Opinion
No. C 01-03361 CRB
December 14, 2001
ORDER APPOINTING LEAD PLAINTIFF
This securities fraud action arises out of the September 4, 2001 announcement by defendant Clarent Corporation that it was restating its financial statements, appointing an investigative committee, and suspending certain corporate officers. The NASDAQ subsequently suspended all trading in Clarent Various securities fraud cases were immediately filed in this District and consolidated before the Court Now before the Court are competing motions to be appointed lead plaintiff. After carefully considering the papers filed by the parties, and having had the benefit of oral argument the Court GRANTS the motion of Otter Creek Partners to be appointed lead plaintiff.
DISCUSSION
The PSLRA provides that the Court "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 class members (hereafter in this paragraph referred to as the "most adequate plaintiff') in accordance with this subparagraph" 15 U.S.C. § 78u-4 (a)(3)(B)(I). The Act creates a rebuttable presumption as to who is the most adequate plaintiff
Subject to subclause (II), for purposes of clause (I), the 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);
(bb) in the determination of the court has the largest financial interest in the relief sought by the class; and
(cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.15 U.S.C. § 78u-4 (a)(3)(B)(iii)(I). This presumption "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 interests of the class; or (bb) is subject to unique defenses that render such plaintiff incapable of adequately representing the class." 78u-4(a)(3)(B)(iii)(I).
The Jacobs Group has by far the largest financial interest in the relief sought by the class. Nonetheless, the competing plaintiff's claim that they are not entitled to the rebuttable presumption because they did not timely move to be appointed lead plaintiff and do not otherwise satisfy the requirements of Rule 23.
A. Timeliness of the Jacobs Motion
The PSLRA provides that within 20 days of filing a securities fraud complaint the first plaintiff to so file must
cause to be published, in a widely circulated national business-oriented publication or wire service, a notice advising members of the purported plaintiff class — (I) of the pendency of the action, the claims asserted therein, and the purported class period and (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.15 U.S.C. § 78u-4(a)(3)(A)(i) (emphasis added). The Court then may appoint as lead plaintiff one who filed a complaint or who made a motion for appointment of lead plaintiff Id. § 78u-4(a)(3)(B)(iii)(I).
In this case the first plaintiff to file a complaint the Carson plaintiff, filed the notice in the Business Wire on September 5, 2001. The notice advised the investing public of the lawsuit and the right of class members to move for appointment of lead plaintiff by November 5, 2001. The Jacobs Group, however, filed their motion on November 21, 2001 — more than two weeks too late. At least three courts have held that such a late filing, without a reasonable explanation, makes the class member ineligible to serve as lead plaintiff See In re MicroStrategy Inc. Sec. Litig., 110 F. Supp.2d 427, 433 (E.D. Va. 2000);In re Telxon Corp. Secs. Litig., 67 F. Supp.2d 803, 818 (N.D. Ohio 1999); Lax v. First Merchants Accept Corp., 1997 U.S. Dist. LEXIS 11866 at *4 (N.D. Ill. Aug. 11, 1997).
At oral argument the Jacobs Group did not try to justify their late filing; rather, they argued that given their large financial stake in Clarent the Court should nonetheless appoint them lead plaintiff. The Court declines the Jacobs Group's invitation to ignore the PSLRA's time requirements. The PSLRA does not have different filing deadlines based on the financial interest of the movant. Accordingly, the Court denies the Jacobs Group's motion.
B. The Other Movants
Three other "groups" filed motions to be appointed lead plaintiff and appeared at oral argument Lauren Associates and Stanley Tomchin are not related and have not come forward with any explanation as to why they should be treated together and the Court declines to do so. See In Re Network Associates Litigation, 76 F. Supp.2d 1017 (N.D. Cal. 1999). With Lauren Associates and Tomchin treated separately, the two movants with the largest financial stake are Dr. Semmoto, who lost approximately $500,000, and Otter Creek Partners, with a $3.1 million interest Otter Creek is thus presumptively the most adequate plaintiff. As the other movants have not come forward with proof that rebuts the presumption that Otter Creek Partners is the most adequate lead plaintiff Otter Creek Partners should be appointed. Dr. Semmoto nonetheless requests leave to take discovery of Otter Creek Partners. At this stage in the litigation, however, discovery is permitted only if "The plaintiff first demonstrates a reasonable basis for a finding that the presumptively most adequate plaintiff is incapable of adequately representing the class." 15 U.S.C. § 78u-4 (a)(3)(B)(iv). Dr. Semmoto has not made such a demonstration. Accordingly, the Court will appoint Otter Creek Partners as lead plaintiff and Bernstein Litowitz Berger Grossman LLP as class counsel.
CONCLUSION
For the foregoing reasons, the Court GRANTS the motion of Otter Creek Partners to be appointed lead plaintiff and APPROVES the Otter Creek Partners' selection of Bernstein Litowitz Berger Grossman LLP as Lead Counsel for the class. Otter Creek Partners shall file a consolidated class action complaint within 45 days of the date of this Order.
IT IS SO ORDERED.