Opinion
C.A. No. 06-10040-MLW.
December 27, 2006
MEMORANDUM AND ORDER
This case is a putative securities class action against Sonus Networks, Inc. Three entities are vying to be appointed lead plaintiff and to have their attorneys appointed lead counsel. For the reasons described below, the court is appointing the Public Employees' Retirement System of Mississippi ("MPERS") as lead plaintiff and its attorneys, Wolf Popper LLP, as lead counsel.
In 2005, this court decertified the class in a securities case against Sonus because there was no longer an adequate class representative. See In re Sonus Networks, Inc. Securities Litigation, 229 F.R.D. 339 (D. Mass. 2005). On January 6, 2006, the State University Retirement Systems of Illinois ("SURSI"), filed this action making virtually the same allegations of security fraud. As required by the Private Securities Litigation Reform Act (the "PSLRA"), 15 U.S.C. § 78u-4(a)(3)(A)(i), SURSI provided timely published notice of the filing of this case and of the right of class members to seek appointment as lead plaintiff. MPERS and the Police and Fire Retirement System of the City of Detroit ("Detroit"), as well as SURSI, timely filed motions to be appointed lead plaintiff and for their attorneys to be appointed lead counsel. See 15 U.S.C. § 78u-4(a)(3)(i)(II).
MPERS, SURSI and Detroit are each substantial institutional investors in Sonus. Each has made the certification necessary to establish that it is eligible to be appointed lead plaintiff. See 15 U.S.C. § 78u-4(a)(2).
As Judge Patti Saris has succinctly summarized:
The PSLRA requires the Court to "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 the class." 15 U.S.C. § 78u-4(a)(3)(B)(i). The statute specifies three criteria which trigger a rebuttable presumption:
[T]he 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). The presumption "may be rebutted only upon proof by a member of the purported 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). The PSLRA also provides that the "most adequate 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).
The purpose of this provision of the PSLRA is to establish new procedures for the appointment of the lead plaintiff and lead counsel in securities class actions. H.R. Conf. Rep. No. 104-369, at 32 (1995) (reprinted in 1995 U.S.C.C.A.N. 730, 731). The legislation responds to congressional concern that "the selection of the lead plaintiff and lead counsel should rest on considerations other than how quickly a plaintiff has filed its complaint," as well as its desire "to increase the likelihood that institutional investors will serve as lead plaintiffs by requiring courts to presume that the member of the purported class with the largest financial stake in the relief sought is the most adequate plaintiff." Id. at 33-34. This is predicated upon the conclusion that "[i]nstitutional investors and other class members with large amounts at stake will represent the interests of the plaintiff class more effectively than class members with small amounts at stake." Id. at 34. Expressing a jaundiced view of "unsupervised" plaintiffs' attorneys, the Conference Committee was most hopeful that "the plaintiff will choose counsel rather than, as is true today, counsel choosing the plaintiff." Id. at 35. One key aim was "to empower investors so that they-not their lawyers-exercise primary control over private securities litigation." S.Rep. No. 104-98, at 4, reprinted in 1995 U.S.C.C.A.N. 679, 683.In re Lernout Hauspie Securities Litigation, 138 F. Supp. 2d 39, 42-43 (D. Mass. 2001).
To determine which plaintiff has the largest financial interest, the court should consider, among other things: "(1) the number of shares that the movant purchased during the putative class period; (2) the total net funds expended by the plaintiffs during the class period; and (3) the approximate losses suffered by the plaintiffs." In Re Cedant Corp. Litigation, 264 F.3d 201, 262 (3rd Cir. 2001). MPERS acquired 278,700 shares of Sonus common stock for $5,148,511 during the Class Period and has sustained a loss of $4,462,686 as a result of defendants' alleged misconduct. Schwartz Decl. Exhibit 3. Detroit invested $2,008,579.59 in buying 72,500 shares of Sonus securities during the Class Period, and suffered damages of $1,761,561.92. Press Declaration Exhibit C. SURSI invested $3,092,148.55 in acquiring 111,099 shares of Sonus stock during the class period and lost $1,519,170.85. Hess-Mahan Decl. Exhibit B.
Therefore, MPERS suffered the largest financial loss as a result of Sonus' alleged misconduct. Thus, if MPERS satisfies the requirements of Federal Rule of Civil Procedure 23 there is a rebuttable presumption that it should be appointed lead plaintiff. With regard to the implications of Rule 23 for present purposes, the Third Circuit has persuasively explained that:
The initial inquiry (i.e., the determination of whether the movant with the largest interest in the case `otherwise satisfies' Rule 23) should be confined to determining whether the movant has made a prima facie showing of typicality and adequacy. The initial clause of the statute, which governs triggering the presumption, refers to determination made by `the court,' 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I), but the second, which deals with rebutting it, speaks of `proof by a member of the purported plaintiff class,' id. § 78u-4(a)(3)(B)(iii)(II). This phrasing suggests that the threshold determination of whether the movant with the largest financial losses satisfies the typicality and adequacy requirements should be a product of the court's independent judgment, and that arguments by members of the purported plaintiff class as to why it does not should be considered only in the context of assessing whether the presumption has been rebutted.In re Cendant Corp., 264 F.3d at 263-64.
MPERS has made the prima facie showing of adequacy and typicality required by Rule 23. It is the type of institutional investor the PSLRA encourages be appointed lead plaintiff. See In re Lernout, 138 F. Supp. 2d at 43. There is no indication that the circumstances of its losses are markedly different than those of other class members or are based on a legal theory that is not generally applicable. See In re Cendant Corp., 264 F.3d at 265. Moreover, as an institutional investor which has sustained large losses, MPERS has both the ability and incentive to represent the class vigorously. Id. As explained below, it has retained experienced counsel to do so.
Therefore, unless the presumption favoring MPERS is rebutted, it must be appointed lead plaintiff. At this point in the analysis, "the question is not whether another movant might do a better job of protecting the interests of the class than the presumptive lead plaintiff; instead, the question is whether anyone can prove that the presumptive lead plaintiff will not do a fair and adequate job." Id. at 268 (quotations omitted).
SURSI's attempt to demonstrate that MPERS will not fairly and adequately represent the class is not persuasive. SURSI contends that MPERS and its counsel, Wolf Popper LLP, have proven themselves to be inadequate by failing to file suit after this court, in a published decision, decertified the class in In re Sonus Networks, Inc. Securities Litigation and noted that "other investors can now file cases on their own behalf or, indeed, initiate a new putative class action if they wish." 229 F.R.D. at 346. Thus, SURSI contends that its claims, and those of all other putative class members including MPERS, would have been lost except for the alert and energetic efforts of SURSI and its counsel to file this action.
However, while the PSLRA establishes qualifications for lead plaintiffs, the filing of a complaint is not one of them. See 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I). Indeed, the PSLRA "responds to congressional concern that `the selection of the lead plaintiff and lead counsel should rest on considerations other than how quickly a plaintiff has filed its complaint'. . . . "In re Lernout, 138 F. Supp. 2d at 43 (quoting H.R. Conf. Rep. No. 104-369, at 32). As required by the PSLRA, 15 U.S.C. § 78u-4(a)(3)(A)(i)(E), MPERS promptly responded to SURSI's notice that this putative class action had been filed by moving to be appointed lead plaintiff.
In view of MPERS' status as an institutional investor, its substantial stake in this dispute, its apparently typical claims, and its retention of qualified counsel, the presumption that it should be appointed lead plaintiff is not rebutted by the fact that it was SURSI rather than MPERS that filed this case. See In re Cendant Corp., 264 F.3d at 265.
The PSLRA provides that the lead plaintiff shall select class counsel subject to the court's approval. See 15 U.S.C. § 78u-4(a)(3)(B)(v). "While the Court should not be a rubber stamp, it should give the lead plaintiff['s] choice some weight."In re Lernout, 138 F. Supp. 2d at 46-47. The Attorney General of Mississippi has selected Wolf Popper LLP to represent MPERS and, if approved, the putative class. Wolf Popper LLP has experience and expertise in representing plaintiffs in securities class actions. It has a record of achieving results for its clients in many of those cases. Accordingly, it is appropriate for the court to approve the lead plaintiff's selection of Wolf Popper LLP as lead counsel.
As the PSLRA does not establish the position of liaison counsel or authorize the court to approve the selection of liaison counsel, the court is not acting on the MPERS' request that the court approve the selection of Berman DeValerio Pease Tabacco Burt Puccillo LLP as liaison counsel.
In view of the foregoing, it is hereby ORDERED that:
1. The Public Employee's Retirement System of Mississippi's motion to be appointed lead plaintiff and for approval of its selection of Wolf Popper LLP (Docket No. 11) is ALLOWED. Its request to have this case consolidated with Spinney v. Sonus Networks, Inc., et al, C.A. No. 06-10317 is MOOT because Spinney has been dismissed.
2. Future filings in this case shall be captioned: In re Sonus Networks, Inc., Securities Litigation-II, 1:06-CV-10040-MLW.
3. This case shall proceed in the manner and on the schedule in the attached Stipulation (Docket No. 2), which the court has previously approved.