Opinion
02 CIV. 3288 (DLC), 02 CIV. 3416 (DLC), 02 CIV. 3419 (DLC), 02 CIV. 3508 (DLC), 02 CIV. 3537 (DLC), 02 CIV. 3647 (DLC), 02 CIV. 3750 (DLC), 02 CIV. 3771 (DLC), 02 CIV. 4946 (DLC), 02 CIV. 4985 (DLC).
July 12, 2002
MEMORANDUM OPINION AND ORDER
Plaintiffs in the above-captioned actions allege that defendants WorldCom, Inc., Bernard J. Ebbers, its former President and Chief Executive Officer, and Directors James C. Allen, Max E. Bobbitt, and Francesco Galesi, together with WorldCom's former auditors, Arthur Anderson, LLP, violated the federal securities laws by making misrepresentations in connection with WorldCom's financial statements. The first of the above-captioned actions, The Albert Fadem Trust, et al. v. WorldCom, Inc., et al., 02 Civ. 3288, was filed on April 30, 2002, on behalf of plaintiffs in that action and all others similarly situated. Also on that date, plaintiffs in the Albert Fadem action caused notice to be published on Business Wire pursuant to Section § 78u-4(a)(3)(A)(i) of the Private Securities Litigation Reform Act ("PSLRA:), 15 U.S.C. § 78u-4(a)(3)(A)(i). Pursuant to Section § 78u-4(a)(3)(A) and (B) of the PSLRA, 15 U.S.C. § 78u-4(a)(3)(A) and (B), any person or group of persons who are members of the proposed class had sixty days from the date of the publication of the notice, or until July 1, 2002, to apply to the Court to be appointed as lead plaintiff.
Since April 30, approximately twenty separate actions against WorldCom and Arthur Andersen have been filed in this district. Approximately fifteen other actions have also been filed in this district against Salomon Smith Barney, Inc. ("Salomon") and Jack Grubman, Salomon's telecommunications analyst, for alleged conduct related to WorldCom.
On July 1, 2002, the Court received nine motions to consolidate the above-captioned cases pursuant to Fed.R.Civ.P. 42(a) and to appoint a lead plaintiff pursuant to Section § 78u-4(a)(3)(B)(i) of the PSLRA, 15 U.S.C. § 78u-4(a)(3)(B)(i). The applications for lead plaintiff include an application from at least one institutional investor, The New York State Common Retirement Fund ("NYSCRF"), which alleges losses of over $300 million. Pursuant to Local Civil Rule 6.1, any oppositions must be submitted by July 18, 2002, and any replies must be submitted by July 25, 2002. Where, as here, there is more than one action on behalf of the proposed class asserting substantially the same claim, Section § 78u-4(a)(3)(B)(ii) of the PSLRA, 15 U.S.C. § 78u-4(a)(3)(B)(ii), requires that any motions for consolidation be decided first, and that "as soon as practicable" thereafter, the Court "shall appoint the most adequate plaintiff as lead plaintiff for the consolidated actions." Id.
The legislative history of the PSLRA shows that it was intended to encourage institutional investors to serve as lead plaintiffs in securities fraud class action suits. See S. Rep. No. 104-98, at 34 (1995), reprinted in 1995 U.S.C.C.A.N. 730, 733 ("The Committee intends to increase the likelihood that institutional investors will serve as lead plaintiffs" because institutional investors "will represent the interests of the plaintiff class more effectively than class members with small amounts at stake").
By letter dated July 1, 2002, Wolf Haldenstein Adler Freeman Herz LLP ("Wolf Haldenstein"), which is counsel for a plaintiff named "Kendall Trust" in an action filed on June 25, 2002, in the Southern District of Mississippi, the caption and docket number for which action Wolf Haldenstein did not provide, requests that this Court stay the motions for consolidation and appointment of lead plaintiff in the above-captioned cases. Wolf Haldenstein advises the Court that on June 28, 2002, it moved the Judicial Panel on Multidistrict Litigation (the "Panel") for an order transferring the above-captioned actions to the Southern District of Mississippi for consolidation with allegedly similar cases filed there. Also by letter dated July 1, 2002, Goodkind Labaton Rudoff Sucharow LLP ("Goodkind Labaton"), which is counsel for plaintiff William Goldstein in Goldstein v. Ebbers, et al., No. 3:02-CV1141-LN (S.D.Miss.), filed on June 28, 2002, further requests that the Court adjourn the date by which lead plaintiff motions must have been filed in light of recent announcements by Worldcom, discussed in more detail below, and the filing of the Kendall Trust and related actions in the Southern District of Mississippi.
By letter dated July 10, 2002, NYSCRF opposes any stay and any adjournment of the deadline for the filing of lead plaintiff motions. It argues that there is a strong likelihood that the above-captioned actions will remain in the Southern District of New York because the Albert Fadem action predates the Kendall Trust action and because the Southern District of New York is the venue for the S.E.C. enforcement action against WorldCom. See S.E.C. v. WorldCom, Inc., 02 Civ. 4963 (JSR). NYSCRF further argues that it is in the interest of the proposed class that the selection of lead plaintiff not be delayed until the Panel decides the motion to consolidate now before it.
As was reported in newspapers this week, the United States Attorney for the Southern District of New York is leading the criminal investigation against WorldCom.
The filing of a motion before the Panel does not require this Court to defer its consideration of the motions for consolidation and appointment of lead plaintiff. Rule 1.5 of the Rules of Procedure of the Judicial Panel on Multidistrict Litigation specifies that:
The pendency of a motion, order to show cause, conditional transfer order or conditional remand order before the Panel concerning transfer or remand of an action pursuant to 28 U.S.C. § 1407 does not affect or suspend orders and pretrial proceedings in the district court in which the action is pending and does not in any way limit the pretrial jurisdiction of that court.
J.P.M.L. R. 1.5 (emphasis added).
A stay in the proceedings before this Court is not warranted. It would be detrimental to the interests of the proposed class.
Nor is there any reason to reopen the statutory July 1 deadline for the filing of consolidation and lead plaintiff motions. The initial announcements regarding WorldCom gave investors specific notice of grounds for substantial claims against WorldCom.
On March 11, 2002, WorldCom announced that it was under investigation by the SEC. On March 13, its annual report for the year ending December 31, 2001, stated that it expected to record a $15 to $20 billion impairment as a result of an ongoing review of its goodwill and other intangible assets. On March 25, BusinessWeek reported that the write-downs could be far greater than the $15 to $20 billion estimated by WorldCom. On April 25, WorldCom reported adverse results for the first quarter of 2002. Through the course of these developments, WorldCom's stock price declined sharply. On March 11, 2002, its stock price closed at $9.01. By mid-May, the stock price had declined to approximately $1.30. It is these developments that appear to have generated the above-captioned actions.
Goodkind Labaton argues that a June 25 announcement "generated far more shock and dissatisfaction among WorldCom investors" than the developments of March and April and "give[s] rise to wholly separate claims as to which class members cannot be bound by a lead plaintiff motion filing date set long ago by the filing of the prior claims." On June 25, 2002, WorldCom announced that it would restate its previously reported 2001 and first quarter 2002 financial results because it had treated more than $3 billion in current operational costs as capital expenses in violation of generally accepted accounting principles. On June 24, 2002, WorldCom's stock price closed at $0.91. On Monday, June 28, 2002, its stock price closed at $0.07. Goodkind Labaton asserts that WorldCom's June 25 announcement will motivate institutional investors to move to be appointed as lead plaintiff in the above-captioned actions who were not previously motivated to do so by the events of March and April.
Leaving aside the tension between Goodkind Labaton's support for consolidation of the above-captioned actions with those in Mississippi and its statement that the Mississippi actions involve "wholly separate claims," Goodkind Labaton's speculation that WorldCom's June 25 announcement will motivate previously unmotivated institutional investors to move to be appointed lead plaintiff is not persuasive. WorldCom's March and April announcements and the collapse of its stock price generated by them were of a magnitude sufficient to motivate any substantial owner of WorldCom securities. In the wake of the developments of March and April, at least one institutional investor did move to be appointed as lead plaintiff in the above-captioned actions. It does not appear that either Goodkind Labaton or Wolf Haldenstein represent institutional investors and no institutional investor has requested an enlargement of the time to move for appointment as lead plaintiff. Accordingly, it is hereby
Goodkind Labaton and Wolf Haldenstein do not identify their clients other than by name or describe their clients' holdings in WorldCom or estimate their clients' losses.
ORDERED that principal trial counsel for all parties in the above-captioned cases are directed to appear for a conference with the Court on August 12, 2002 at 11:00 a.m. at the United States Court House, 500 Pearl Street, New York, New York, in Courtroom 11B, at which time the motions for consolidation and appointment of lead plaintiff will be addressed.