|ROBIN SWITZENBAUM, individually||)|
|and on behalf of all others||)|
|) Civil Action|
|v.||) No. 99-197-A|
|ORBITAL SCIENCES CORPORATION,||)|
|DAVID R. THOMPSON, and||)|
|JEFFREY V. PIRONE,||)|
MEMORANDUM OF THE SECURITIES AND
EXCHANGE COMMISSION, AMICUS CURIAE
|HARVEY J. GOLDSCHMID
|LUIS de la TORRE
|CARL A. TIBBETTS
|NATHAN A. FORRESTER
|Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0606
(202) 942-4817 (Tibbetts)
(202) 942-0813 (de la Torre)
Dated: May 18, 1998
TABLE OF CONTENTS
A. Legislative History Of The Lead Plaintiff Provisions
I. THE COURT SHOULD LIMIT A PROPOSED LEAD PLAINTIFF "GROUP" TO A SMALL NUMBER THAT IS CAPABLE OF EFFECTIVELY MANAGING THE LITIGATION AND EXERCISING CONTROL OVER COUNSEL, SCRUTINIZE EVEN A SMALL PROPOSED GROUP, AND REJECT ANY PROPOSED GROUP THAT DOES NOT DEMONSTRATE THAT IT WILL HAVE THIS CAPABILITY.
II. THE COURT SHOULD NOT APPOINT COMPETING APPLICANTS AS "CO-LEAD PLAINTIFFS."
III. ALTHOUGH COURTS SHOULD NOT, EXCEPT IN VERY UNUSUAL CIRCUMSTANCES, FORCE A LEAD PLAINTIFF TO RETAIN COUNSEL IT HAS NOT SELECTED ITSELF, THEY SHOULD ACTIVELY EXERCISE THEIR DISCRETION TO REVIEW MULTIPLE LEAD COUNSEL PROPOSALS
CERTIFICATE OF SERVICE
In re Advanced Tissue Sciences Sec. Litig.,
1998 U.S. Dist. LEXIS 16926
(S.D. Cal. Oct. 20, 1998)
In re Baan Co. Sec. Litig.,
1999 WL 223178 (D.D.C. Apr. 12, 1999)
Bateman Eichler, Hill Richards, Inc. v. Berner,
472 U.S. 299 (1985)
In re California Micro Devices Sec. Litig.,
168 F.R.D. 257 (N.D. Cal. 1996)
In re California Micro Devices Sec. Litig.,
965 F. Supp. 1327 (N.D. Cal. 1997)
In re Cendant Corp. Litig.,
182 F.R.D. 144 (D.N.J. 1998)
In re Cendant Corp. Litig.,
182 F.R.D. 476 (D.N.J. 1998)
Chan v. Orthologic Corp.,
No. CIV 96-1514 PHX RCB (D. Ariz. Dec. 19, 1996)
Chill v. Green Tree Financial Corp.,
181 F.R.D. 398 (D. Minn. 1998)
City Nominees, Ltd. v. Macromedia, Inc.,
No. C97-3521-SC (N.D. Cal. Jan. 23, 1998)
D'Hondt v. Digi Int'l Inc.,
1997 WL 405668 (D. Minn. Apr. 3, 1997)
In re Donnkenny Inc. Sec. Litig.,
171 F.R.D. 156 (S.D.N.Y. 1997)
Gluck v. Cellstar Corp.,
976 F. Supp. 542 (N.D. Tex. 1997)
In re Graham-Field Health Products Litig.,
No. 98-CV-19:3 (DRH) (E.D.N.Y. Aug. 10, 1998)
Greebel v. FTP Software, Inc.,
939 F. Supp. 57 (D. Mass. 1996)
In re Informix Corp. Sec. Litig.,
No. C-97-1289-SBA (N.D. Cal. Oct. 17, 1997)
John Hancock Mut. Life Ins. Co. v.
Harris Trust & Sav. Bank,
510 U.S. 86 (1993)
Lubitsch v. Dataworks Corp.,
No. 98-2012-IEG (JAH) (S.D. Cal. Feb. 9, 1999)
Malin v. Ivax Corp.,
No. 96-1843 (S.D. Fla. Nov. 1, 1996)
Metropolitan Edison Co. v. People Against Nuclear Energy,
460 U.S. 766 (1983)
In re Milestone Scientific Sec Litig.,
183 F.R.D. 404 (D.N.J. 1998), motion denied,
1999 U.S. Dist. LEXIS 6798 (D.N.J. Mar. 25, 1999)
In re Oxford Health Plans, Inc. Sec. Litig.,
182 F.R.D. 42 (S.D.N.Y. 1998)
Parnes v. Digital Lightwave, Inc.,
No. 98-152-CIV-T-24(C) (M.D. Fla. Mar. 12, 1999)
Ravens v. Iftikar,
174 F.R.D. 651 (N.D. Cal. 1997)
Reiger v. Altris Software, Inc.,
1998 U.S. Dist. LEXIS 14705
(S.D. Cal. Sept. 14, 1998)
Robinson v. Shell Oil Co., 519 U.S. 337 (1997)
Sherleigh Assocs. v. Windmere-Durable Holdings, Inc.,
1999 U.S. Dist. LEXIS 2905 (S.D. Fla. Mar. 9, 1999), aff'd,
1999 U.S. Dist. LEXIS 3744 (S.D. Fla. Mar. 18, 1999)
Steiner v. Frankino,
1998 U.S. Dist. LEXIS 21804 (N.D. Ohio July 16, 1998)
Tumolo v. Cymer, Inc.,
No. 98-CV-1599 TW (POR) (S.D. Cal. Jan. 22, 1999)
United States v. Taylor,
487 U.S. 326 (1988)
Zaltzman v. Manugistics Group, Inc.,
No. S-98-1881 (D. Md. Oct. 8, 1998)
STATUTES AND RULES:
Securities Exchange Act of 1934, 15 U.S.C. 78a et seq.
Section 21D, 15 U.S.C. 78u-4
Section 21D(a), 15 U.S.C. 78u-4(a)
Section 21D(a)(2), 15 U.S.C. 78u-4(a)(2)
15 U.S.C. 78u-4(a)(3)(A)(i)
15 U.S.C. 78u-4(a)(3)(A)(ii)
15 U.S.C. 78u-4(a)(3)(B)(i)
15 U.S.C. 78u-4(a)(3)(B)(ii)
15 U.S.C. 78u-4(a)(3)(B)(iii)
15 U.S.C. 78u-4(a)(3)(B)(iii)(I)
15 U.S.C. 78u-4(a)(3)(B)(iii)(I)(bb)
15 U.S.C. 78u-4(a)(3)(B)(iii)(II)
15 U.S.C. 78u-4(a)(3)(B)(iii)(III)
15 U.S.C. 78u-4(a)(3)(B)(v)
LEGISLATIVE HISTORY: PAGE
141 Cong. Rec. H14038 (Dec. 6, 1995)
141 Cong. Rec. H14039 (Dec. 6, 1995)
141 Cong. Rec. H14048 (Dec. 6, 1995)
141 Cong. Rec. H14050 (Dec. 6, 1995)
141 Cong. Rec. H15214-15 (Dec. 20, 1995)
141 Cong. Rec. S8895 (June 22, 1995)
141 Cong. Rec. S8897 (June 22, 1995)
141 Cong. Rec. S9055 (June 26, 1995)
141 Cong. Rec. S9065 (June 26, 1995)
141 Cong. Rec. S9075-77 (June 26, 1995)
141 Cong. Rec. S9172-73 (June 27, 1995)
141 Cong. Rec. S9212 (June 28, 1995)
141 Cong. Rec. S9321 (June 28, 1995)
141 Cong. Rec. S17934 (Dec. 5, 1995)
141 Cong. Rec. S17956 (Dec. 5, 1995)
141 Cong. Rec. S17967 (Dec. 5, 1995)
141 Cong. Rec. S17969 (Dec. 5, 1995)
141 Cong. Rec. S17980 (Dec. 5, 1995)
141 Cong. Rec. S17982-84 (Dec. 5, 1995)
141 Cong. Rec. S19054 (Dec. 21, 1995)
141 Cong. Rec. S19084 (Dec. 21, 1995)
141 Cong. Rec. S19180 (Dec. 22, 1995)
Report on the Private Securities Litigation
Reform Act of 1995, S. Rep. No. 104-98 (1995)
Report on the Common Sense Legal Reform Act
of 1995, H.R. Rep. No. 104-50 (1995)
Joint Explanatory Statement of the Committee
of Conference, Conference Report on
Securities Litigation Reform,
H.R. Rep. No. 104-369 (1995)
Office of the General Counsel, Securities and Exchange Commission, Report to the President and the Congress on the First Year of Practice Under the Private Securities Litigation Reform Act of 1995 (Apr. 1997)
Elliott J. Weiss & John S. Beckerman, Let the Money Do the Monitoring: How Institutional Investors Can Reduce Agency Costs in Securities Class Actions, 104 Yale L.J. 2053 (1995)
Testimony of Securities and Exchange Commission Concerning S.1260, the "Securities Litigation Uniform Standards Act of 1997," Before the Subcommittee on Securities, Committee on Banking, Housing, and Urban Affairs, U.S. Senate (Oct. 29, 1997)
MEMORANDUM OF THE SECURITIES AND
EXCHANGE COMMISSION, AMICUS CURIAE
The Securities and Exchange Commission respectfully submits this memorandum, as amicus curiae, to address certain legal issues raised by the pending motions for appointment of lead plaintiff and lead counsel under the Private Securities Litigation Reform Act of 1995 ("Reform Act" or "Act"), codified at Section 21D of the Securities Exchange Act of 1934, 15 U.S.C. 78u-4. Specifically, the Commission will address legal standards for evaluating: (1) a proposal for appointment of a "group of persons" as lead plaintiff; (2) a proposal for appointment of competing applicants as "co-lead plaintiffs"; and (3) a proposal for appointment of multiple lead counsel.
The Commission, the agency principally responsible for the administration and enforcement of the federal securities laws, has long expressed the view that legitimate private actions under these laws serve an important role. Such actions work to compensate investors who have been harmed by securities law violations and, as the Supreme Court has repeatedly recognized, they "provide `a most effective weapon in the enforcement' of the securities laws and are `a necessary supplement to Commission action.'" Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 310 (1985) (citation omitted).
In adopting the Reform Act, Congress affirmed that "[p]rivate securities litigation is an indispensable tool with which defrauded investors can recover their losses." It furtherstated that private lawsuits "promote public and global confidence in our capital markets and help to deter wrongdoing and to guarantee that corporate officers, auditors, directors, lawyers and others properly perform their jobs." Joint Explanatory Statement of the Committee of Conference, Conference Report on Securities Litigation Reform, H.R. Rep. No. 104-369, at 31 (1995) ("Conf. Rep.").
Congress sought through the Reform Act's lead plaintiff provisions, 15 U.S.C. 78u-4(a), to ensure more effective representation of investors' interests in private securities class actions by transferring control of the actions from lawyers to investors. Conf. Rep. 32-35. The Act establishes specific procedures and criteria for the appointment of lead plaintiff; it further provides that the lead 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)(iii)(I)-(III) & (v).
The Commission believes that the term "group of persons" in the lead plaintiff provisions should be construed in light of the language and purposes of the Reform Act to mean only those groups capable of effectively managing the litigation and supervising counsel. Accordingly, the Commission believes that the Court should limit a proposed lead plaintiff group to a size that is small enough to ensure adequate monitoring, coordination, and accountability. The Commission believes that normally this will be three to five members, but even if a proposed group is within this range, the Court should consider the reasons for and effectsof including each member in the "group." The Court should scrutinize with care situations in which the "group" appears to have been assembled in disregard of, or at the expense of, its capacity for effective, unified decisionmaking, simply in an attempt to give it "the largest financial interest in the relief sought by the class," 15 U.S.C. 78u-4(a)(3)(B)(iii)(I)(bb).
To enable the Court to evaluate the proposed group, the "group" should provide the Court with appropriate information about its members, structure, and intended functioning. The Court should reject any proposed group that does not demonstrate to the Court's satisfaction that it is constituted in such a way that it can effectively lead the class action.
Where the Court limits the size of a proposed group, the Court should consider only the alleged losses of the "group" as limited in determining which lead plaintiff applicant has "the largest financial interest." Once the Court determines that one person or properly constituted group satisfies all of the Reform Act's criteria for appointment as lead plaintiff, it would be contrary to the language and purposes of the Act to appoint a competing applicant as "co-lead plaintiff."
With regard to the pending lead counsel motions, the Commission believes that the Reform Act gives the lead plaintiff a large role in the choice of counsel and ensures that only in very unusual circumstances will it have to accept counsel that it did not choose for itself. However, the Act otherwise preserves the Court's traditional discretion to evaluate the likelyeffectiveness of counsel for the protection of the class, and the Commission believes that the Court should actively exercise that discretion to review proposals for multiple lead counsel. 1
A. Legislative History Of The Lead Plaintiff Provisions
The Reform Act was enacted in December 1995. The President had vetoed the bill, but did not object to its provisions for the appointment of lead plaintiff and lead counsel, 15 U.S.C. 78u-4(a), which his staff described as "appropriate class action reform provisions." See 141 Cong. Rec. H15214-15, S19054 (1995).
These provisions arose out of Congress' concern, reflected in the House, Senate, and Conference Committee Reports on the bill, that some class action securities litigation had become a "lawyer-driven" enterprise, in which law firms sought to bring cases and then sought out plaintiffs in whose name they could sue. 2 Congress sought to "protect investors who join class actions against lawyer-driven lawsuits by giving control of the litigation to lead plaintiffs with substantial holdings of the securities of the issuer." Conf. Rep. 32; accord S. Rep. 4(Congress "intends * * * to empower investors so that they -- not their lawyers -- exercise primary control over private securities litigation"), 6 ("to transfer primary control of private securities litigation from lawyers to investors"), 10 ("The lead plaintiff should actively represent the class[;] * * * the lead plaintiff -- not lawyers -- should drive the litigation."). This concern also was expressed repeatedly during the floor debate. 3
Congress viewed this problem as stemming from the fact that the lead counsel in the case commonly had a greater financial stake in the litigation than did the plaintiffs:
Throughout the process, it is clear that the plaintiff class has difficulty in exercising any meaningful direction over the case brought on its behalf. * * * Because class counsels' fees and expenses sometimes amount to one-third or more of recovery, class counsel frequently has a significantly greater interest in the litigation than any individual member of the class.
Furthermore, class counsel * * * may have a greater incentive than the members of the class to accept a settlement that provides a significant fee and eliminates any risk of failure to recoup funds alreadyinvested in the case.
H. Rep. 17-18; accord S. Rep. 6-7.
The lead plaintiff provisions were "intended to encourage the most capable representatives of the plaintiff class to participate in class action litigation and to exercise supervision and control of the lawyers for the class." Conf. Rep. 32. They were "intended to increase the likelihood that parties with significant holdings in issuers, whose interests are more strongly aligned with the class of shareholders, will participate in the litigation and exercise control over the selection and actions of plaintiff's counsel." Id. In Congress' judgment, "[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.
In particular, Congress wanted to "encourage institutional investors to take a more active role in securities class action lawsuits." Id. Congress "believe[d] that increasing the role of institutional investors in class actions will ultimately benefit shareholders and assist courts by improving the quality of representation in securities class actions." Id.
Congress gave the initial choice of lead counsel to the lead plaintiff. See id. at 35. As a result, Congress "expect[ed] that the plaintiff will choose counsel rather than, as is true today, counsel choosing the plaintiff." Id.; S. Rep. 11. However, Congress "d[id] not intend to disturb the court'sdiscretion under existing law to approve or disapprove the lead plaintiff's choice of counsel when necessary to protect the interests of the plaintiff class." Id. at 35; S. Rep. 11.
B. Facts 4
Multiple securities fraud class actions have been filed in this Court against Orbital Sciences Corporation. Two motions for appointment of lead plaintiff and lead counsel are pending.
Five New York City employee pension funds claiming losses totalling $715,592 jointly seek to be lead plaintiff. 5 The Comptroller of the City of New York manages the investments of each of the pension funds, and the Corporation Counsel for the City of New York serves as counsel to each of the funds. See NY Mem. 3. The pension funds propose one law firm as lead counsel.
The "Orbital Plaintiffs Group," consisting of from about 150 to 200 persons represented by 21 separate law firms, has filed a competing motion. The Group proposes to "streamline the litigation" (OG Mem. at 3) by seeking appointment of only certain of its members. Yet, the Group relies (see OG Mem. 1, 2; OG Opp. 2, 7) on the sum of the losses of all of its members, not onlythose put forward as lead plaintiff. The Group's motion does not describe these members other than to give their names and alleged losses; it does not state whether they have any pre-existing relationships or even any contact with one another or whether they are even aware they have been put forward, individually or as part of a proposed "group," as lead plaintiff.
Originally, the Group asked that a subgroup of seven persons be appointed lead plaintiff. OG Mem. 3, 13. These individuals claim losses of $271,000 (Mr. Copansky), $231,000 (Ms. Meyer), $142,000 (Mr. Greiff), $125,000 (Mr. Golinsky), $80,000 (Mr. Basch), $4,500 (Mr. Fletcher), and $4,000 (Ms. Askew), a total of about $850,000. The limited information provided indicates that Mr. Copansky is a resident of California and client of Berger & Montague; Ms. Meyer is a resident of Rhode Island; and Mr. Greiff is a resident of Massachusetts.
In responding to the pension funds' motion, the Orbital Group invites the Court to replace the subgroup's four smallest investors with Mr. O'Keefe, who claims $252,000 in losses and was not previously identified as a member of the Orbital Group. See OG Mem. 3 n.2. As thus reconstituted, the Group members actually proposed as lead plaintiff are the three of the original seven subgroup members, who claim a total of $644,000 in losses, plus the new member, for a combined total claim of $896,053 in losses.
The Group has moved for appointment of Berger & Montague and Schiffrin & Barroway as "co-lead counsel" and two other law firms as "executive committee counsel," one of which would also act as"liaison counsel." Each of the proposed counsel represents a named plaintiff in one or more separate actions against Orbital. The Group's only explanation of its counsel arrangement is that the proposed law firms "possess extensive experience in the area of securities litigation and have successfully prosecuted numerous securities fraud actions" and that multiple counsel "will be able to deploy sufficient resources to prepare for trial in the shortest possible time." O.G. Mem. 13; O.G. Opp. Mem. 7.
The Group does not describe the intended duties and responsibilities of its four proposed law firms. Nor does it describe the lines of authority among the firms, explain the reason why it has (apparently) divided the leadership of the proposed executive committee between two "co-lead counsel," or describe the manner in which the various counsel would function with members of the proposed lead plaintiff group. Nor does it contend that the pension funds' proposed counsel lacks "extensive experience in the area of securities litigation," lacks a record of "successfully prosecut[ing] numerous securities fraud actions," or would be unable "to deploy sufficient resources."
I. THE COURT SHOULD LIMIT A PROPOSED LEAD PLAINTIFF "GROUP" TO A SMALL SIZE THAT IS CAPABLE OF EFFECTIVELY MANAGING THE LITIGATION AND EXERCISING CONTROL OVER COUNSEL, SCRUTINIZE EVEN A SMALL PROPOSED GROUP, AND REJECT ANY PROPOSED GROUP THAT DOES NOT DEMONSTRATE THAT IT WILL HAVE THIS CAPABILITY.
The Commission believes that to effectuate the Reform Act's language and purposes the Court generally should limit a proposed lead plaintiff group to a small size capable of effectivelymanaging the litigation and supervising counsel. The Court should consider each member's incentive and ability to work together to control the litigation, especially where it appears that the "group" was formed simply to make a nominal claim to the largest financial interest. The Court should consider only the alleged losses of the "group" as limited and should reject any "group" that does not demonstrate to the Court's satisfaction that it is constituted to lead the class action effectively.
Although the Reform Act states that lead plaintiff may be a "group of persons," this does not mean the Court must accept as a "group" any number and assortment of persons proposed. Courts should interpret this general statutory language by reference to the Act's language as a whole and to the Act's purposes. 6
The Act refers to a "group of persons," as an alternative to a "person," in the provision that establishes a presumption that the "most adequate plaintiff" to lead a securities class action is the one with the largest claimed financial loss. 15 U.S.C.78u-4(a)(3)(B)(iii)(I). As discussed above, Congress intended by that provision to protect plaintiff investors by making securities litigation less of a "lawyer-driven" enterprise, and by vesting control of the litigation in the lead plaintiff.
The presumption is intended to effect this result by assuring that the lead plaintiff has a substantial stake in the litigation, and thus the ability and incentive to control the lawyers. This will, Congress anticipated, commonly be an institutional investor which has the sophistication and ability to control complex litigation. See, e.g., Gluck v. Cellstar Corp., 976 F. Supp. 542, 548 (N.D. Tex. 1997) ("The legislative history of the Reform Act is replete with statements of Congress' desire to put control of such litigation in the hands of large, institutional investors."); Greebel v. FTP Software, Inc., 939 F. Supp. 57, 63-64 (D. Mass. 1996) (same). 7 The Commission hasnoted in other contexts that institutions have skills and expertise that are likely to be very valuable to investors, and, because institutions frequently have a substantial financial interest at stake, are likely to devote substantial time and resources to representing investors in litigation. 8
This does not suggest that the lead plaintiff must be an institution. But it strongly suggests that a "group of persons" within the meaning of the Act should, like an institution, be able to effectively manage the litigation and supervise counsel.
The mere fact that a proposed group might have the largest combined financial stake does not guarantee that result. Indeed, that is particularly unlikely where the group consists of a large number of previously unaffiliated persons, who have little or no contact with one another, who by and large claim relatively modest individual losses, and who have no demonstrated incentive or ability to work together to control the litigation. The problem is made worse if the persons have been enlisted to becomelead plaintiff by counsel. 9 Ordinarily, such an assemblage will be unable to control the litigation. The net result will be that while the "group" nominally has a large stake in the litigation, the lawyers will dominate decisionmaking.
Construing the term "group of persons" in light of the language and purposes of the Reform Act, the Commission believes that a court generally should not approve a group as lead plaintiff unless it is small enough to be capable of effectively managing the litigation and the lawyers. The Commission believes that ordinarily, in order to ensure adequate stakes, monitoring, coordination, and accountability, such a group should be no more than three to five persons, and the fewer the better. 10
Even if the proposed group is within this range, however, its members should be evaluated separately for their incentive and ability to work together to control the litigation. The Court should consider the marginal benefit of including eachmember in the "group" as weighed against the further division of decisionmaking authority and the other problems attendant to enlargement of the group. The Court should scrutinize with care situations where the "group" appears to have been formed in disregard of, or at the expense of, its capacity for effective, unified decisionmaking, simply in an attempt to aggregate a larger nominal financial interest. Unless the court is convinced that additional members would add to -- or not hinder -- the ability of the group as a whole to manage the litigation effectively, it should not allow their addition. 11
In order for a court to analyze a proposed lead plaintiffgroup, full information should be provided about the "group." Such information should include descriptions of its members, including any pre-existing relationships among them; an explanation of how the "group" was formed and how its members would function collectively; and a description of the mechanism that its members and the proposed lead counsel have established to communicate with one another about the litigation. If the "group" fails to explain and justify its composition and structure to a court's satisfaction, its motion should be denied.
A recent hearing on a proposed settlement suggests the sort of problems that can arise if a group is not constructed, and does not function, properly. See Parnes v. Digital Lightwave, Inc., No. 98-152-CIV-T-24(C), Tr. 46-52, 98-103, 109-11, 126-27, 132-44 (M.D. Fla. Mar. 12, 1999) (in Appendix). One member of a ten-person lead plaintiff group complained that the settlement was made by the lawyers and that the group members had not been consulted. The court chastised the group's counsel for a "very poor job" of communicating with the objector, and noted that "clearly the purpose in enacting the law was to get lead plaintiffs in there that had a stake and -- and perhaps some knowledge, and -- and the ability to actually communicate" (Tr. 143-44). Counsel replied that "the language [of the Reform Act] is one thing and the practicalities are another" (Tr. 43), and questioned the "so-called enhanced management role that the individuals are supposed to play" under the Act, suggesting that the group members were "inexperienced" and did not have theknowledge necessary to manage the litigation (Tr. 48). This highlights the importance of careful scrutiny at the outset of the members, structure, and intended functioning of the group, and how it will manage the litigation.
Many courts have limited proposed lead plaintiff groups in accordance with the principles outlined above. For example, in In re Baan Co. Sec. Litig., 1999 WL 223178, at *3 (D.D.C. Apr. 12, 1999), the court noted that a number of courts "have determined that multiple lead plaintiffs will be unable to control the litigation, effectively negotiate retention agreements, and supervise the conduct of counsel." The court stated that its "experience with class actions and multidistrict litigation * * * teaches that a small committee will generally be far more forceful, effective and efficient than a larger aggregation." Id. It held that "[t]he Lead Plaintiff decision should be made under a rule of reason but in most cases three should be the initial target, with five or six the upper limit," and provisionally chose the three "group" members with the most losses. Id. 12 Courts have also rejected "groups" that did notsufficiently explain or justify their composition. 13
Of course, if the court limits a group in size, it should consider only the losses of the group as limited in determiningwhich applicant has the largest claimed losses and thus is the presumptive lead plaintiff. There is no basis for the Orbital Group's invitation to the Court to "consider the aggregate losses of all [150 to 200 of its] members," O.G. Opp. Mem. 7, even though the Group proposes that only four to eight of them act as lead plaintiff, and the Court may accept even fewer. The Reform Act provides that "the court * * * shall appoint as lead plaintiff" the "most adequate plaintiff," which is presumed to be the "person or group of persons" that "has the largest financial interest." 15 U.S.C. 78u-4(a)(3)(B)(i) & (iii). Thus, only the financial interest of the "person or group of persons" that the court "shall appoint as lead plaintiff" is considered. Any other approach would be "playing a shell game with the statute." In re Baan Co. Sec. Litig., 1999 WL 223178, at *4 (D.D.C. Apr. 12, 1999) (in SEC Appendix).
The Orbital Group contends (see OG Rep. 4-5) that it is under no obligation to provide the class or this Court with any more information about its proposed lead plaintiff "group" than its members' names, data relevant to their loss calculations, and the bare minimum facts required in statutory certifications under 15 U.S.C. 78u-4(a)(2). It essentially argues that the Court must accept as a "group" any number and assortment of persons proposed. See, e.g., OG Rep. 5 (collapsing "group" inquiry into the "simple mathematical test" of the largest financial interestrequirement). 14 The Group's rationales for its untenable position -- whether based on statutory language, case law, or policy -- do not withstand scrutiny.
The Orbital Group argues that the "plain meaning" of "group of persons" is "an aggregation of individuals united to pursue a common goal." OG Rep. 1. It argues that "unity of interest in the claim alone has always been the basis for class action litigation" (OG Opp. 4; emphasis omitted). Under this view,
a "group" could include hundreds of members, or, for that matter,every member, of the plaintiff class. Courts in other cases have had no difficulty rejecting such an assertion. 15 The Group's argument ignores the fact that Congress adopted the Reform Act in order to assure that effective lead plaintiffs, capable of controlling the lawyers, were appointed. The Orbital Group's approach would eviscerate the legislation by allowing large, lawyer-formed and lawyer-controlled amalgamations of investors to serve as the lead plaintiff. The Orbital Group simply ignores "the Reform Act's fundamental goal of client control," Gluck, 976 F. Supp. at 549; see pp. 4-8, supra.
None of the cases the Orbital Group cites (OG Mem. 7; OG Opp. Mem. 5) holds that a "group" can be of unlimited size and indiscriminate composition. Most contain little or no analysis of the "group" issue; indeed, the issue does not appear to have been contested, briefed, or argued in the cases. In contrast, where the issue has been litigated, courts have routinely limited, and have even rejected, proposed lead plaintiff groups.
Contrary to the Orbital Group's assertion (OG Rep. 4-5), other sections of the Reform Act do not support its position. The mere fact that one section of the Act, 15 U.S.C. 78u-4(a)(2), requires a plaintiff to provide certain minimum information in a certification attached to a complaint does not preclude the court from requiring additional information where necessary to make aproper lead plaintiff determination. 16 Nor does the fact that the Act contemplates a "tight time frame" (OG Rep. 5) for lead plaintiff motions preclude careful inquiry into the way in which a proposed group is constituted. There is no reason why a careful analysis of a proposed group cannot be done within the time frames indicated by the Act.
The Reform Act's "mixed inquisitorial/adversarial model for developing a record to make the Lead Plaintiff decision" is not inconsistent with resolving the motions "with dispatch." See Baan, 1999 WL 223178, at *1. The Commission assumes that in evaluating proposed groups courts will make their best judgments based on reasonably available information. 17 If a proposed group is unwilling or unable to provide appropriate information in a timely manner, then this is no reason to weaken the statutory language "group of persons" and deprive the Court of an independent role in evaluating a proposed "group"; it means themotion should be denied or modified as the Court sees fit.
Finally, the Orbital Group touts its approach as quicker and simpler (OG Rep. 4-5). But the pre-Reform Act "race to the courthouse" to file complaints and selection of counsel on a "first-come, first serve" basis could also be described as "simple" (OG Rep. 5) or "swift and inexpensive" (OG Rep. 4). Congress disposed of those practices with the Reform Act because it viewed them as harmful in the long run of litigation. See Conf. Rep. 33. The Orbital Group's approach ignores the long-term benefits, both in terms of effectively run litigation and maximized recovery, that could result from a properly constituted and functioning lead plaintiff group.
II. THE COURT SHOULD NOT APPOINT COMPETING APPLICANTS AS "CO-LEAD PLAINTIFFS."
The Orbital Group requests (OG Opp. 7) that even if the pension funds meet all of the Reform Act's requirements for appointment as lead plaintiff and the Orbital Group does not, the Court should appoint the Orbital Group as "co-lead plaintiff." The Commission believes that the Orbital Group's request is contrary to the language and purposes of the Reform Act.
The language of the Act strongly indicates that Congress did not intend for there to be "co-lead plaintiffs." The Act establishes a procedure and criteria for evaluating competing lead plaintiff motions. See 15 U.S.C. 78u-4(a)(3)(B)(iii) (referring to appointment of "the person or group of persons * * * who filed a complaint or a motion" and has "the largest financial interest") (emphasis added). The Act speaks in thesingular, of the court appointing a "lead plaintiff," not lead plaintiffs. See 15 U.S.C. 78u-4(a)(3)(A)(i)&(ii). It provides a mechanism for identifying "the most adequate plaintiff," not the two or more most adequate plaintiffs. 15 U.S.C. 78u-4(a)(3)(B)(i)-(iii). It specifies that the most adequate plaintiff is presumptively the "person or group of persons" which "has the largest financial interest" in the case. 15 U.S.C. 78u-4(a)(3)(B)(iii)(I)(bb). It seems unlikely that Congress contemplated that in the typical case there could be more than one plaintiff with "the largest" financial interest.
The mere fact that the lead plaintiff provisions refer to "the member or members of the purported plaintiff class" and "person or group of persons" as lead plaintiff does not mean that there can be multiple lead plaintiffs. Under the statutory presumption, multiple class "members" or "persons" can be appointed lead plaintiff only to the extent that they form a single "group." The statute refers to a "person or a group of persons," not a combination of multiple groups or multiple persons not part of one group. As discussed above, a "group" must serve the same statutory purposes as a "person," which requires it to have unified decisionmaking. 18
There is no indication that Congress intended in specifying procedures and criteria for the determination of the mostadequate plaintiff to give plaintiffs a basis for urging courts to exercise wide discretion to combine class members and loss amounts and create coalitions. The Group cites no basis in the statute or the legislative history for a court to compel a single movant that satisfies all of the criteria for appointment as lead plaintiff and which objects to divided leadership of the class action to join a faction of competing lead plaintiff movants.
Were the plaintiff with the largest financial interest to be joined by competing "co-lead plaintiffs," that plaintiff's ability to negotiate effective legal retention agreements and to exercise control over the litigation and the lawyers would be dissipated. See In re Cendant Corp. Litig., 182 F.R.D. 144, 147-49 (D.N.J. 1998). Institutional investors, which are already reluctant to seek lead plaintiff status, 19 might be even more reluctant to do so if they could not exercise effective control of the litigation, and instead had to share decisionmaking authority and possibly engage in disputes with "co-leadplaintiffs." 20 Appointing "co-lead plaintiffs" would dilute the presumptive lead plaintiff's ability to manage the litigation and supervise counsel effectively.
Numerous cases have rejected proposals for appointment of "co-lead plaintiffs." In In re Advanced Tissue Sciences Sec. Litig., 1998 U.S. Dist. LEXIS 16926, at *13-14 (S.D. Cal. Oct. 20, 1998), a proposed lead plaintiff group "appeal[ed] to the Court's equitable powers for the creation of a co-lead plaintiff/co-lead counsel leadership structure." The court rejected the proposal, holding that "where two or more parties are competing for appointment as lead plaintiff, the mandate of the [Act] is unambiguous" and that "the plain language of the [Act]" requires appointment of the single applicant that meets all of the statutory criteria. Id. at *14. 21
The only decision of which the Commission is aware that has attempted to set forth a rationale for the appointment of "co-lead plaintiffs" is In re Oxford Health Plans, Inc. Sec. Litig., 182 F.R.D. 42 (S.D.N.Y. 1998). In Oxford, the court appointed "co-lead plaintiffs" despite the fact it determined that one lead plaintiff movant with a larger financial interest than any of the other competing movants combined met all of the criteria for appointment as lead plaintiff. The Commission disagrees with the Oxford court's reasoning in appointing "co-lead plaintiffs."
Language in the Oxford opinion suggests that the court may have been concerned about adequacy of representation and the resources needed for litigation. 22 However, rather than addressing any such concerns within the framework of the Act itself, under an adequacy of representation analysis or throughan evaluation of the counsel arrangement proposed by the movant with the largest financial interest, the court misinterpreted and essentially disregarded the statutory presumption. Moreover, in substituting its own "principle of providing the class with the most adequate representation" for the statutory presumption of the "most adequate plaintiff," id. at 49, the Oxford court relied on policy considerations such as "diverse representation," id., that Congress rejected in adopting the Act. 23
The Oxford court's suggestion that "the lead plaintiff movants are not in fact competing with each other," 182 F.R.D. at 49, ignores Congress' judgment that certain members of the class are more effective representatives than others. Regardless of whether the court believes that "each plaintiff [can] control its own chosen counsel," id., competing views among the "co-lead plaintiffs" will necessarily diminish their ability to control the litigation. See Cendant, 182 F.R.D. at 147 ("representation by a disparate group of plaintiffs * * * could well hamper the force and focus of the litigation"). There is no question that as a general matter the existence of multiple lead plaintiffs will diminish the bargaining power (e.g., regarding retention of counsel) of the lead plaintiff with the largest stake and will dilute its ability to control the litigation and the lawyers.
Rather than erroneously appointing multiple lead plaintiffs,the Oxford court should have exercised its traditional discretion to evaluate counsel and adequacy of resources. As noted in Cendant, 182 F.R.D. at 149-50, "[i]n contrast to the strictly defined procedures and considerations that prescribe the determination of lead plaintiff * * * the Court's approval [of the proposed lead counsel] is subject to its discretionary judgment that lead plaintiff's choice of representative best suits the needs of the class." The Cendant court rejected "the argument that additional plaintiffs bring to the litigation other counsel capable of advancing additional funds" as a basis for appointing "co-lead plaintiffs." Id. at 148.
III. ALTHOUGH COURTS SHOULD NOT, EXCEPT IN VERY UNUSUAL CIRCUMSTANCES, FORCE A LEAD PLAINTIFF TO RETAIN COUNSEL IT HAS NOT SELECTED ITSELF, THEY SHOULD ACTIVELY EXERCISE THEIR DISCRETION TO REVIEW MULTIPLE LEAD COUNSEL PROPOSALS.
For the reasons fully explained in the Commission's amicus curiae brief in Baan, which the district court appended to its decision in that case, 1999 WL 223178, the Commission believes that courts should actively exercise their traditional discretion, retained under the Reform Act, to review multiple lead counsel proposals. While multiple counsel arrangements may at times be warranted where firms bring complementary resources and skills to the case, they can also give rise to increased costs, conflicts, and other serious problems. 24 The courtshould carefully scrutinize these arrangements to assure that multiple counsel are needed and will not give rise to problems.
For the foregoing reasons, the Commission believes that the Court should appoint lead plaintiff and lead counsel based on careful attention to the facts of this case and in accordance with the considerations discussed in this memorandum.
HARVEY J. GOLDSCHMID
LUIS de la TORRE
| ____________________________ |
CARL A. TIBBETTS
NATHAN A. FORRESTER
Securities and ExchangeCommission
Dated: May 18, 1999
CERTIFICATE OF SERVICE
I certify that on this _____ day of May, 1999, I caused to be served a copy of the foregoing MEMORANDUM OF THE SECURITIES AND EXCHANGE COMMISSION, AMICUS CURIAE, by first-class U.S. mail (postage prepaid) or by overnight delivery to each of the counsel on the attached service list.
Nathan A. Forrester
Securities and Exchange Commission
450 Fifth St., N.W.
Washington, DC 20549-0606
1 The Commission takes no position on issues not referenced in this memorandum that are or might be raised in this case, such as disputes about the dollar amount of losses, or on the ultimate questions of who should be appointed lead plaintiff and lead counsel under the facts of this case.
2 Congress was especially concerned that in some such cases lawyers engage in abusive practices and "often receive a disproportionate share of settlement awards." Conf. Rep. 36; accord id. at 31-33; Report on the Private Securities Litigation Reform Act of 1995, S. Rep. No. 104-98, 6-12 (1995) ("S. Rep."); Report on the Common Sense Legal Reform Act of 1995, H.R. Rep. No. 104-50, 14-20 (1995) ("H. Rep.").
3 See, e.g., 141 Cong. Rec. S8895 (Sen. D'Amato) ("the legislation empowers investors so that they, not their lawyers, have greater control over their class action cases"), S8897 (Sen. Domenici) ("So what we have and what is wrong with this system is very, very fundamental. Lawyers, not clients, control these cases.") (June 22, 1995); 141 Cong. Rec. S9055 (Sen. Frist) ("the lawyer-driven nature of these lawsuits tends to shortchange investors who have truly been defrauded"), S9065 (Sen. Grams) ("the plaintiff who is bringing the suit [now] * * * this is basically the attorney"), S9075-76, 77 (Sen. Hatch) ("the bill contains a number of reforms of securities litigation class actions that are designed to increase participation of the real shareholder plaintiffs and decrease the control of attorneys"), S9077 (Sen. Murray) ("[investors] have a right to have more of a say in steering the course of litigation") (June 26, 1995); 141 Cong. Rec. S9172 (Sen. Hatfield) ("This legislation is about curtailing the abuses in this country's securities litigation system and empowering defrauded investors with greater control over the class action process."), S9173 (Sen. Mikulski) ("with this bill, the court will be able to pick one person -- who has lost a lot of money in a class action suit -- to be the leader. This way the system works for investors instead of against them," as when "lawyers seek out clients just so they can have cases to litigate") (June 27, 1995); 141 Cong. Rec. S9212 (Sen. Domenici) (bill "puts investors with real financial interests, not lawyers in charge of the case"), S9321 (Sen. Dodd) (bill "empowers investors so that they, not their lawyers, have greater control over their class action cases") (June 28, 1995); 141 Cong. Rec. S17934 (Sen. D'Amato) ("[Bill] will empower real investors, especially pension funds and other institutional investors, to take control of the lawsuit."), S17956 (Sen. Dodd), S17967, S17969 (Sen. Domenici) ("[Bill] contains provisions which place investors, not lawyers, in control of the lawsuit. Unlike the current lawyer-driven system, under this new lawthe investors with the greatest stake in the outcome of the litigation will control the case."), S17980 (Sen. Murray) (bill "will reform our securities law so that investors will have more of a say in the outcome of their suit"), S17982 (Sen. Frist), S17983 (Sen. Dole) (bill "diminishes the likelihood that these cases will be driven by lawyers, instead of real plaintiffs by allowing the most adequate plaintiff to be the party with the greatest financial interest"), S17984 (Sen. Moseley-Braun) ("Many investors also support this bill because it gives them, rather than the lawyers who are supposed to be working for them, control of any class action suits filed. It is the client, rather than the attorney, that is supposed to control a lawsuit, and part of the reason this bill is so necessary is that this simple principle has somehow gotten lost in recent years.") (Dec. 5, 1995); 141 Cong. Rec. H14038 (Rep. Cox) ("What we are seeking to do here is to protect investors so that they are in charge of these kind of lawsuits."), H14039 (Rep. Bliley) (bill "puts control of class action lawsuits back in the hands of the real shareholders, where it belongs"), H14048 (Rep. Harman) (bill "ends abusive practices and restores investor control over lawsuits"), H14050 (Rep. Deutsch) (bill "will restore power to real investors in securities lawsuits, changing the rules so that actual investors, not predatory lawyers call the shots") (Dec. 6, 1995); 141 Cong. Rec. S19054 (Sen. Hatch), S19084 (Sen. Reid) ("Defrauded investors are not adequately compensated because attorneys, not investors, control these class actions.") (Dec. 21, 1995).
4 This section is based on the opening ("OG Mem."), opposition ("OG Opp."), and reply ("OG Rep.") briefs, and accompanying materials, of the "Orbital Plaintiffs Group" (or "Orbital Group" or "Group"); and the opening ("NY Mem."), opposition, and reply briefs, and accompanying materials, of the "New York City Pension Funds" (or "pension funds").
5 These funds are: New York City Employees' Retirement System; New York City Fire Department Pension Fund; New York City Board of Education Retirement System; New York City Police Superior Officers' Variable Supplement Fund; and New York City Firefighters' Variable Supplement Fund. NY Mem. 2-3.
6 See Greebel v. FTP Software, Inc., 939 F. Supp. 57, 63-64 (D. Mass. 1996) (interpreting Reform Act's notice provision in conjunction with largest financial interest requirement because a "statutory provision should be read by reference to the whole act"), citing John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav. Bank, 510 U.S. 86, 94-95 (1993); see also Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997) ("The plainness or ambiguity of statutory language is determined by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole."); United States v. Taylor, 487 U.S. 326, 333 (1988) (reviewing legislative history to interpret general statutory language); Metropolitan Edison Co. v. People Against Nuclear Energy, 460 U.S. 766, 774 (1983) (considering "congressional concerns that led to the enactment of [the statute]").
7 As explained in a law review article cited in the Act's legislative history as "provid[ing] the basis for the `most adequate plaintiff' provision," S. Rep. 11 n.32, "[i]nstitutions' large stakes give them an incentive to monitor, and institutions have or readily could develop the expertise necessary to assess whether plaintiffs' attorneys are acting as faithful champions for the plaintiff class." Elliott J. Weiss & John S. Beckerman, Let the Money Do the Monitoring: How Institutional Investors Can Reduce Agency Costs in Securities Class Actions, 104 Yale L.J. 2053, 2095 (1995) ("Weiss & Beckerman"). The authors further argue that institutions can obtain more favorable settlements, and should be "in a position to negotiate fee arrangements with plaintiffs' lawyers before class actions are initiated[,] * * * [which] may well * * * differ substantially from the fee structures that courts currently employ." Id. at 2107, 2121; accord City Nominees, Ltd. v. Macromedia, Inc., No. C97-3521-SC, slip op. at 2 (N.D. Cal. Jan. 23, 1998) ("As courts have noted, large institutional investors have proven to be more efficient plaintiffs than unrelated plaintiffs grouped together, producing larger recoveries with smallerattorney's fees than individual plaintiffs."); In re California Micro Devices Sec. Litig., 168 F.R.D. 257, 275 (N.D. Cal. 1996) (discussing institutions in non-Reform Act case), 965 F. Supp. 1327, 1330-32 (N.D. Cal. 1997) (same).
8 See, e.g., Memorandum of Securities and Exchange Commission in Support of Motion for an Order Permitting Securities Trading in Certain Circumstances, filed in In re WRT Energy Corp., No. 96-BK-5012 (Bankr. W.D. La. May 6, 1996) at 2, 4 (advising bankruptcy court that entities such as investment advisers, broker-dealers, pension funds, banks, and insurance companies, while serving on creditors' committees, should be allowed to engage in trading in the securities of debtors, subject to certain restrictions designed to prevent trading on material nonpublic information).
9 In its 1997 report on the Act, the Commission's Office of General Counsel stated that some lawyers, "[t]aking advantage of [the Act's] provision" allowing appointment of a "group of persons" as lead plaintiff, have attempted "to recruit investors as additional clients." Office of the General Counsel, Securities and Exchange Commission, Report to the President and the Congress on the First Year of Practice Under the Private Securities Litigation Reform Act of 1995 65 (Apr. 1997) ("SEC Staff Report"). Specifically, some lawyers have "phrased [notices to the class under the Act] in a way more likely to attract clients, rather than competition from investors (and other law firms) independently vying to be named lead plaintiff." Id.
10 There may, of course, be unusual circumstances that warrant departure from these limits. Such circumstances might include pre-existing relationships among the members or other factors indicating that they have a special capacity to provide able and unified decisionmaking independent of counsel.
11 A form of gamesmanship appears to be at work in some Reform Act cases in which the proponents of a lead plaintiff "group" adjust its members for the purpose of assuring that, in total, it has more losses than a competing lead plaintiff applicant (typically an institution), and thus should be the presumptive lead plaintiff. For example, in LaPerriere v. Vesta Ins. Group, Inc., No. 98-AR-1407-S (N.D. Ala., Acker, J.), a large "group" originally proposed that five of its members be appointed lead plaintiff. When an institution with losses rivalling the subgroup's filed a competing motion, the "group" enlarged its proposed subgroup to nine members (and proposed another law firm representing one of the new members as a third "co-lead counsel"). We believe that this sort of conduct warrants scrutiny by the courts.
In this regard, the Orbital Group initially proposed seven persons, with claimed losses totalling $850,000, as lead plaintiff. While $850,000 in losses is more than those claimed by the pension funds, the number of persons in the "group" exceeded the three, and no more than five, persons recommended by the Commission and the recent Baan decision. The Group apparently decided to jettison four subgroup members (see OG Opp. 3 n.2), but this would have reduced the sum of the remaining three members' losses to less than the pension funds'. The Group then added a new person with a $252,000 claim to the Group and subgroup, bringing the subgroup's total claims up to almost $900,000, more than the pension funds', but keeping the subgroup's size at four.
12 See In re Oxford Health Plans, Inc. Sec. Litig., 182 F.R.D. 42, 46 (S.D.N.Y. 1998) (limiting a proposed 30-member group to three members, "each of whom has suffered from two to three million dollars in losses"); Chill v. Green Tree Financial Corp., 181 F.R.D. 398, 409 (D. Minn. 1998) (appointing a "smaller subset" of a large proposed lead plaintiff group); In re Advanced Tissue Sciences Sec. Litig., 1998 U.S. Dist. LEXIS 16926, at *19-23 (S.D. Cal. Oct. 20, 1998) ("courts have repeatedly rejected motions for the appointment of large amalgamations of unrelated persons as lead plaintiffs as being directly contrary to the [Act]"); Lubitsch v. Dataworks Corp., No. 98-2012-IEG (JAH), slip op. at 4 (S.D. Cal. Feb. 9, 1999) (appointing group ofthree, rather than 25, to "minimiz[e] lawyer-driven litigation" and avoid "making administration of this action needlessly complex and unwieldy"); Zaltzman v. Manugistics Group, Inc., No. S-98-1881, slip op. at 11 (D. Md. Oct. 8, 1998) (limiting proposed group consisting of 92 individuals and entities to the two members with the largest claimed losses); City Nominees v. Macromedia, No. C97-3521-SC, slip op. at 2, 7 (limiting proposed group where "counsel has presented no rationale for [its] breadth" and its size "would make the administration of this complex civil action even more complex"); In re Informix Corp. Sec. Litig., No. C-97-1289-SBA, slip op. at 6 (N.D. Cal. Oct. 17, 1997) (rejecting large "group," stating that it "would not be able to have the type of meaningful participation in the conduct of the litigation which was one of the guiding purposes of the lead plaintiff provisions"); see also In re Milestone Scientific Sec. Litig., 183 F.R.D. 404, 418 (D.N.J. 1998) (stating that a "fundamental goal of the [Act] * * * [is to] empower a unified force to control the litigation" and that "[t]he composition of the proposed [group] must be scrutinized carefully" because it raises "concerns regarding the division of authority and dilution of control").
13 See Ravens v. Iftikar, 174 F.R.D. 651, 662-63 (N.D. Cal. 1997) (denying without prejudice proposed group's lead plaintiff motion, in part due to its failure to provide sufficient information about its members' "background, experience and capabilities"); In re Donnkenny Inc. Sec. Litig., 171 F.R.D. 156, 157-58 (S.D.N.Y. 1997) (where six formerly competing, unrelated investors had not justified their "group," appointing one member with significantly more losses than the others); Sherleigh Assocs. v. Windmere-Durable Holdings, Inc., 1999 U.S. Dist. LEXIS 2905, at *11-14 & n.1 (S.D. Fla. Mar. 9, 1999) (appointing "one of approximately thirteen" group members), aff'd, 1999 U.S. Dist. LEXIS 3744 (S.D. Fla. Mar. 18, 1999); Tumolo v. Cymer, Inc., No. 98-CV-1599 TW (POR), slip op. at 2-4 (S.D. Cal. Jan. 22, 1999) (denying motion without prejudice because "[p]laintiffs have failed to present sufficient evidence that this smaller group of seven plaintiffs is any more qualified to serve as lead plaintiff than any of the other 332"); In re Graham-Field Health Products Litig., No. 98-CV-19:3 (DRH), slip op. at 3, 4 (E.D.N.Y. Aug. 10, 1998) (declining to approve 50-person "group" because "it may well * * * defeat the [Act's] purpose").
14 Although the Group advocates (OG Rep. 5) a "simple mathematical test" for determining largest financial interest, it earlier urged the Court to consider to whom "the case matters more" (OG Opp. 3). It argued that the Court should discount the pension funds' losses to some unspecified degree based on "presum[ing]" that the Orbital Group members had losses "of magnitude greater if measured as a percentage of their individual portfolios" (id.).
But the lead plaintiff presumption is framed in terms of "the largest financial interest in the relief sought by the class," not in terms of loss as a percentage of net worth. See In re Cendant Corp. Litig., 182 F.R.D. 144, 147 (D.N.J. 1998). The Cendant court explained the presumption in terms of absolute dollar loss: "plaintiffs with the assets necessary to have made large investments will also be able to negotiate the most advantageous rates to the class" and have "the most to gain from any marginal increase in dollars recovered per share." Id. at 148-49. Moreover, the Group's "portfolio" argument is inconsistent with the fact that when Congress enacted the Reform Act, it was well aware that institutions have millions or billions of dollars of assets under management and that these amounts easily could dwarf losses in particular cases. See, e.g., Conf. Rep. 34 (noting that "[i]nstitutional investors are America's largest shareholders, with about $9.5 trillion in assets, accounting for 51% of the equity market" and that "pension funds account for $4.5 trillion  or nearly half of institutional assets"); Weiss & Beckerman, 104 Yale L.J. at 2089-91 (study of claims reports for 20 settled class actions shows that institutions sometimes had largest claim with losses of $450,000 to $626,374).
15 See, e.g., Baan, 1999 WL 223178 (denying motion to appoint 466 persons); Tumolo, slip op. at 2-4 (same; 332 persons); Advanced Tissue, 1998 U.S. Dist. LEXIS 16926, at *19-23 (denying competing motions for appointment of 165 and 250 persons); Informix, slip op. at 6 (same; 979, 274 persons).
16 For example, each certification submitted by the Orbital Group states that an individual is willing to serve as a class representative; it does not indicate that the person is even aware that he or she has, in fact, been put forward, individually or with someone else, as lead plaintiff. See Parnes, Tr. 98-103, 109-11 (member of ten-person group states that he was not aware he was lead plaintiff until learning that a settlement had been presented to the court).
17 The Orbital Group offers no basis for concluding that it would be "expensive" (OG Rep. 4) or "cost[ly]" (OG Rep. 5) or time-consuming (OG Rep. 4-5) to include additional information about its own proposed group's members, structure, and intended functioning in its own lead plaintiff motion. There is no reason to assume that "discovery would frequently be needed" (OG Rep. 5) if a proposed group provided appropriate information about its "group." Lead plaintiff submissions would establish a record and the arguments, and the court could conduct the inquiry.
18 See Milestone, 183 F.R.D. at 417 ("While the [Act] refers to `a person or group of persons' as capable of serving as the lead plaintiff, the surrounding statutory language forecloses the appointment of multiple groups or multiple persons not part of a cohesive group.").
19 The Commission has reported that "[i]n the 105 cases filed in the first year after passage of the Reform Act, we have found only eight cases in which institutions have moved to become lead plaintiff." SEC Staff Report at 51. More recently, Commissioner Isaac C. Hunt, Jr. testified that out of 124 federal class actions filed between January 1997 and October 1997, the Commission was aware of only six in which institutions had sought lead plaintiff status. Testimony of Securities and Exchange Commission Concerning S. 1260, the "Securities Litigation Uniform Standards Act of 1997," Before the Subcommittee on Securities, Committee on Banking, Housing, and Urban Affairs, U.S. Senate (Oct. 29, 1997).
20 See SEC Staff Report at 51-52; D'Hondt v. Digi Int'l Inc., 1997 WL 405668, at *4 n.9 (D. Minn. Apr. 3, 1997) (noting that institution "elected not to seek the status of a Lead Plaintiff" because it "would prefer to separately litigate its claims so as not to impair its autonomy").
21 Accord Cendant, 182 F.R.D. at 147-48 (denying "all motions for appointment as co-lead plaintiff that do not challenge the [largest stakeholder's] statutory presumption of adequacy," including motions "offer[ing] little more than the general assertion that diversity of representation would benefit the class" or "the argument that additional plaintiffs bring to the litigation other counsel capable of advancing additional funds"); Gluck, 976 F. Supp. at 549-50 (rejecting "co-lead plaintiff" proposal because it would detract from client control, reduce the influence and responsibility of the lead plaintiff, delegate more control and responsibility to the lawyers, and unnecessary increase the time and expense spent on preparing the case); Steiner v. Frankino, 1998 U.S. Dist. LEXIS 21804, at *15-16 (N.D. Ohio July 16, 1998) (same); Reiger v. Altris Software, Inc., 1998 U.S. Dist. LEXIS 14705, at *16-18 (S.D. Cal. Sept. 14, 1998) (same); Chan v. Orthologic Corp., No. CIV 96-1514 PHXRCB, slip op. at 6, 12 (D. Ariz. Dec. 19, 1996) (rejecting applicant's request to be appointed "co-lead plaintiff" on grounds that a competing applicant qualified as presumptive lead plaintiff under the Act and the would-be "co-lead plaintiff" had "failed to rebut the [Act's] presumption"); Malin v. Ivax Corp., No. 96-1843, Order at 7 (S.D. Fla. Nov. 1, 1996) (same); see Milestone, 183 F.R.D. at 417-18.
22 See id. at 45-46 ("concern with the potential costs and expenses of this litigation" and referring to "joint funding," "pooling * * * of the resources of the plaintiffs' counsel in order to support what could prove to be a costly and time-consuming litigation"); 47 (expressing concern that an institution that funds the litigation might "become conflicted and have to drop out"); 49 ("[i]n light of the magnitude of this case, * * * the use of three lead plaintiffs * * * allows for broad representation and the sharing of resources and experience to ensure that the litigation will proceed expeditiously against Oxford and the experienced counsel it has retained to represent it"); see also id. at 50 (expressing concern about "potential defenses * * * successfully rebut[ting] a finding of typicality").
23 See Milestone, 183 F.R.D. at 417 ("Focusing on considerations such as diverse representation and additional financing overlooks the fundamental goal of the [Act], that of empowering a unified force to control the litigation."); Greebel, 939 F. Supp. at 63-64 (citing legislative history).
24 See, e.g., Donnkenny, 171 F.R.D. at 158 (warning against "duplication of attorneys' services" and "increase [in] attorneys' fees and expenses"); Gluck, 976 F. Supp. at 549 (to enlarge number of counsel "would unnecessarily increase the time and expense spent on preparing and litigating the case"); Milestone, 183 F.R.D. at 419 (reserving decision onmotion to appoint three lead counsel where motion had "not delineated any specific responsibilities for" counsel and "not shown how the benefits derived from appointing multiple lead counsel outweigh the complications and increased costs and expenses associated with the `litigation by committee' approach"), motion denied, 1999 U.S. Dist. LEXIS 6798 (D.N.J. Mar. 25, 1999); Sherleigh, 1999 U.S. Dist. LEXIS 2905, at *13-14 & n.1 (finding that "consortium of ten firms [was] not in the best interests of the class members").
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