Opinion
Master File No. 2:05cv00204, (Consolidated with 2:05cv00212; 2:05cv00237; 2:05cv00284; 2:05cv00290; 2:05cv00313; 2:05cv00326; and 2:05cv00345).
August 23, 2005
ORDER
I. INTRODUCTION
Before the Court are Plaintiffs' cross-motions to be appointed as lead plaintiff in a class-action lawsuit against Defendant iMergent for violation of federal securities laws. Having considered the parties' motions, memoranda, and the relevant law, the Court issues the following order.
II. BACKGROUND
In this class action, Plaintiffs have filed several complaints against iMergent. These actions have been consolidated before this Court pursuant to rule 42(a) of the Federal Rules of Civil Procedure. Plaintiffs contend that iMergent violated the Securities and Exchange Act of 1934 by failing to disclose material defects with the operation of its software, and by engaging in sales practices that violated numerous state laws. When this information was made public, the company's stock price dropped from $25 per share on February 9, 2005 to under $12 per share on March 1, 2005, when trading ceased. The fall of iMergent's stock price resulted in substantial losses suffered by Plaintiffs.
In compliance with 15 U.S.C. § 78u-4(a)(3)(A)(I) of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), counsel for Plaintiffs published notices to class members on nationally-circulated wire services informing them of their legal claims against iMergent and their right to seek appointment as lead plaintiff within sixty days from publication of the notice. Four groups of plaintiffs have since filed motions with the Court within the required statutory period requesting to be appointed lead plaintiff in the action against iMergent. These plaintiffs include: the Panahi group, the Galego group, the Thompson group, and the Dronsejko group.
III. ANALYSIS
A. Requirements for lead plaintiff under the PSLRA
Each group of plaintiffs has requested to be appointed lead plaintiff under the PSLRA, which the parties agree governs this matter. The PSLRA requires that:
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. . . .;
(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).
Under Rule 23:
one or more members of a class may sue . . . as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
Of these four requirements, courts have commonly held that only (3), the typicality requirement, and (4), the adequacy requirement, are relevant in appointing a lead plaintiff because they "directly address personal characteristics of a class representative." In re Ribozyme Pharm., Inc., 192 F.R.D. 656, 658 (D. Colo. 2000).
In securities class actions, the typicality requirement is usually satisfied when the lead plaintiff, similar to all other class members, "(1) purchased [subject stock] during the relevant period; (2) at prices they allege were inflated due to [defendant's] misrepresentations; and (3) all [class members] allegedly suffered damages." Meyer v. Paradigm Med. Indus., 225 F.R.D. 678, 681 (D. Utah 2004).
The adequacy requirement is usually satisfied by "(1) the absence of potential conflict between the named plaintiffs and the class members, and (2) that counsel chosen by the representative parties is qualified, experienced and able to vigorously conduct the proposed litigation." In re Rybozyme Pharm., 192 F.R.D. at 659.
A plaintiff satisfying all of the requirements under the PSLRA "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."15 U.S.C. § 78u-4(a)(3)(B)(iii)(II).
When the "most adequate plaintiff" is appointed, "[it] 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).
B. The Court concludes that the Dronsejko group is the "most adequate plaintiff."
Of the four groups requesting to be appointed lead plaintiff, the Dronsejko group best satisfies the prerequisites of the PSLRA. The Dronsejko group is set apart from the other plaintiffs by their substantial financial interest in this case. The Dronsejko group claims losses of $143,022 caused by Defendant's alleged wrongdoing. This amount is more than twice that of the Thompson group ($63,535), and significantly more than either the Panahi group ($47,589), or the Galego group ($22,048).
In addition to having the largest financial interest, the Dronsejko group also meets the typicality and adequacy requirements of rule 23. The Dronsejko group purchased iMergent stock during the class period, the price of which they allege was inflated because of Defendant's fraudulent conduct, and suffered damages as a result. In addition, there does not appear to be any potential conflict between the Dronsejko group and the other plaintiffs, and Dronsejko's counsel, Goodkind Labaton, appears to have considerable experience in the prosecution of class actions and federal securities law claims.
While the Court concludes that the Dronsejko group is presumptively the "most adequate plaintiff," this presumption can be rebutted with a showing by the other plaintiffs that the Dronsejko group "will not fairly and adequately protect the interests of the class," or that they are "subject to unique defenses that render [them] incapable of adequately representing the class." 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II). The Thompson group has challenged the Dronsejko group by alleging that two of its five members are "in-and-out" purchasers subject to a loss-causation defense. The Thompson group claims these two purchasers bought and sold all of their stock during the time when the price was inflated, thus suffering no injury as a result of the fraud. The Court, however, finds the Thompson group's challenge without merit as the Dronsejko group has provided uncontested evidence that both purchasers sold their stock after a series of public disclosures concerning Defendant's alleged fraud that preceded a significant drop in the price of its stock. The Panahi group has also challenged the appointment of the Dronsejko group on the grounds that they have demonstrated "a lack of cohesiveness." This generic objection is also insufficient to overcome the Dronsejko group's claim as lead plaintiff. The Dronsejko group has submitted a joint declaration demonstrating its cohesiveness and its members' collective intent to pursue this action for the best interests of the class.
IV. CONCLUSION
The PSLRA governs the appointment of lead plaintiff in federal securities class actions. The Dronsejko group is the plaintiff that best satisfies the requirements of the PSLRA. While some plaintiffs have challenged the appointment of the Dronsejko group as lead plaintiff, their challenges have failed to provide sufficient evidence to rebut the presumption that the Dronsejko group is the "most adequate plaintiff." Therefore, pursuant to 15 U.S.C. § 78u-4, the Dronsejko group's motion to be appointed lead plaintiff in the class-action lawsuit against iMergent is GRANTED.
IT IS SO ORDERED