Opinion
No. 2:06-CV-2674-PHX-RCB.
September 10, 2007
ORDER
This is a securities fraud class action brought pursuant to the Securities Exchange Act of 1934 as amended by the Private Securities Litigation Reform Act of 1995 ("the Reform Act" or "the PSLRA"). Currently pending before the court are four competing motions, which were filed on January 3, 2007, wherein the movants are each seeking appointment as lead plaintiff pursuant to section 78u-4(a)(3) of the Reform Act. Additionally, the movants are seeking court approval of their respective counsel as lead counsel and liaison counsel in accordance with section 78u-4(a)(3)(B)(v) of that Act. Having determined that oral argument is unnecessary, the court rules as follows.
Teamsters Local 617 Pension and Welfare Funds ("Teamsters Local"), which filed the class action complaint herein, filed the first motion for appointment as lead plaintiff (doc. 21). It is seeking approval of the the law firm of Schoengold Sporn Laitman Lometti, P.C. as lead counsel, and Dyer Butler, LLP as liaison counsel. The second motion for appointment as lead plaintiff was filed by Folksam Asset Management ("Folksam Asset"), and it seeks approval of Motley Rice LLC as lead counsel and Mitchell Forest, P.C. as liaison counsel (doc. 25). The Pension Trust Fund for Operating Engineers ("Operating Engineers Fund") filed the third motion seeking appointment as lead plaintiff, and for approval of the law firm of Lerach Coughlin Stoia Geller Rudman Robbins LLP ("Lerach Coughlin") to serve as lead counsel and the law firm of Buckley King to serve as liaison counsel (doc. 30).
The fourth and final motion for appointment as lead plaintiff was filed by the Bricklayers Fringe Benefit Fund, the Louisiana District Attorneys' Retirement System; Capitalia Asset Management SCR Spa and Capitalia Investment Management S.A. (collectively "the Apollo Institutional Investors Group" or "AIIG"). See Doc. 34 at 1. AIIG is seeking approval of Pomerantz Haudek Block Grossman Gross LLP and Labaton Sucharow Rudoff LLP as co-lead counsel and Martin Bonnett, P.L.L.C. as liaison counsel. In addition to filing the enumerated motions, the movants filed proposed pre-trial orders aimed at management of this complex litigation.
Responses to these various motions were timely filed by two of the putative plaintiffs — the Operating Engineers Fund (doc. 50) and Folksam Asset (doc. 49), as well as by defendants (doc. 48). The Apollo Institutional Investors Group also filed a response, but it was one day late. The Operating Engineers Fund seems to suggest that under Local Rule 7.2(i), the court should deem this untimely opposition as consent to granting its motion. See Doc. 53 at 2. There is no need to invoke that Rule however because although AIIG continues to pursue its own appointment as lead plaintiff, in its response, tellingly, it concedes that the Operating Engineers "still has . . . greater losses than the other movants[,]" including AIIG. See Doc. 51 at 4.
Folksam Asset's response is equally telling in that it expressly indicates that it "does not oppose the Operating Engineer's appointment [as lead plaintiff][.]" Doc. 49 at 3 (emphasis added). Nor does Folksam Asset "question the ability of [Operating Engineer Fund's] proposed counsel," Lerach Coughlin.Id. Even though it is "not tak[ing] the position that Operating Engineers should not be appointed[]" as lead plaintiff, Folksam Asset raises the specter of a conflict if the court appoints that Fund as lead plaintiff and approves its selected counsel. This conflict which Folksam Asset anticipates (incorrectly as it turns out) is due to the fact that Lerach Coughlin formerly represented Alaska Electrical Pension Fund, a plaintiff in a related stockholder derivative action against Apollo Group, Inc., one of the defendants herein. See Doc. 50, exh. B thereto (Alaska Electrical Pension Fund, Derivatively on Behalf of Apollo Group, Inc. v. Sperling, et al., No. CV-06-2124-PHX-ROS (D. Ariz. Jan. 4, 2007) (granting plaintiff's ex parte application for an order approving the substitution of Provost Umphrey Law Firm, LLP. for Lerach Coughlin).
Of equal if not more import is that defendants are "tak[ing] no position" as to any of these motions. Defs. Resp. (doc. 48) at 2. Moreover, defendants do not even hint at the possibility that Lerach Coughlin may have a conflict. At this juncture defendants only concern is that the various proposed pre-trial management orders "seek to impose obligations on [them] beyond the requirements of the Federal Rules of Civil Procedure or otherwise may be premature[.]" Id. Therefore, defendants have submitted their own proposed pre-trial order for the court's consideration. If the court does not sign that proposed order, defendants are seeking an order requiring appointed lead plaintiff, through its counsel, "to meet and confer pursuant to Rule 26(f) of the Federal Rules of Civil Procedure . . . to negotiate a case management order for the Court's consideration." Id. The Operating Engineers Fund has "no objection to negotiating a case management order pursuant to Fed.R.Civ.P. 26(f)[,]" as defendants urge. See Doc. 53 at 2, n. 1.
Background
Broadly stated, the class action complaint alleges that defendant Apollo Group and various of its individual officers and directors engaged in securities fraud, including backdating stock options. Amidst a "nation-wide" backdating options scandal, in June 2006, Apollo Group "flatly denied" backdating stock options however. Doc. 1 at 2, ¶ 4. According to the complaint, a few months later, on October 18, 2006, Apollo Group "for the first time disclosed that `[v]arious deficiencies in the process of granting and documenting stock options have been identified[.]'"Id. at 3, ¶ 6. At that same time, Apollo Group "disclosed" a "possible restatement of [its] financial statements when the potential errors are quantified and assessed." Id. at 3, ¶ 7. "The reaction of the markets to this news was," the complaint alleges, "sharp and swift[,]" with a "drop" in one day of "22.86% of Apollo Group's stock prices. Id. at 3, ¶ 8.
Based upon the foregoing, the complaint further alleges that during the Class Period defendants violated Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, by making materially false and misleading statements "in an effort to maintain artificially high market prices for Apollo's securities[.]" Id. at 24, ¶ 83. Plaintiff is also asserting a claim for "control person" liability against the individual defendants pursuant to section 20(a) of that Act. See id. at 27-28, ¶¶ 92-95.
Discussion
I. Lead Plaintiff
A. Governing Legal Standards 1. Notice
The PSLRA sets forth a detailed procedure which putative plaintiffs must follow when filing a securities fraud class action such as this. The first plaintiff to file such an action must, within 20 days of filing, "cause to be published, in a widely circulated national business-oriented publication or wire service, a notice[.]" 15 U.S.C. § 78u-4(a)(3)(A)(i). Such notice "shall . . . advis[e] members of the purported plaintiff class . . . of the pendency of the action, the claims asserted therein, and the purported class period[.]" 15 U.S.C. § 78u-4(a)(3)(A)(i)(I). The undisputed purpose of the PSLRA's notice requirement is "to ensure that the most adequate plaintiff emerges to the position of representing the class."Employers-Teamsters v. Anchor Capital Advisors, 2007 WL 2325079, at *2, n. 2 (9th Cir. Aug. 16, 2007).
To that end, class members who want to be appointed lead plaintiff must make a motion within 60 days of that statutorily mandated publication. See 15 U.S.C. § 78u-4(a)(3)(A)(i)(II). "Any class member, regardless of whether he has filed a complaint, may move for appointment as lead plaintiff." Ferrari v. Gisch, 225 F.R.D. 599, 602 (C.D.Ca. 2004) (citing 15 U.S.C. § 78u-4(a)(3)(B)(i)). If more than one action is filed, only the plaintiff in the first filed action is required to publish notice. See 15 U.S.C. § 78u(4)(a)(3)(A)(ii). However, "[e]ach prospective lead plaintiff must provide a sworn certification representing inter alia that he or she has read the complaint, did not purchase the security at the direction of counsel or in order to participate in any private action, and is willing to serve as a representative party." Richardson v. TVIA, Inc., 2007 WL 1129344, at *3 (N.D. Cal. April 16, 2007) (citing 15 U.S.C. § 78u-4(a)(2)(A)(i)-(iii)).
On November 2, 2006, the Teamsters Local filed its class action complaint and published the statutorily mandated notice on Yahoo! Finance. See Doc. 22 (Decl'n of Jay. P. Saltzman (Jan. 3, 2007)), exh. 2 thereto. Each of the movants timely brought their respective motions under the Reform Act for appointment as lead plaintiff and approval of lead counsel. Each movant has likewise included the statutorily required certification. Despite the lack of serious challenges to the appointment of the Operating Engineers Fund as lead plaintiff, the court must still follow the PSRLA's "clear path" for selecting a lead plaintiff thereunder. See In re Cavanaugh, 306 F.3d 726, 729 (9th Cir. 2002).
See Doc. 22 (Saltzman Decl'n.), exh. B thereto; Doc. 27 (Decl'n of Lauren Antonino (Jan. 3, 2007)), exh. A thereto; Doc. 33 (Decl'n of Michael Salcido (Jan. 3, 2007)), exh. C thereto; and Doc. 35 (Decl'n of Patrick V. Dahlstrom)), exh. B thereto.
In its Reply, Folksam Asset does contest appointment of the Apollo Institutional Investors Group as lead plaintiff. But aside from noting the possibility of a conflict in terms of Lerach Coughlin serving as lead counsel (a conflict which Folksam admits "need not [be] determine[d] at this stage"), Folksam is not challenging the propriety of appointing the Operating Engineers Fund as lead plaintiff. See Doc. 54 at 4-5.
2. Presumptive Lead Plaintiff a. Financial Stake
The PSLRA requires that the court "`shall appoint as lead plaintiff the member or members of the purported plaintiff class that [it] determines to be most capable of adequately representing the interests of the class members.'" Anchor Capital Advisors, 2007 WL 2325079, at *2 (quoting 15 U.S.C. § 78u-4(a)(3)(B)(i)). Recognizing that the PSLRA "narrowly" defines "most capable[,]" the Ninth Circuit has held that "[t]he `most capable' plaintiff — and hence the lead plaintiff-is the one who has the greatest stake in the outcome of the case, so long as he meets the requirements of Rule 23." Cavanaugh, 306 F.3d at 729 (footnote omitted). Thus, in interpreting the PSLRA, the Ninth Circuit has set forth "a simple three-step process for identifying the lead plaintiff" thereunder. Id. As previously noted, the first step is notice.
Step two focuses on "the losses allegedly suffered by the various plaintiffs[.]" Id. In this regard, "[t]he district court must compare the financial stakes of the various plaintiffs and determine which one has the most to gain from the lawsuit." Id. at 730 (footnote omitted). The significance of this inquiry is evident from the Cavanaugh Court's recognition that "a straightforward application of the {PSLRA], . . . provides no occasion for comparing plaintiffs with each other on any basis other than their financial stake in the case." Id. at 732 (emphasis added).
Next, the court "must . . . focus its attention on that plaintiff and determine, based on the information he has provided in his pleadings and declarations, whether he satisfied the requirements of Rule 23(a), in particular those of `typicality' and `adequacy.'" Id. (footnote omitted) (emphasis in original). "If the plaintiff with the largest financial stake in the controversy provides information that satisfies these requirements, he becomes the presumptively most adequate plaintiff." Id. (emphasis added). On the other hand, "[i]f the plaintiff with the greatest financial stake does not satisfy the Rule 23(a) criteria, the court must repeat the inquiry, this time considering the plaintiff with the next-largest financial stake, until it finds a plaintiff who is both willing to serve and satisfied the requirements of Rule 23." Id. "This process must be repeated sequentially until all challenges have been exhausted."Id. at 731 (citation and footnote omitted).
Because the motions for appointment as lead counsel were filed practically simultaneously, the movants were unaware of the financial losses of the others when they filed their respective motions. For instance, initially Folksam Asset declared that "[u]pon information and belief," it "has the `largest financial interest in the relief sought by the class' of any class member who has appeared[.]" Doc. 26 at 9. In a similar vein, the Apollo Institutional Investors Group indicated that "[a]s of the time of the filing of this motion [January 3, 2007]," it "believes that it has the largest financial interest of anyone in the relief sought by the Class." Doc. 34 at 11.
A review of the pleadings and declarations undisputably shows, however, that it is the Operating Engineers Fund, a large institutional investor, which allegedly sustained the largest losses — $12,334,428.51. Doc. 33 (Salcido Decl'n), exh. B thereto. The next two putative plaintiffs run a distant second in terms of claimed losses. Folksam Asset "acquired 95,214 shares of Apollo common stock . . . during the . . . Class Period (27,697 net shares), had net expenditures of over $1.03 million thereon, and suffered losses of over $1.41 million." Doc. 26 at 9 (citing doc. 27 (Antonino Decl'n), exh. A thereto (doc. 27-2) at 2, ¶ 8; and exh. C (doc. 27-4) thereto). Similarly, the Apollo Institutional Investors Group "purchased . . . 97,177 shares of Apollo common stock; . . . expended $5,765,457 for their shares of [that] stock; . . . retained 60,135 net retained shares; and . . . suffered $1,416,264 in losses related to their purchases." Doc. 34 at 8 (citing doc. 35 (Dahlstom Decl'n), exh. F thereto) (other citations omitted).
The fourth movant, Teamsters Local sustained drastically lower losses than the Operating Engineers Fund, and less than the other two movants. The Local "expended approximately $1,610,479 and purchased 25,550 shares of Apollo [stock] during the Class Period[,] sustaining "estimated" losses of "approximately $583,244." Doc. 21 at 2; and doc. 22 (Saltzman Decl'n), exh. C thereto.
Consistent with the Reform Act which "provides in categorical terms that the only basis on which a court may compare plaintiffs competing to serve as lead is the size of their final stake in the controversy[,]" this court easily finds that the Operating Engineers Fund has the largest financial stake in this litigation. See Cavanaugh, 306 F.3d at 732 (emphasis in original). Operating Engineers Fund, therefore, is the "most adequate plaintiff." See 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I). Thus, the court will next, as it must, "focus its attention" on the Operating Engineers Fund to see whether it satisfies the typicality and adequacy requirements of Fed.R.Civ.P. 23. See Cavanaugh, 306 F.3d at 730 ("Once it determines which plaintiff has the biggest stake, the court must appoint that plaintiff as lead, unless it finds that he does not satisfy the typicality or adequacy requirements.")
The court will limit its analysis under Rule 23 because "[a] wide ranging analysis is not appropriate to determine whether [the Operating Engineers Fund] has made a prima facie showing that [it] satisfies the requirements of Rule 23[.]" See Tanne v. Autobytel, Inc., 226 F.R.D. 659,666 (C.D. Cal. 2005). Indeed, examination of the other two factors under Rule 23, numerosity and the existence of common questions of law or fact, "is deferred until the lead plaintiff moves for class certification" under that Rule.Richardson, 2007 WL 1129344, at *4.
b. Typicality
"Rule 23(a)(3) requires that `the claims or defenses of the representative parties are typical of the claims or defenses of the class.'" Dukes v. Wal-Mart, Inc., 474 F.3d 1214, 1232 (9th Cir. 2007) (quoting Fed.R.Civ.P. 23(a)(3)). Under that Rule's "permissive standards, representative claims are `typical' if they are reasonably coextensive with those of absent class members; they need not be substantially identical." Id. (internal quotation marks and citation omitted). As the Ninth Circuit has recognized on more than one occasion, "[s]ome degree of individuality is to be expected in all cases, but that specificity does not necessarily defeat typicality." Id. (citingStaton v. Boeing Co., 327 F.3d 938, 957 (9th Cir. 2003)). Thus, "[t]he test for typicality" as the defined by the Ninth Circuit, "is whether other members have the same or similar injury, whether the action is based on conduct which is not unique to the named plaintiffs, and whether other class members have been injured by the same conduct." Id. (internal quotation marks and citations omitted).
That test is easily met here. The Operating Engineers Fund, as with the other putative class members, purchased Apollo Group stock during the Class Period. And, also just like the other putative class members, the Operating Engineers Fund was adversely affected by the allegedly false and misleading statements defendants made so as to artificially inflate the value of the Apollo Group's stock. Further, the Operating Engineers Fund, as well as the other putative class members suffered financial losses allegedly as a result of defendants' violations of the securities laws.
c. Adequacy
Having found that the Operating Engineers Fund's claims are typical of the class, the court will next briefly consider whether that Fund can adequately "protect the interests of the class" in accordance with Rule 23. The adequate representation element of Rule 23 "requires: (1) that the proposed representative Plaintiffs do not have conflicts of interest with the proposed class, and (2) that Plaintiffs are represented by qualified and competent counsel." Dukes, 474 F.3d at 1233 (citations omitted).
As with the typicality requirement, the adequacy requirement is readily met here. There is no evidence that the Operating Engineers Fund is in any way antagonistic to, or has a conflict with, any putative member of the class. What is more, given the sizeable financial losses (over $12 million) which it allegedly sustained, plainly the Operating Engineers Funds has a more than "sufficient interest in the outcome of th[is] case to ensure vigorous advocacy." See Ferrari, 225 F.R.D. at 607 (citation omitted). Further, there is no doubt that in retaining Lerach Coughlin as its lead counsel, the Operating Engineers Fund has chosen "qualified and competent counsel." See In re Enron Corp. Securities, 2006 WL 4381143, at *20 (S.D. Tex. 2006) (describing Lerach Coughlin as a "firm . . . comprised of probably the most prominent securities class action attorneys in the country"). Thus because the Operating Engineers Fund is the plaintiff with the largest financial losses, and because it satisfies both the typicality and adequacy requirements, it is "the presumptively most adequate plaintiff[,]" and hence is "entitled to lead plaintiff status[.]" See Cavanaugh, 306 F.3d at 730 (internal quotation marks and footnote omitted) and 732.
3. Rebuttal
The third step under Cavanaugh is that a court must "give other plaintiffs an opportunity to rebut the presumptive lead plaintiff's showing that it satisfies Rule 23's typicality and adequacy requirements." Cavanaugh, 306 F.3d at 730. The Cavanaugh Court stressed the fact "[t]hat the presumption is rebuttable does not mean that it may be set aside for any reason that the court may deem sufficient." Id. at 729 n. 2. "Rather, the statute provides that the presumption `may be rebutted only upon proof . . . that the presumptively most adequate plaintiff' does not satisfy the adequacy or typicality requirements of Rule 23."Id. (quoting 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)) (emphasis added). The record in the present case is completely void of any such proof. Thus, after engaging in the mandatory sequential statutory process, the court is left with the firm conviction that the Operating Engineers Fund is "the most capable of adequately representing the interests of the class members." See 15 U.S.C. § 78u-4(a)(3)(B)(i). Accordingly, the court grants that Fund's motion for appointment as lead plaintiff under the PSLRA.
Before addressing the issue of lead counsel, the court is compelled to address Folksam Asset's suggestion, in its Reply that if the court is "concerned about this possible conflict" due to the fact that Lerach Coughlin was formerly counsel in one of the related stockholder's derivative actions, then it should appoint Folksam Asset as "co-lead plaintiff and its proposed lead counsel as co-lead counsel[.]" Doc. 54 at 5. Significantly, defendants have not raised any such "concern;" nor does the court have one. Thus, it declines Folksam Asset's request that "at a minimum" it be appointed co-lead plaintiff with the Operating Engineers Fund.See id. In denying this request, the court adopts the sound reasoning of the court in Tanne:
Most of the cases appointing co-lead plaintiffs predate Cavanaugh, or are from jurisdictions outside the Ninth Circuit. The rationales they offer for the appointment of co-lead plaintiffs, moreover, appear to be fundamentally at odds with Cavanaugh's interpretation of the PSLRA and its outlining of the process to be used in identifying a lead plaintiff. Additionally, [Folksam Asset] has not shown that the appointment of co-lead plaintiffs is preferable to the appointment of a single lead plaintiff in this case. Rather, the court concludes, a co-lead plaintiff structure is unnecessary[.]See Tanne, 226 F.R.D. at 673.
II. Lead Liaison Counsel
Once a lead plaintiff is appointed, the Reform Act mandates that plaintiff "shall, subject to the approval of the court, select and retain counsel to represent the class." 15 U.S.C. § 78u-4(a)(3)(B)(v) (emphasis added). "A court may disturb the lead plaintiff's choice of counsel only if it appears necessary to `protect the interests of the class.'" Tanne, 226 F.R.D. at 673 (citing 15 U.S.C. § 78u-(a)(3)(B)(iii)(II)(aa)). Here, there is no need to "disturb" the Operating Engineer Fund's choice of Lerach Coughlin to serve as lead counsel and Buckley King to serve as liaison counsel. A careful review of the resumes for each of those firms (doc. 33 (Salcido Decl'n), exhs. D and E thereto), persuades the court that both possess the requisite degree of experience and qualifications to adequately represent the interests of the putative class. Thus, the court approves the Operating Engineer Fund's selection of Lerach Coughlin to serve as lead counsel and the law firm of Buckley King to serve as liaison counsel, "but cautions that this must not result in the duplication of any expenses to the class." See Richardson, 2007 WL 1129344, at *6.
"The court approves the appointment of liaison counsel on the understanding that its role will be limited to procedural advice and services related to litigating in this district." Tanne, 226 F.R.D. at 673 (citation omitted).
Conclusion
For the reasons set forth herein, IT IS ORDERED that the motion by Pension Trust Fund for Operating Engineers for appointment as lead plaintiff and for approval of the selection of the law firm of Lerach Coughlin Stoia Geller Rudman Robbins LLP to serve as lead counsel, and Buckley King to serve as liaison counsel (doc. 30) is GRANTED;
IT IS FURTHER ORDERED that the motions of the other movants, Teamsters Local 617 Pension and Welfare Funds (doc. 21); Folksam Asset Management (doc. 25); and the Apollo Institutional Investors Group (doc. 34) are DENIED; and
IT IS FURTHER ORDERED that within thirty (30) days of the date hereof, Lerach Coughlin, as lead counsel shall, negotiate and file with the court a proposed pre-trial case management order.