Opinion
Civil Action No. 02-D-263 (Consolidated with Civil Action No. 02-D-315) (MJW)
July 1, 2003
ORDER
THIS MATTER comes before the Court on Lead Plaintiffs' Motion for Class Certification Pursuant to FED. R. CIV. P. 23 filed March 14, 2003. For the reasons stated on the record at the June 3, 2003, hearing and as set forth below, Plaintiffs' motion is GRANTED.
I. BACKGROUND
In early 2002, two securities fraud class action lawsuits, Civil Action No. 02-D-263 and No. 02-D-315, were filed against Defendant SpectraLink Corporation ("Defendant") for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. On April 8, 2002, Landon Hendricks and Derek R. Poh ("Hendricks," "Poh" or collectively "Plaintiffs") filed a motion to consolidate the lawsuits and to have themselves appointed as lead plaintiffs. See Pls. Mot. Apr. 8, 2002. While the Defendant did not object to consolidation nor to the appointment of Hendricks and Poh, the Defendant specifically reserved the right to assert objections to the adequacy of Hendricks and Poh to serve as class representatives. See Def. Mot., Apr. 24, 2002, at 3.
II. PLAINTIFFS' MOTION FOR CLASS CERTIFICATION
Plaintiffs seek certification of a class consisting of "all purchasers of publicly-traded common stock of defendant SpectraLink Corporation from April 19, 2001 through January 11, 2002, inclusive." Pls. Mot., Mar. 14, 2003, at 1. Federal Rule of Civil Procedure 23 requires that as soon as practicable after the action commences, the court shall determine whether the action may proceed as a class action. The Plaintiffs bear the burden of demonstrating that their case meets the requirements of Rule 23. General Telephone Co. of Southwest v. Falcon, 457 U.S. 147, 156 (1982); Schwartz v. Celestial Seasonings, 178 F.R.D. 545, 550 (D. Colo. 1998). Rule 23 sets forth four requirements for class certification: (1) that the class is so numerous that joinder of all members is impracticable; (2) that there are questions of law or fact common to the class; (3) that the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) that the representative parties will fairly and adequately protect the interests of the class. FED. R. CIV. P. 23(a).
In addition to meeting these requirements, Plaintiffs must establish that the case fits within one of the three subcategories of Rule 23(b). Plaintiffs here seek certification under Rule 23(b)(3), which requires them to demonstrate that common questions of law and fact predominate over questions involving individual members, and that a class action is superior to other forms of adjudication. FED. R. CIV. P. 23(b)(3). Even though the Defendants do not argue that the requirements of 23(a)(1) or (2) are lacking in this case, I must still determine whether all of the requirements for class certification have been met. See In re Ribozyme Pharm., Inc. Sec. Litig., 205 F.R.D. 572, 579 (D. Colo. 2001).
A. NUMEROSITY
Rule 23(a)(1) requires that "the class [be] so numerous that joinder of all members is impracticable." In making this showing, the plaintiff must adequately define the class and then demonstrate that the class is so numerous that joinder is impractical. Schwatrz, 178 F.R.D. at 549; Cook v. Rockwell Int'l Corp., 151 F.R.D. 378, 380 (D. Colo. 1993).
Here, Plaintiffs propose a class consisting of "all purchasers of publicly-traded common stock of defendant SpectraLink Corporation from April 19, 2001 through January 11, 2002, inclusive." Pls. Mot., Mar. 14, 2003, at 1. Plaintiffs claim that the vast geographic dispersion of the class, which numbers in the thousands, makes joinder impracticable. Additionally, Plaintiffs claim that there were 19,000,000 shares of SpectraLink common stock outstanding during the class period. Pls. Compl. ¶ 92. I find that based on the geographic dispersion of the class members, the number of potential class members and in the interest of judicial economy, Plaintiffs have adequately defined the class and demonstrated that joinder of all members is impractical.
B. COMMONALITY
For my purposes here, commonality under Rule 23(a)(2) is subsumed within Rule 23(b)(3)'s requirement of predominance of common questions. City Partnership Co. v. Jones Intercable, Inc., 213 F.R.D. 576, 582 n. 1 (D. Colo. 2002); In re Intelcom Group, Inc., Sec. Litig., 169 F.R.D. 142, 148 n. 4 (D. Colo. 1996). A court may grant class certification only if there are questions of law or fact common to the class. FED. R. CIV. P. 23(a)(2). Plaintiffs assert that the common questions of law and fact that exist as to all members of the class include:
(i) whether the defendants participated in and pursued the common course of conduct alleged in the Complaint;
(ii) whether documents, press releases and other statements disseminated to investors during the class period were, due to the omission of other materials, materially inaccurate regarding SpectraLink's financial condition, results, growth, and business prospects;
(iii) whether defendants' false and misleading statements violated securities laws;
(iv) whether the material misrepresentations and/or non disclosures artificially inflated the price of SpectraLink common stock during the class period; and
(v) whether defendants acted willfully in misrepresenting and/or omitting to state material facts.
Pls. Mot., Mar. 14, 2003, at 6-7.
In making this determination, it is not necessary that all the questions of law or fact raised herein be common nor that the claims of the class members be identical. Schwatrz, 178 F.R.D. at 551; In re Intelcom, 169 F.R.D. at 148. "Rather, the existence of either common questions of law or fact will be sufficient to meet the threshold commonality requirement." In re Intelcom, 169 F.R.D. at 148.
Based on the entire record before the Court, including the allegations of the Complaint and the parties' arguments — submitted in writing to the Court and orally at the hearing — I find that the Plaintiffs' allegations are based on common course of conduct by the Defendant involving a common nucleus of operative facts. Therefore, the commonality criterion is satisfied.
C. TYPICALITY/ADEQUACY OF REPRESENTATION
This class action may only be maintained if "the claims or defenses of the representative parties are typical of the claims or defenses of the class." FED. R. CIV. P. 23(a)(3). "Rule 23(a)(3) may be used to screen out class actions when the legal or factual positions of the representatives is markedly different from that of other members of the class, even though common issues of law or fact are raised." City Partnership Co., 213 F.R.D. at 583 (citation omitted). Further, the requirement of typicality dovetails into the requirement of adequacy of representation. Id. These requirements have been previously described by this Court as follows:
Rule 23(a)(4) requires the class representatives to be in a position to protect fairly and adequately the interests of the class. Courts have broken down the requirement into an evaluation of whether the representative's claims are sufficiently interrelated to and not antagonistic with the class's claims as to ensure fair and adequate representation and whether the representative's counsel is competent.In re Intelcom, 169 F.R.D. at 149 (quoting Edgington v. R.G. Dickinson Co., 139 F.R.D. 183, 188 (D. Kan. 1991)).
The Defendant first argues that neither Poh nor Hendricks are adequate class representatives because they have not demonstrated they are willing to pay costs and to actively participate in this action. As to costs, the Defendant directs the Court to the deposition testimony of both Poh and Hendricks wherein they maintained that the costs of prosecuting the action would be borne by counsel. Pls. Ex. 1, Poh Dep. at 88:14-89:22; Pls. Ex. 2, Hendricks Dep. at 89:19-90:8.
However, the applicable standard of professional responsibility and well reasoned authority from this District contradict the Defendant's argument. Colorado Rule of Professional Conduct 1.8(e) provides:
a lawyer may advance or guarantee the expenses of litigation, including court costs, expenses of investigation, expenses of medical examination, and costs of obtaining and presenting evidence, provided the client remains ultimately liable for such expenses. A lawyer may forego reimbursement of some or all of the expenses of litigation if it is or becomes apparent that the client is unable to pay such expenses without suffering substantial financial hardship.
Colo. RPC 1.8(e). Furthermore, in Queen Uno Ltd. Partnership v. Coeur D'Alene Mines Corp., 183 F.R.D. 687 (D. Colo. 1998), Judge Clarence A. Brimmer rejected a similar argument as without merit stating that it was doubtful that "a client would pay for a nationwide securities fraud class action." Id. at 692. Thus, I too reject this baseless argument.
I apply the rules of professional conduct, as adopted by the Colorado Supreme Court, for the applicable standard of professional responsibility in these proceedings. See D.C. COLO. LCivR 83.4.
I also reject the Defendant's claim that Poh's billing for his services in this case renders him inadequate. Poh testified that he is only keeping a record of his expenditures in this case, not expecting payment from counsel for his service herein. As the Plaintiffs' brief makes clear, "in conjunction with any settlement or final judgment, Poh would submit a claim to the Court for approval [of his costs and expenses including lost wages] pursuant to the PSLRA and the rules of this Court." Pls. Mot., p. 7. This conduct is expressly provided for in the PSLRA and certainly does not render Poh an inadequate representative.
The Defendant also contends that Poh and Hendricks failed to demonstrate that they will diligently pursue their claims. Again, directing the Court to deposition testimony, the Defendant claims that Hendricks was not involved in any case management or strategy and that his attorney, Milberg Weiss, entirely controls the litigation. Pls. Ex. 2, Hendricks Dep. at 90:9-15. Further, Poh allegedly could not recall making a single decision during the 13 months he has been associated with this litigation other than accepting counsels' invitation to participate. Pls. Ex. 1, Poh Dep. at 93:17-94:8. Moreover, Defendant claims that neither Plaintiff knew anything about SpectraLink's business, products, revenues, earnings per share and both were admittedly unaware of SpectraLink's stock performance vis-á-vis the Dow, the Nasdaq and the S P 500 over the last five years. Pls. Ex. 2, Hendricks Dep. at 31:13-34:16 48:7-52:6, 87:9-14; Pls. Ex. 1, Poh Dep. at 32:16-33:1; 34:12-37:18.
Having read both Poh's and Hendricks's depositions in their entireties, I cannot agree with the Defendant's allegations. Hendricks testified that he maintained an active participation in this lawsuit by reviewing the paperwork generated by counsel and maintaining a file of the materials in this case. Pls. Ex. 2, Hendricks Dep. at 18:11-20 60:12-15. Similarly, Poh testified that he reviewed the documents forwarded by his attorney and he also provided information and documents at counsel's behest. Pls. Ex. 1, Poh Dep. at 90:7-9, 92:17-19. Further, the record does not support the Defendant's characterization of Poh and Hendricks as being completely ignorant of SpectraLink's business and stock performance. Rather, Poh specifically recalled why he decided to purchase the stock — it had received an A rating from Investors Business Daily — and that he is presently knowledgeable about SpectraLink's products and dealings with Lowe's. Id. at 32:14-34:22, 46:4-6. As to Hendricks, he testified that he knew the nature of SpectraLink's business, its relationship with Lowe's and he was also able to name the individual defendants and their respective job positions. Pls. Ex. 2, Hendricks Dep. at 29:5-7, 31:6-8, 58:6-12.
Moreover, I reject the Defendant's contention that Plaintiffs' counsel are the "de facto" plaintiffs in this case because Poh and Hendricks lack familiarity with the facts of this case. See Kelley v. Mid-America Pacing Stables, Inc., 139 F.R.D. 405, 409 (W.D. Okla. 1990). Not only is this allegation inaccurate, but the court in City Partnership described a court's focus at this stage of the proceeding as follows:
the adequacy of representation test is not concerned with whether the plaintiff personally derived the information pleaded in the Complaint or whether the plaintiff will personally be able to assist Counsel. Whether or not the class representative is familiar with the specifics of the complaint is not dispositive of the more critical question of whether that individual will adequately represent the claims of the class by devoting time and effort to the lawsuit.City Partnership Co., 213 F.R.D. at 584 (citing In re Southeast Hotel Properties Ltd. P'ship Investor Litig., 151 F.R.D. 597, 607 (W.D.N.C. 1993)). Here, both Hendricks and Poh have demonstrated that they have devoted time and effort to this case and have recently affirmatively expressed their desire to continue to do so. Pls. Ex. 4 and 5.
There is also no merit to the Defendant's contention that Hendricks's claims are not typical of the class members because he relied on his broker to purchase and sell his stock. During his deposition, Hendricks testified that he was not involved in the decision to purchase or sell SpectraLink stock because his broker had full discretionary power of trading for his accounts. Pls. Ex. 2, Hendricks Dep. at 22:9-19. Defendant claims that Hendricks's claim is atypical because he was not involved in the decision to purchase or sell his SpectraLink stock. Defendant relies on Fry v. UAL Corp., 136 F.R.D. 626 (N.D. Ill. 1991), which provided that "someone who abdicated complete authority over his relevant financial affairs . . . is an inadequate class representative." Id. at 635.
Plaintiffs, however, relies on In re Terayon Comms. Sys., Inc. Sec. Litig, 2003 U.S. Dist. LEXIS 2852, (N.D. Cal. Feb 24, 2003), which rejected an argument similar to Defendant's and found that it was "inevitable that some, if not most, investors rely on the advice of brokers and other specialists wholly or in part." Id. at *12. Moreover, attached to the Plaintiffs' response is an affidavit signed by Hendricks wherein he corrects his deposition testimony claiming that in actuality, it was a Morgan Stanley Dean Witter stockbroker who assisted [him] with the purchase and sale of [his] SpectraLink stock. Pls. Ex. 4.
Absent Tenth Circuit precedent to the contrary, I find the reasoning of Terayon persuasive and hold that the circumstances surrounding the purchase and sale of Hendricks's SpectraLink stock do not make him an atypical as alleged by Defendant. Here, the evidence indicates that a broker assisted Hendricks with his stock purchase. Much like the lead plaintiff in Terayon, Hendricks is probably representative of a large number of class members who also relied wholly or in part on the advice of brokers.
The Defendant also claims that there is a fundamental conflict in this case between "In/out Plaintiffs" — ones that sold all of their interest in SpectraLink — and "Retention Plaintiffs" — those who continue to hold an equity interest in SpectraLink. Since Hendricks and Poh are "In/out Plaintiffs," the Defendant contends that they are not suitable representatives because they have interests that are antithetical to the interests of the "Retention Plaintiffs." Relying on In re Party City Sec. Litig., 189 F.R.D. 91 (D. N.J. 1999) and In re Cendant Corp. Litig., 264 F.3d 201, 243-44 (2001), the Defendant contends that this conflict warrants denying the motion for class certification.
However, neither Party City nor Cendant reached the argument advanced by the Defendant here as both cases dealt with motions for the appointment of lead plaintiff not a motion for class certification. For example, in appointing a Retention Plaintiff as lead plaintiff for a class comprised of both Retention Plaintiffs and In/out Plaintiffs, the court in Party City expressly declined to address the issue presented in the instant case stating:
the ability of [the Retention Lead Plaintiffs] to fairly and adequately represent a class containing both Retention Plaintiffs and In/out Plaintiffs will be addressed at the time a motion is made for class certification.Id. at 112.
At most, therefore, these cases stand for the proposition that the conflict between the two aforementioned groups of Plaintiffs could compromise the ability of the lead Plaintiffs to represent the interests of the entire class in this case. See, e.g., Cendant, 264 F.3d at 243-44. However, I believe that, consistent with the holding in other cases, any potential conflict between the "Retention Plaintiffs" and the "in/out Plaintiffs" could be resolved by changing the class certification structure to include subclasses, if such re-classification becomes necessary. See In re Honeywell Int'l Inc. Sec. Litig., 211 F.R.D. 255, 262, n. 12 (D. N.J. 2002) (noting that conflicts between retention plaintiffs and in/out plaintiffs mostly arise during the determination of damages and can be adequately addressed through the use of subclasses). Thus, I find that the status of Hendricks and Poh as "In/out Plaintiffs" does not pose an irreconcilable conflict with the class members that are "Retention Plaintiffs" and any such future conflict does not preclude certification of the proposed class at this time. Id. at 262; Queen Uno Ltd., 183 F.R.D. at 693; see also Schwartz, 178 F.R.D. at 550 ("certification is not irreversible and may be altered or amended before the decision on the merits . . . if later events suggest it is appropriate to do so"). Therefore, the typicality requirement has been satisfied and Poh and Hendricks are also adequate to represent the class.
Defendant also claims that Hendricks is not typical of the putative class because he subject to the defense that he suffered no damages. Relying on In re Seagate Tech II Sec. Litig, 843 F. Supp. 1341, 1359 (N.D. Cal. 1994), the Defendant claims that due to timing differences — Hendricks sold his stock after eight days and prior to any corrective disclosure — he is not a suitable representative. As I have previously rejected this argument in In re Intelcom, and finding no reason to depart from that precedent, I find Defendant's argument equally without merit in this case. In re Intelcom, 169 F.R.D. at 151 ("[c]ases from the Tenth circuit have routinely rejected the contention that timing differences among the class members' purchases preclude a finding of typicality").
III. CONCLUSION
Based on the forgoing, it is
ORDERED that Lead Plaintiffs' Motion for Class Certification Pursuant to FED. R. CIV. P. 23 filed March 14, 2003, is GRANTED, and the class defined as all purchasers of publicly-traded common stock of Defendant SpectraLink Corporation from April 19, 2001 through January 11, 2002, inclusive, is certified pursuant to Federal Rule of Civil Procedure 23.