 hearing. Mr. Rudman also stated that there was information indicating that Scibelli had been convicted of resisting arrest at about the same time. So-nus’ counsel also stated that the records indicated that, contrary to his representations, Scibelli did not own a construction business and his restaurant was inactive. Id. at 36-37.
In response, Ms. Gans informed the cоurt that Bernstein attorneys had learned of Scibelli’s drug conviction in the course of preparing him for his June 10, 2004 deposition. Id. at 31. Therefore, Scibelli’s counsel had known of his conviction for selling crack cocaine for at least six months when the court, on January 6, 2005, set a January 31, 2005 deadline for moving to add or substitute additional proposed class representatives. With regard to Bernstein’s failure to disclose the conviction to the court prior to the February 14, 2005 hearing, Ms. Gans stated that Bernstein believed Scibelli’s conviction was not material to his suitability to sеrve as a class representative. Id. at 31 (citing Randle v. Spectran,
The court stated that it would have to consider the accuracy and implications of the revelations concerning Scibelli. Id. at 32. It noted the possibility of decertifying the class. Id. Then the court stated:
*344 [B]efore we had the agent on February-14, I ordered the plaintiffs to let me know whether they were going to try to propose anybody else because ... I could see this wasn’t going to be simple as these things often are. There were only two [proposed class representatives] and there were issues relating to both of them.
So, [] it’s probably Scibelli or nobody. And if I had known on February 14 that he was a convicted drug dealer, I probably would have done some research on this issue. At a minimum, I’m going to require that you put this in the notice because even if I thought he was an adequate representative, somebody might be out there saying [ ] I don’t want to be represented in court by [a] convicted drug dealer.
Id. at 32-3 (emphasis added).
Accordingly, the court ordered counsel for Scibelli to file: (a) an affidavit stating Scibelli’s criminal record; and (b) a supplemental memorandum addressing (i) the implications of his criminal record for his adequacy to serve as Class Representative and (ii) whether his criminal record should be disclosed in the class notice. See March 10, 2005 Order.
On March 31, 2005, Scibelli’s counsel filed a memorandum and supporting affidavit stating that Sonus’ allegation that Scibelli had been convicted of resisting arrest was false. See Plaintiffs Supplemental Memo., at 3; Bi-gin Aff., K 6. The memorandum also argued that Scibelli’s drug conviction did not disqualify him from serving as Class Representative and that Scibelli should not be required to disclose his criminal history in the notice to the class.
On April 15, 2005, defendants submitted a memorandum and supporting affidavits arguing that Scibelli should be removed as Class Representative. Specifically, defеndants contended that “[b]ecause of his felony conviction for selling cocaine, Mr. Scibelli cannot be a trustworthy fiduciary to absent class members.” Sonus Supplemental Memo., at 3. In addition, defendants asserted that despite statements by Scibelli’s counsel to the contrary, certified court records strongly suggest he was convicted for resisting arrest. Defendants submitted a certified copy of such a conviction of a person named Anthony J. Scibelli, born November 17, 1970, for resisting arrest. See Springer Aff., H 6 & Exhibit C. The name and birth date match those given by Scibelli at his deposition.
On May 16, 2005, just two dаys prior to a third hearing to address his suitability to serve as Class Representative, Scibelli filed a notice with the court stating that he was withdrawing as Class Representative in order to avoid further harassment. In the notice of withdrawal, Scibelli disputed most the claims made by the defendants regarding his alleged inadequacy. He admitted, however, that he had not “recalled] the 13 year old resisting arrest charge that seems to have been levied in connection with the sale of a controlled substance.” Scibelli Notice of Withdrawal, at 2.
■ At the same time that Scibelli withdrew аs Lead Plaintiff and Class Representative, Gans filed on behalf of class member Higgins a Motion to Intervene and to be Appointed Lead Plaintiff and Class Representative. Defendants submitted an opposition to this motion.
III. ANALYSIS
“Intervention in a class action is governed by the same principles that apply in any other proceeding.” See Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure (“Wright & Miller”) § 1799. Under
*344 First, the application must be timеly. Second, the applicant must have a direct and substantial interest in the subject matter of the litigation. Third, the applicant must be so situated that the disposition of the action may as a practical matter impair or impede its ability to protect that interest. Finally, the applicant’s interest must be inadequately represented by existing parties.
In deciding whether to grant a motion to intervene, “[t]he timeliness requirement ‘is of first importance.’ ” Caterino,
(i) the length of time the prospective interveners knew or reasonably should have known of their interest before they petitioned to intervene; (ii) the prejudice to existing parties due to the intervener’s failure to petition for intervention promptly; (iii) the prejudice the prospective interveners would suffer if not allowed to intervene; and (iv) the existence of unusual circumstances militating for or against intervention.
Id.
Higgins moved to intervene in this case on May 16, 2005. Higgins “originally contacted [Milberg] in response to the notice published when the lawsuit was first filed” in 2002. Memorandum in Support of Motion to Intervene at 3. Generally, “ ‘[p]arties having knowledge of the pendency of litigation which may affect their interest sit idle at their peril.’” Caterino,
Higgins does not, and could not, contend that the court laсked the authority to issue the January 6, 2005 Order.
The January 6, 2005 Order was, as authorized and contemplated by
Indeed, Higgins’ attorney’s memorandum in support of his motion to intervene is materially incomplete and misleading because it does not even mention, let alone address, why relief should be granted from thе court ordered January 31, 2005 deadline for moving to intervene. See Memorandum in Support of Motion to Intervene. Rather, Higgins only asserts that there was no need for him to move to intervene until Scibelli withdrew and he then did so promptly. Id. at 2-3. This contention is incorrect.
Timeliness is “measured from the point at which the applicant knew, or should have known, of the risk to its rights.” In re Safeguard Scientifics,
Defendants will be prejudiced if Higgins is now allowed to intervene. It took a year of intensive and expensive litigation to resolve the issue of whether Roberts and Scibelli were adequate class representatives. It would be unfair to require defendants to incur substantial additional expense to investigate and litigate whether Higgins is an adequate class representative. See Safeguard,
Moreover, the further delay would, at least potentially, injure the defendants’ ability to develop and present their ease. The alleged misconduct began in 2000. As time passes, memories may fade, witnesses may die or otherwise become unavailable, and the truth may be harder to ascertain reliably.
In addition, many of the defеndants are individuals who are potentially personally liable for substantial damages. It would be unfair in the circumstances of this case to perpetuate their uncertainty, if not anxiety, because Higgins and his counsel miscalculated by not heeding the warning provided by the January 6, 2005 Order.
Higgins should not suffer any personal prejudice by the denial of his motion to intervene. “[T]he commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action.” American Pipe & Construction, Co. v. Utah,
Milberg, Bernstein and Gans, who undoubtedly have a substantial investment in this case, will be the real losers if Higgins is not allowed to intervene. However, this is not a cognizable
Finally, there are unusual circumstances militating against intervention. The first is the January 6, 2005 Order by which the court sought to avert the current situation. This court has about 300 civil and criminal cases, each of which is important to the parties and many of which implicate the public interest. The court attempts to deal with every case both carefully and efficiently. The court has the authority to issue orders to assure the orderly processing of litigation and to control its calendar. See
It is also in the interest of the administration of justice to give integrity to the PSLRA’s mandate that litigants not lawyers direct and control class action litigation. See Berger,
In view of the foregoing, Higgins has not satisfied the important timeliness prong of the tests for intervention as a mattеr of right or as an exercise of the court’s discretion.
With regard to the other
As described earlier, “[a]n applicant’s failure to meet any one of [the
The fact that Higgins did not timely move to intervene “as of right effectively disposes of the permissive intervention question as well.” Id. at 39. A timely motion is expressly required by
IV. REMEDY AND FUTURE PROCEEDINGS
As Higgins is not being allowed to intervene, this case now lacks a lead plaintiff and class representative. A class action cannot
An order certifying a class action “may be altered or amended before final judgment.”
Scibelli and Roberts still have their individual claims pending. A schedule for the disposition of them must now be established.
In addition, at the May 19, 2005 hearing counsel for Sonus asserted that if the class were decertified, the court might be required to consider, under the PSLRA, whether to award Sonus its reasonable expenses and attorneys fees. See May 19, 2005 Tr. at 6-7. Counsel had not then researched that question. Id. It is, however, an issue the court may have to address in the present circumstances of this case.
V. ORDER
In view of the foregoing, it is hereby ORDERED that:
1. The Motion of Class Member Daniel Higgins to Intervene and be Apрointed Lead Plaintiff and Class Representative (Docket No. 121) is DENIED.
2. The class previously certified in the February 16, 2004 Order (Docket No. 93) is DECERTIFIED.
3. Counsel shall meet at least once in Boston, Massachusetts, confer, and by September 31, 2005 submit to the court, jointly if possible, a report addressing:
a. Whether the pending Scibelli and Roberts case has been settled and may be dismissed.
b. A proposed schedule for the preparation of Scibelli and Roberts’ case for trial if it has not been settled.
c. Whether Sonus will be seeking attorneys fees and expenses, under the PSLRA, as a result оf the decertification of the class in this case and, if so, a briefing schedule concerning that issue.
Notes
. These lawsuits were Mitzi Steinberg v. Sonus Networks, et. at, C.A. No. 02-11315; Sarfraz Haq v. Sonus Networks, et. at, C.A. No. 02-11463; Joseph Landau v. Sonus Networks, et. at, C.A. No. 02-11493; Jack Schwartz v. Sonus Networks, et. al., C.A. No. 02-11515; Steven Woods v. Sonus Networks, et. al, C.A. No. 02-11528; Michael Atlas v. Sonus Networks, et. at, C.A. No. 02-11571; and Mark Suall v. Sonus Networks, et. al, C.A. No. 02-11764.
. Pursuant to the Court's November 29, 2002 Order, the filing of the Consolidated Amended Class Action Complaint had the effect of dismissing the related actions.
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