Let the Money Do the Monitoring

Judge William J. Haynes, Jr. (M.D. Tenn.) (pictured here during his 2004 Senate confirmation hearing) says that “to be sure, the plaintiff with the larger numeric loss is not automatically the plaintiff with the ‘largest financial interest’.” But “as to the Peoria Fund‘s various arguments” in the American Service Group securities class action, he reminded everyone that “it must be remembered that ‘[t]he manifest intent of the (PSLRA) is determining the Plaintiff most capable of pursuing the action and representing the interests of the class,’” and that “this standard has been described as “let the money do the monitoring.”

So, “given MARTA‘s losses, its assets and the limited number of Plaintiffs seeking lead plaintiff status, the Court does not ascertain any practical need for an alternate method for determining the largest financial interest nor for the appointment of co-lead plaintiffs.”

You can read In re American Service Group, issued August 28, 2006 at 2006 U.S. Dist. LEXIS 61779.

Nugget: “If, later in this litigation, good cause is shown to revisit this issue, any plaintiff may move the Court for reconsideration of its appointment of the lead plaintiff.”

Keeping Up With the Joneses

Want to really impress your Judge in a lead plaintiff contest? Well, how about having your proposed lead plaintiff actually show up at the hearing? That’s exactly what Plaintiffs’ counsel did in the Impac Mortgage Holdings action. You see, after Judge Cormac J. Carney (C.D. Cal.) (W. ‘03) declared that “groups of unrelated investors, while not per se impermissible lead plaintiffs under the PSLRA, are not adequate class representatives absent a showing that they are able to coordinate their efforts in the litigation” a Mr. Craig H. Jones (no relation I swear), stepped up to grab the spot, with Judge Carney noting that this “is supported by the fact that Mr. Jones himself appeared at the hearing on this motion with his counsel,” which “indicates that he is committed to involving himself in this litigation and supervising class counsel.”

You can read Schriver v. Impac, issued May 2, 2006, at 2006 U.S. Dist. LEXIS 40607.

Nugget: “The fact that the decision to combine the Impac and IMH groups was made by the groups’ counsel, with no apparent involvement by the group members, does not bode well for the members’ ability to supervise their attorneys.”

You’re Fired

OK, let’s be honest, how often do you hear a federal judge admit a mistake? Not just begrudgingly, but fully admit it, as in I “mistakenly misconstrued,” I “erred,” no seriously, I “erroneously determined” an issue. What’s the issue you ask? Remember back on April, 2006 when the Nugget reported that the City of Philadelphia Pension Board had been appointed Lead Plaintiff in the Dana securities class action based on LIFO? Well, seems one of the losing movant groups, the Pension Trust Fund Group (PTFG), wasn’t very satisfied with that result. But instead of whining about it, they moved to reconsider, arguing that “the City’s calculations separated out the LIFO losses of the PTFG’s individual member groups, effectively understating those figures.”

To which Judge James G. Carr (N.D. Ohio) concluded “There is no question that characterization is accurate.” You see, as Judge Carr explained, “the City’s chart listed line items for: 1) the Plumber & Pipefitters National Pension Fund; 2) the SEIU Pension Plans Master Trust; and 3) West Virginia Laborers Pension Trust Fund. These entities are all part of the PTFG, not individual applicants for lead plaintiff status. Consequently, I should have considered their losses in the aggregate, and therefore erred in interpreting the City’s chart the way I did. Accordingly, the PTFG does have greater LIFO losses than the City,” and “PTFG is appointed lead plaintiff.”

You can read Frank v. Dana, issued May 24, 2006, at 2006 U.S. Dist. LEXIS 33021.

Nugget: “Relying on the City’s representation, I erroneously determined that party had the largest LIFO losses.”

Both Sides Win, Both Sides Lose

Many of you surely remember reading in the Nugget last October about how Judge Marilyn Hall Patel (N.D. Cal.) called everyone down to the courthouse and basically advised Defendants to file answers instead of motions to dismiss in the Cornerstone securities class action. Well, now we are at the class certification stage, and Judge Patel has issued her ruling. In it, she finds that “Defendants’ assertion that Lead Plaintiff and the named representatives are atypical and inadequate as class representatives because of Lamphere’s [he’s a class rep] purported non-reliance on the CornerStone financial statements, the possibility of a statute of limitations defense, and the existence of potential intra-class conflicts is not supported by the relevant caselaw.” However, “pursuant to the Supreme Court’s holding in Dura, the Class may not include individuals who purchased and sold CornerStone stock prior to any corrective disclosure by the company.”

Result this time? “Plaintiff’s motion for class certification is granted, subject to an amendment of the Class definition to exclude plaintiffs who purchased and sold their stock prior to any corrective disclosure in July 2001.”

So — not a total loss for Defendants by any means, as Plaintiffs proposed class period reached back to July 1998.

You can read In re Cornerstone Propane Partners, issued May 3, 2006, at 2006 U.S. Dist. LEXIS 25819.

Nugget: “Statute of limitations defenses for named plaintiffs are not a bar to class certification for securities fraud.”

Too Many Chefs

Judge David A. Baker (M.D. Fla.) didn’t appear to be too excited about the prospect of appointing two law firms as co-lead counsel in the Faro Technologies securities class action, commenting that “with each additional cook working on the same culinary masterpiece, the kitchen becomes less efficient, not more so.” If the Court were to follow counsel’s “logic, a hundred firms could bring a hundred different perspectives and insights to the case. This, of course, begs the question,” “is more necessarily better? Or, put another way, how many law firms does it take to represent a Class? The Court is no more convinced that this task is best accomplished by retaining two law firms than it was upon first review of the issue.”

However, and this is a pretty big however, “counsel fares better by focusing on the fact that a sophisticated, experienced Lead Plaintiff made an educated, informed choice to be represented in this litigation by both firms.” “Thus, despite the Court’s hesitation to appoint two firms in this relatively small class action, it is not the Court’s choice to make, as there is no evidence that the selection is adverse to the interests of the Class.”

You can read In re Faro Technologies, issued April 26, 2006, at 2006 U.S. Dist. LEXIS 23500.

Nugget: “The Court notes, however, that impressive biographies of each attorney actually work against the motion. If, as argued, ‘each attorney . . . has significant experience prosecuting class action and other complex litigation,’ then why are so many of them necessary?”

LIFO Wins the Day Again

Quick. Which do you use for calculating a Lead plaintiffs’ losses, FIFO or LIFO? Don’t know? Well, the City of Philadelphia Board of Pensions & Retirement no doubt does now, because they have just won the Lead Plaintiff position in the Dana Corp securities class action, and LIFO helped them do it.

You see, Judge James G. Carr (N.D. Ohio), who appointed the City as lead, reasoned that “with respect to any pre-existing shares, defendant’s misconduct did not influence the purchases which were based on accurate information. Thus, those shares fall outside the purpose and plain language of the statute.” “Further, losses with respect to pre-existing shares stem not from defendant’s misconduct, but from the failure of defendant’s business. If a firm overstates its earnings, artificially propping up its share price, and then corrects the problem causing that share price to fall, the drop in value itself is not a product of the overstatement – only the timing of the drop in value is. Put simply, the value of those pre-existing shares would have fallen even if the firm did not misstate its earnings – the drop in value would just have occurred sooner.”

So, “to determine which party has the largest financial interest for the purposes of appointing a lead plaintiff, this court endorses the use of LIFO over FIFO. Consequently, the City of Philadelphia has the largest financial interest and is the presumptive lead plaintiff.”

If you want more on this LIFO thing (like who wouldn’t, right?), you can hop over to this Nugget article from last July.

You can read Johnson v. Dana Corp, issued March 27, 2006, at 2006 U.S. Dist. LEXIS 17018.

Nugget: “The IRS, [on the other hand], adopts FIFO not because it is necessarily more accurate than LIFO, but because it forces taxpayers to recognize gains they would prefer – for tax purposes – to ignore. In this context, however, FIFO has the opposite effect – allowing plaintiffs to cordon off their profits from the defendant’s misconduct.”

Plaintiffs Seek Contempt Order

True, this decision is a bit dated, but in the Nugget’s defense it just popped up in Lexis the other day — and it’s gets juicy. Seems Plaintiffs in the CV Therapeutics Inc securities class action want defense counsel held in contempt for allegedly revealing confidential witness information. Here’s how Judge Susan Illston (N.D. Cal.) sorted it all out.

“Plaintiff asks the Court to hold defendants in contempt and impose sanctions based on their alleged violation of this Court’s December 7, 2004 order restricting disclosure of the identities of the confidential witnesses (“CWS”) in this case. According to plaintiff, defendants’ counsel disclosed to CW3 the identities of CW1 and CW2; plaintiff submits the declaration of CW3 attesting to this fact. In that declaration, CW3 also states that defense counsel made the potential threat that, if he did not provide a declaration retracting his prior statements to plaintiff, he would be deposed. Plaintiff asks the Court to hold defendants in contempt and, as a sanction, to foreclose defendants from deposing any of the CWs.”

“Defendants submit a declaration from their counsel stating that he has no recollection of making this disclosure and that he believes it never occurred. They suggest that CW3 instead learned the identities of CW1 and CW2 through the biographical information in the CW statements, which defense counsel provided to CW3. In addition, defendants deny that defense counsel’s statement constituted a threat of deposition, and argue that counsel was merely explaining that an affidavit would avoid the need for a deposition. Defendants speculate that plaintiff’s proposed sanction is merely an attempt to gain a litigation advantage in light of the recent refutation of the complaint’s CW statements by two of the four CWs.”

“Taking CW3’s and Jay Pomerantz‘s declarations together, the Court concludes that counsel did disclose the identities of CW2 and CW1 to CW3. CW3 states unequivocally that Mr. Pomerantz did so; counsel states merely that he does not recall revealing the names and does not believe he did so. However, the Court does not find that defense counsel’s disclosure was a willful or blatant violation of its order. In addition, it does not consider defense counsel’s statement about a deposition of CW3 to be a threat.”

“Accordingly, the Court declines to make the requested contempt finding or to impose the drastic sanction proposed by plaintiff. Plaintiff’s motion is DENIED.”

You can read Crossen v. CV Therapeutics, issued August 10, 2005, at 2005 U.S. Dist. LEXIS 41396.

Nugget: “The Court hereby GRANTS plaintiff’s motion to certify the class and appoint Crossen as lead plaintiff.”

Cavalry Arrives in CIGNA

When Defendants in the CIGNA Corp. securities class action planned to attack the proposed class representative (SERS) on loss causation grounds, Plaintiffs just didn’t sit idly by. Instead, they sought “to allow two other putative class members — the Miami General Employees’ Sanitation Employees Retirement Trust (“Miami Employees”) and the Public Employees’ Retirement System in Mississippi (“MPERS”) — to intervene as additional proposed class representatives.”

Defendants balked, but Judge Legrome D. Davis (E.D. Penn.) (writing for Judge Michael M. Baylson — for reasons unknown) (E.D. Penn.) stymied them, noting that “CIGNA is planning to file a summary judgment motion on these grounds within the next week. Apparently fearful of this motion, SERS has secured the agreement of Miami Employees and MPERS to become additional proposed class representatives. SERS quite properly indicates that its motive in doing this is to protect the interests of the putative class. The Court finds this to be a legitimate substantive reason to allow the intervention. If, due to a failure to prove loss causation and/or economic loss, SERS is dismissed as a party or is deemed to be an unworthy class representative notwithstanding its Lead Plaintiff status, the interests of the putative class will clearly be at risk. Given the significance that the PSLRA has placed on the status and responsibility of the Lead Plaintiff in this type of case, the Court finds that any present or potential doubts about SERS being able to fulfill its role should be alleviated by allowing Miami Employees and MPERS to join SERS as proposed class representatives.”

And to top it all off, Judge Davis easily wiped away Defendants’ supposed reasons for opposing the intervention, noting that “Defendant has not offered any substantive reason, other than the fact that they do not want the burden of dealing with the claims of new parties to delay what they hope will be a successful termination of SERS as Lead Plaintiff. However, Defendant has no right to expect that any ruling against SERS on loss causation and/or economic loss grounds will necessarily terminate Defendant’s liability to the other members of the putative class. To do so would eviscerate the whole concept that Congress had in mind in establishing the Lead Plaintiff concept in the PSLRA.”

You can read In re Cigna, issued March 23, 2006, at 2005 U.S. Dist. LEXIS 41293.

Nugget: “If defendants are successful in their summary judgment motion against SERS, such a result should not cause termination of the entire case if other putative class members are willing, able and ready to step forward as class representatives and also as Lead Plaintiffs and can prove loss causation and/or economic loss.”

Mo’ Money, Mo’ Money, Mo’ Money

The securities law blogospheres may have lit up last December after the Nugget reported Judge Kent A. Jordan’s (D. Del.) comment that “it is time to decide which of the plaintiffs’ law firms will win the money race,” but it turns out Judge James L. Robart (W.D. Wash.) had already beat everyone to the punch — by nearly five months (the opinion popped up online yesterday).

You see, in deciding the lead plaintiff issue in the Watchguard Technologies securities class action, Judge Robart (who refers to proposed lead plaintiffs as “contestants”) said that “three contestants” “are vying for the lead plaintiff position,” so “the court now turns to the rules that govern this competition.” “As the leading Ninth Circuit authority observes, ‘this is not a beauty contest.’” Instead, as Judge Robart put it, “it is a contest over money, and which contestant stands to gain more of it.” Well, OK then.

The Nugget HATES generalizations about judges based on their appointments alone, as it is a simplistic, naïve, and downright foolish practice. But some (not the Nugget of course) might point out that both Judges are recent Bush appointees. Whether or not that means anything at all, well, you can decide. After all, Judge Michael M. Baylson (E.D. Pa.) is a Bush appointee too, and look what he’s saying. So is Judge Diane S. Sykes (7th Cir.), and she was hardly hostile in her latest opinion.

You can read In re Watchguard, issued July 13, 2005, at 2005 U.S. Dist. LEXIS 40923.

Nugget: “The PSLRA contemplates a quick selection of a lead plaintiff near the outset of a case, without opportunity for discovery on likely damages or losses.”

Liaison Free

Now think about it. Why does lead counsel need to have an appointed local counsel? Oh sorry, liaison counsel, excuuuse me. Everyone really must be more careful with their word choices. What’s next? Forgetting the Grey Poupon? But seriously, you don’t get your investigators appointed, or your forensic accountants, and nothing in the PSLRA requires the appointment of local counsel. Most importantly, surely you, as formidable lead counsel, don’t need to have the Court appoint liaison counsel. And think about the nightmare when you try and fire — sorry — transition — them should you ever be in such an unfortunate position. Don’t you want to be able to do that without bothering someone appointed by the President of the United States? OK, well, at least think about it, and check out this view from Judge William L. Standish (W.D. Penn.), who rejected the appointment of local — man, this is difficult — liaison — counsel in the IT Group (now Shaw Group Inc) securities class action.

“No resume is provided for Chimicles, nor is there any description of that firm’s proposed duties as liaison counsel in either the brief in support of the Renewed Motion or in the proposed order. As Judge William H. Walls has noted, qualified lead counsel should surely be capable of performing the ministerial tasks typically assigned to liaison counsel (e.g., 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 case.)” “In fact, several of the ministerial duties identified by Judge Walls are explicitly assigned to co-Lead Counsel in the proposed order. In the absence of an explanation of why liaison counsel are required or what their duties might be, the Court declines to appoint Chimicles & Tikellis to that role.”

You can read Clair v. DeLuca, issued January 26, 2006, at 232 F.R.D. 523.

Nugget: “When Miller Shea brought in Lionel Glancy, Mr. Glover ‘was overjoyed’ because he recognized this name from reading financial publications as an attorney who dealt with ‘significant class action cases.’”

Disclosure: No local counsel in any locality were harmed in the drafting of today’s article.