Judge Won’t Accept Merck Documents For Truth

This time, it’s all about the documents. The 179 documents that Defendants attached to their motion to dismiss in the Merck securities class action to be exact (sure would hate to be the clerk working this docket). Anyway, after considering Plaintiffs’ objections to 139 of the documents, Magistrate Judge Tonianne J. Bongiovanni (D. N.J.) came to different conclusions regarding different groups of documents, but the recurring theme throughout (for the exhibits where judicial notice was accepted) was that “this Court will not admit the exhibits for their truth, but rather, for the limited purpose of proving their existence.”

For the specifics, check out In re Merck, issued January 20, 2006, at 2006 U.S. Dist. LEXIS 2345.

Nugget: “The fact that the SEC forms submitted by Defendants in their Motion to Dismiss are in chart summary form does not dissuade as they were not crafted by a third-party and as Plaintiffs will be permitted to challenge their veracity if they so choose.”

Amend Away

Looks like the Plaintiffs in the long running Adams Golf securities class action will get to file a second amended complaint. Judge Kent A. Jordan (D. Del.) (remember the famous Money Race quote) listened to Defendants position “that they will be unduly prejudiced by the proposed amendments unless the case schedule is amended to allow sufficient time for additional discovery” and “that the proposed amendments are futile.”

Judge Jordan rejected Defendants’ prejudice argument since “discovery would be stayed pending decision on Defendants’ motion to dismiss.” As for futility, he recognized that Defendants themselves “believe that it may be more appropriate to fully address the new claims’ shortcomings on a motion to dismiss rather than in an opposition to Plaintiffs’ motion.” OK then. So, “since Defendants do no more than outline a basic sense for the proposed amendment’s futility” in preparation for such a motion to dismiss, the issue will not be decided here.”

You can read In re Adams Golf, issued January 24, 2006, at 2006 U.S. Dist. LEXIS 2542.

Nugget: “According to the Federal Rules of Civil Procedure, leave to amend shall be freely given by the court when justice so requires. A policy of favoring decisions on the merits, rather than on the technicalities, underlies this Rule.”

Seventh Circuit Addresses Scienter Standards

Finally. The Seventh Circuit has spoken. All the other numbered Circuits (i.e. not Federal or D.C.) had long ago set their scienter pleading standards for the PSLRA, but somehow the Seventh just never got the chance. Well, you can stop holding your breath now, because it has happened. The opinion, which was authored by Judge Diane Pamela Wood, and joined by veteran Judge Kenneth Francis Ripple and recent George W. Bush appointee and once-rumored Supreme Court nominee Judge Diane S. Sykes, has something for both future plaintiffs and defendants to rejoice and complain about.

What did they hold? Well, in a nutshell, the Panel rejected the Ninth Circuit standard for the “required state of mind,” choosing to instead go with the other Circuits, once again leaving the Ninth all alone. As for the “strong inference” standard, they picked the middle path already chosen by six Circuits, meaning that courts “should examine all of the allegations” in the complaint, and then decide “whether collectively they establish an inference.”

The Panel was also concerned about “usurpation of the jury’s role,” holding that “instead of accepting only the most plausible of competing inferences as sufficient,” “we will allow the complaint to survive if it alleges facts from which, if true, a reasonable person could infer that the defendant acted with the required intent.” However, the court largely rejected the group pleading doctrine for scienter, saying that “plaintiffs must create this inference with respect to each individual defendant in multiple defendant cases.”

Result: Dismissal affirmed in part, and reversed in part.

You can read Makor v. Tellabs, issued January 25, 2006, here and you can even listen to the oral argument here. If these links stop working, simply go here and search for the case. As of print time, it is not even in Lexis yet.

Nugget: “Motive and opportunity may be useful indicators, but nowhere in the statute does it say that they are either necessary or sufficient.”

D.C. Circuit Speaks on PSLRA For First Time

In the ten years since the enactment of the PSLRA, it seems the D.C. Circuit Court of Appeals has never once mentioned the statute in a reported case — until now. In evaluating an appeal from the dismissal “with prejudice” of Plaintiffs’ claims against accounting firm Radin Glass & Co. and CIBC World Markets Corp., the Panel (led by Chief Judge Douglas H. Ginsburg) held that “the district court did not err in determining [Plaintiff’s] oral request to amend her complaint was not a proper motion for leave.” “The district court did, however, fail adequately to explain” “why it dismissed [Plaintiff’s] complaint with prejudice,” so “we therefore vacate the order of dismissal and remand the case for the district court to enter a new order either dismissing without prejudice or explaining its dismissal with prejudice in a manner consistent with this opinion.”

You can read Belizan v. Simon Hershon, issued January 17, 2006, here or at 2006 U.S. App. LEXIS 1018.

Nugget: “Dismissal with prejudice is warranted only when a trial court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency.”

Judge Likes Fact Summary More Than Complaint

Here’s something to think about next time you’re cranking out that amended complaint you thought was concise. You see, after striking certain portions of Plaintiffs’ complaint in the Netopia securities class action, and while allowing Plaintiffs to amend their complaint again, Judge Ronald M. Whyte (N.D. Cal.) expressed his displeasure with the length of their “fifty-page complaint.” Judge Whyte said he “understands the defendants’ attempt to prune the complaint down to a manageable size through their motion to dismiss or strike,” as “the complaint is needlessly cumbersome, “and “plaintiffs do not need anywhere near fifty pages to state two causes of action against five defendants, even under the heightened pleading standards of the Reform Act.”

Judge Whyte also pointed out that “in their opposition to the defendants’ motion to dismiss or strike, the plaintiffs filed a thirty-two-page memorandum of points and authorities. Ten of these pages are a summary of the factual allegations of the complaint. This ten-page summary appears to the court to be a much more useful version of the complaint, and shows that the plaintiffs can present the complaint in a shorter form.” So, “as a matter of prudent case management, the court will order Plaintiffs to file a streamlined version of their complaint which does not exceed thirty-five pages within twenty days of the date of this order.”

You can read In re Netopia, issued December 15, 2005, at 2005 U.S. Dist. LEXIS 38823.

Nugget: “Kadish whispering into the ear of Farrell while she spoke to Andalcio is certainly suspicious, but plaintiffs do not provide the substance of Kadish’s instructions to Farrell.”

You Can Run, But You Can’t Hide

Last week, Judge Joel A. Pisano (D. N.J.) called it like he saw it in the World Access securities class action, and that meant labeling Plaintiffs’ tactics as “the most blatant example of forum shopping seen by this Court.” You see, the original World Access cases were filed and consolidated in the Northern District of Georgia, where they were overseen by Judge Orinda D. Evans. Judge Evans slowly turned the case into nothing over several years, first denying class certification, and then tossing the two individual plaintiffs’ remaining claims on summary judgment.

So, even though “most, if not all, of the essential acts, transactions, and wrongful conduct at issue occurred in the Northern District of Georgia,” some new Plaintiffs filed the case again, this time in the District of New Jersey. Not surprisingly, Judge Pisano has decided to ship the new action back to Judge Evans in Georgia, as “considering her familiarity with this case, Judge Evans will be able to provide the parties with a more expeditious resolution of this long pending matter than the parties would achieve in this Court.”

Oh, it’s sure to be expeditious all right. Maybe painful too.

You can read Yang v. Odum, issued January 17, 2006, at 2006 U.S. Dist. LEXIS 1279.

Nugget: “With great respect to the Northern District of Georgia’s previous disposition of the various issues presented in this litigation, and being critical of Plaintiffs’ attempt to frustrate Judge Evans’s previous efforts, this Court orders this case transferred to the Northern District of Georgia.”

Everybody Together Now

So here’s the situation confronting you in the First Bancorp securities class action. You have an institutional investor (Plumbers and Pipefitters Local 51 Pension Fund) and two individuals (Robert Fox and Marquita McLaughlin ) fighting over the Lead Plaintiff spot. The individuals lost $30,045 and $169,200, but the fund lost a paltry $2000. Appoint the individuals, right? Not so fast there McGraw, seems Judge Jed S. Rakoff (S.D.N.Y.) has other plans.

You see, “after conducting in-court interviews of Fox and McLaughlin,” (who wouldn’t want to fly from sunny Puerto Rico to NYC in the middle of winter?) “the Court became acutely aware that McLaughlin has very little investment expertise and virtually no prior experience with litigation of this kind. Moreover, her First BanCorp holdings were limited to preferred stock,” and “although Dr. Fox has more relevant experience, his investment in First BanCorp occurred under circumstances that may give rise to ‘special defenses’ in his case.” (neither you or the Defendants get to know what those are because they were filed under seal).

“On the other hand, while the Pension Fund has the expertise to prosecute the litigation in the manner contemplated by the PSLRA, the small size of its loss may diminish its incentive to carry out that function vigorously. Also, there are special defenses that may be raised against the Pension Fund different from those that may be raised against Fox and McLaughlin.” (yep, those are under seal too).

Solution? Well, “under the unusual circumstances here presented, the Court concludes that all three proposed lead plaintiffs should be appointed co-lead plaintiffs and that their respective counsel should function as co-lead counsel in the prosecution of the class action.”

You can read Plumbers and Pipefitters v. First Bancorp, issued January 14, 2006, at 2006 U.S. Dist. LEXIS 1079.

Nugget: “The Court has no doubt… that the combination of Fox, McLaughlin, and the Pension Fund could collectively fulfill the functions of lead plaintiff in a fair, adequate, and effective manner.”

Tracing to SPO Can’t Stop Class Certification

So the question for Judge Nanette K. Laughrey (E.D. Mo. + W.D. Mo. and D.D.C.) (sorry for the court confusion here, but if anyone knows why or how Judge Laughrey was appointed to sit in both Missouri Districts, yet is not listed at all on the E.D. Mo site, and is issuing an opinion in a DC case, the rest of us are dying to know, so please tell us by leaving a comment below) in the Iridium securities class action was “whether the inability of aftermarket purchasers to recover under Section 12 defeats certification of a sub-class which pursues both Section 11 and 12 claims.”

What did the Judge do? She reasoned that “any difficulty by individual class members in tracing their particular aftermarket-purchased shares to the Registration Statement is a secondary issue to be resolved after the predominant issue of Defendant Underwriters’ liability has been decided. It would be inappropriate to foreclose such Plaintiffs’ resort to the class action format simply because some of their cases may be difficult to prove.”

Result? Class Certified.

You can read Freeland v. Iridium World Communications, issued January 9, 2006, at 2006 U.S. Dist. LEXIS 744.

Nugget: “Even if the common issues didn’t predominate, Plaintiffs could easily seek to certify two subclasses, one with Section 11 claims and one with Section 12 claims. Forcing the Plaintiffs to do so unnecessarily, however, would add yet another delay to what is already a long-lived case, especially since it would be much more efficient to consider these differences at the damages stage, if and when it is reached. This makes more sense than having repeated trials to decide the common questions of fact. Separate trials might also produce inconsistent findings.”

Defense Counsel Offers Faulty Recap

Better be careful when summarizing what your Judge “recognized” at that motion to dismiss oral argument. You see, Defendants in the Wave Systems securities class action put forth a Dura defense, pointing out that “during oral argument, this court recognized the absence of any necessary casual link between any allegedly misleading statements and Wave’s drop in stock price following the announcement of the SEC investigation in December, 2003.” Whoops. Judge Michael A. Ponsor (D. Mass.) responded that “it should come as no surprise that many judges use oral argument as an opportunity . . . to focus the argument, or to test the extreme implications of a litigants position. A court speaks authoritatively, however, only in its opinions, orders, and judgments,” and “assuming a devil’s advocate role is a familiar ploy of the neutral decision-maker.”

Yep, that’s right, Defendants lost the Dura argument (how much punishment can these Dura proponents take?), with Judge Ponsor holding that “Dura does not require that a corrective disclosure precede a stock’s decline.” Defendants lost nearly every other point too, including puffery, safe harbor, materiality, reliance, and scienter.

You can read In re Wave Systems, issued January 11, 2006, at 2006 U.S. Dist. LEXIS 725.

Nugget: “Some statements, although literally accurate, can become, through their context and manner of presentation, devices which mislead investors. For that reason, the disclosure required by the securities laws is measured not by literal truth, but by the ability of the material to accurately inform rather than mislead prospective buyers.”

Lead Counsel Sued for Not Suing Andersen

Sheesh, talk about one giant pain in the you-know-what for Bernstein Litowitz and Kirby, McInerney & Squire. Do tell you say? O.K., so you remember the Bennett Funding Group securities class action, right? Well, don’t worry if you don’t, because it was filed back when Dolly the Sheep was born, and wrapped up around the time the last Pyrenean Ibex was found dead. So why do we care now you ask? Well, because in 2002 three law firms (Chikovsky and Shapiro, P.A., Shapiro & Shapiro, and DiJoseph & Portegello — good luck finding their websites) brought a lawsuit against the two firms, which were lead counsel in the Bennett case, because their clients were “upset over the law firms’ failure to name Arthur Andersen & Co” as a defendant in the case (of course, one naturally assumes they first thanked lead counsel for the $166.5 million in settlements achieved in the case).

But you know, it really seems like Judge John E. Sprizzo (S.D.N.Y.) is getting fed up with these malcontents (the Shapiro gang that is), as he issued an injunction that prohibits them from “sending further notices to Class members without prior Court approval,” and from “filing and/or proceeding with any legal malpractice claim against Class counsel relating to losses incurred in Bennett Funding securities in courts other than in this Court.” When a jurisdictional issue arose, Judge Sprizzo “ordered the parties to submit simultaneous briefs on the issue of jurisdiction by November 7, 2005.” What happened? According to Judge Sprizzo, not only did Plaintiffs “fail to offer a submission,” but their “local counsel, Arnold E. DiJoseph, III, refused to appear at this Conference, opting instead to send a wholly unprofessional and wildly accusatory letter directly to the Court of Appeals.” Smart thinking DiJoseph. Brilliant.

Anyway, after finding that SDNY does have jurisdiction, Judge Sprizzo threw the case out for good, commenting that “having declined to opt out of the class action, plaintiffs have reaped the benefits of the work done by the law firms and have either failed to object to the fees requested by the law firms or have failed to convince this Court that the fees were not warranted. Despite this, plaintiffs now seek to drag the law firms into court essentially to recover from the law firms for losses incurred in the Ponzi scheme that formed the basis for the underlying action. As Judge Sporkin so cogently noted in Thomas v. Albright, to unleash such suits upon class counsel in fora far and wide would severely undermine the class action system and would discourage able counsel from taking such cases to the detriment of those for whom a class action suit may be the only vehicle for achieving justice.”

You can read Achtman v. Bernstein, Litowitz, Berger & Grossmann, LLP and Kirby, McInerney & Squire, LLP, issued January 5, 2006, at 2005 U.S. Dist. LEXIS 38375.

Nugget: “Plaintiffs were free to opt out of the class action or simply to pursue their own claims against Andersen, as others did. Having chosen not to do so or even to object to the law firms’ counsel fees, they should not be permitted to attack the quality of the law firms’ representation on that ground in a separate action.