Opinion
No C-02-3510 VRW
September 29, 2003
ORDER
As noted in its December 23, 2002, order, the court currently has before it eleven cases alleging that defendants committed open market securities fraud: C-02-3510 VRW, C-02-3520 VRW, C-02-3553 VRW, C-02-3562 VRW, C-02-3604 VRW, C-02-3665 VRW, C-02-3816 VRW, C-02-3821 VRW, C-02-3861 VRW, C-02-3946 VRW and C-02-4449 VRW. These cases, along with a companion criminal case, CR-02-266 VRW, have been related and assigned to the undersigned. Since its last order, the court has related several more such cases: C-02-4145 VRW, C-02-4157 VRW, C-02-4240 VRW, and C-03-1749 VRW (see Docs # 69, 73). At the time of the court's last order, the court had not yet had time to examine whether these cases were indeed related; thus, the court withheld judgment on several of the parties' motions until relation could be addressed. Since then the court has subsequently related the cases and is now able to address the pending motions.
In the cases now before the court, two parties have filed motions to consolidate these actions. Three prospective lead plaintiffs have filed motions for appointment as lead plaintiff to prosecute a putative class action against defendants for alleged securities fraud relating to the initial public offering of stock in defendant HPL Technologies, Inc (HPL), as well as to approve their choices of lead counsel. These prospective plaintiffs are: Robert Leff and Daniel Kelly (Leff and Kelly), the International Brotherhood of Teamsters, Local 705 Pension Fund (Local 705) and Fuller Thaler Asset Management, Inc (Fuller Thaler). See Docs ## 10, 12, 13, 20, 29, 35, 38, 39, 40. Defendants endorse consolidation but express no view regarding the choice of lead plaintiff. See Doc # 51. Additionally, Local 705 has requested that the court hold a status conference to discuss the propriety of lifting the current discovery stay. Doc # 75.
For the following reasons, the court GRANTS the motions for consolidation. The court DENIES Leff and Kelly's motions to be appointed lead plaintiffs and to approve lead counsel. The court DENIES Local 705's motions to be appointed lead plaintiff and to approve lead counsel. The court GRANTS Fuller Thaler's motions to be appointed lead plaintiff and to approve lead counsel. Finally, the court GRANTS Local 705's request to hold a status conference. The court addresses each of these issues in turn.
I
Both Leff and Kelly and Local 705 have moved this court to consolidate this group of related cases. Docs ## 10, 13, 39, 40. Defendants HPL and its directors do not oppose such consolidation. See Doc # 51.
These actions are appropriate for consolidation. Consolidation is proper when the cases involve common questions of law or fact. FRCP 42(a); see also Southwest Marine. Inc v Triple A Machine Shop. Inc. 720 F. Supp. 805, 806 (ND Cal 1989). Once the court establishes that such common questions exist, it must weigh the interests of judicial economy against the potential for delay, confusion, and prejudice. Southwest Marine. 720 F. Supp at 806. The interests of judicial economy are particularly strong in securities class action cases. See Takeda v Turbodyne Technologies. Inc. 67 F. Supp.2d 1129, 1130 (CD Cal 1999) (finding that such cases should be consolidated "in the interests of judicial economy and to relieve the parties and absent class members of the burdens associated with participating in duplicative litigation"). Indeed, the Private Securities Litigation Reform Act of 1995 (PSLRA) provides that consolidation should occur when the various securities class actions assert substantially the same claim. See 15 USCS § 78u-4(a)(3)(B)(ii); Osher v Guess?. Inc. 2001 US Dist LEXIS 6057, *7 (CD Cal).
With respect to the cases currently before the court, there are many common questions of law and fact. Each case involves similar claims of violations of federal securities laws. Each case involves a similar group of defendants. Consolidation would "expedite pretrial proceedings, reduce case duplication, avoid the need to contact parties and witnesses for multiple proceedings and minimize the expenditure of time and money for all parties involved." Local 705 Mot Consol 4:12-14; see also In re Equity Funding Corp of America Secur Litio. 416 F. Supp. 161, 176 (CD Cal 1976). Finally, no party has alleged that prejudice, delay, or confusion would result from consolidation, and no such negative consequence is apparent to the court. Thus, the court concludes that consolidation under FRCP 42(a) is appropriate and GRANTS the motions to consolidate.
In accordance with this order, therefore, the court consolidates the following actions for all purposes including, but not limited to, discovery, pretrial proceedings and trial proceedings:
• C-02-3510 VRW
• C-02-3520 VRW
• C-02-3553 VRW
• C-02-3562 VRW
• C-02-3604 VRW
• C-02-3665 VRW
• C-02-3816 VRW
• C-02-3821 VRW
• C-02-3861 VRW
• C-02-3946 VRW
• C-02-4449 VRW
• CR-02-266 VRW
• C-02-4145 VRW
• C-02-4157 VRW
• C-02-4240 VRW
• C-03-1749 VRW
The consolidated cases shall be identified as: In re HPL Technologies Securities Litigation, Case No C-02-3510-VRW, and the files of this action shall be maintained in one file under Master File No C-02-3510-VRW. Any other action now pending or hereafter filed in this district that arises out of the same facts and claims alleged in these related actions shall be consolidated for all purposes as the court is apprised of them. The parties shall notify the court of any other action that is pending or filed in or outside this district that may be related to the subject matter of these consolidated actions, if and when they become aware of such actions.
Every pleading filed in these consolidated actions, or in any separate action included herein, shall bear the following caption: /
CLASS ACTION
When a pleading is intended to be applicable to all actions to which this order is applicable, the words "All Actions" shall appear immediately after the words "This Document Relates To:" in the above caption. When a pleading is intended to be applicable only to some, but not all, of such actions, the court's docket number for each individual action to which the document is intended to be applicable and the last name of the first — named plaintiff in said action shall appear immediately after the words "This Document Relates To:" in the caption described above, e g, "This Document Relates To: Casden. Case No C-00-3510-VRW."From the date of entry of this order, the parties shall comply with 15 U.S.C. § 78u-4(b)(3)(C)(i), without regard to whether a stay under 15 U.S.C. § 78u-4(b)(3)(B) is in effect, and shall comply with 15 U.S.C. § 78u-4(b)(3)(C)(i)'s provisions concerning documents relevant to allegations contained in any and all of the pleadings in these actions, including any consolidated complaint.
Unless otherwise agreed among the parties, the lead plaintiff (designated in this order below) shall file a consolidated class action complaint no later than 60 days from the date of this order. The consolidated class action complaint shall be treated as if it were the original complaint, and all defendants shall have 45 days after the filing and service of the consolidated class action complaint to answer or otherwise respond. Notwithstanding the filing of the consolidated class action complaint pursuant to FRCP 15(a), in the event that defendants file any motions directed at the consolidated class action complaint, counsel are to meet and confer and report to the court with regard to an acceptable briefing and hearing schedule for such motions. The briefing schedule, however, shall be governed by the local rules unless the court orders otherwise.
II
Leff and Kelly, Local 705, and Fuller Thaler all move the court for appointment as lead plaintiff in this action. Docs ## 10, 12, 20, 29, 35, 38, 40. As part of its last order regarding this matter, the court had begun to conduct the inquiry to select a lead plaintiff mandated by the PSLRA amendments to the Securities Act of 1933 and the Securities Exchange Act of 1934 ( 15 U.S.C. § 77z-1, 78u-4) and further elucidated by the Ninth Circuit in In re Cavanaugh, 306 F.3d 726 (9th Cir 2002). The court now finishes that inquiry and finds that Fuller Thaler is the most appropriate lead plaintiff. Additionally, the court finds that Fuller Thaler's proposed lead counsel is satisfactory.
A
The selection of a lead plaintiff or plaintiffs in class action litigation brought under federal securities law is governed by the PSLRA amendments to the Securities Act of 1933 and the Securities Exchange Act of 1934. See 15 U.S.C. § 77z-1, 78u-4. In relevant part, the amendments provide:
the court shall consider any motion made by a purported class member in response to [the required notice of the filing of a class action suit], including any motion by a class member who is not individually named as a plaintiff in the complaint or complaints, and shall appoint as lead plaintiff the member or members of the purported class that the court determines to be the most capable of adequately representing the interests of class members. * * *15 U.S.C. § 78u-4(a)(3)(B)(i).
In In re Cavanauah. 306 F.3d 726 (9th Cir 2002), the Ninth Circuit laid out a three — step process for identifying the lead plaintiff pursuant to the statutory criteria. Step one is verification of the proper posting of a "notice `in a widely circulated national business — oriented publication or wire service.'" Cavanaugh, 306 F.2d at 729 (quoting 15 U.S.C. § 78u-4(a)(3)(A)(i)). Step two is the court's consideration of "the losses allegedly suffered by the various plaintiffs before selecting as the `presumptively most adequate plaintiff' — and hence the presumptive lead plaintiff — the one who `has the largest financial interest in the relief sought by the class' * * *. In other words, the district court must compare the financial stakes of the various plaintiffs and determine which one has the most to gain from the lawsuit."Id. at 729-30. Step three is the opportunity for plaintiffs not found to be the presumptive lead plaintiff to rebut the presumptive lead plaintiff's showing in satisfaction of the adequacy and typicality requirements for lead plaintiff designation. Id. at 730.
1
All parties agree that the first step, verification of proper notice, has been completed. See Cavanaugh, 306 F.3d at 729 (quoting 15 U.S.C. § 78u-4(a)(3)(A)(I)). Thus, as the court previously recognized in its past two orders, it may proceed to step two.
2
The second step of Cavanaugh itself seems to comprise two decisions: (a) comparison of the financial stakes of the various plaintiffs to identify the one with the largest financial interest in the litigation; and (b) determination of the typicality and adequacy of that plaintiff identified as the one with the largest financial interest in the litigation. Id. at 729-30.
a
As to the first part of the inquiry, the court must consider four factors relevant to identifying the prospective plaintiff with the largest financial interest: (1) the number of shares purchased during the class period; (2) the number of net shares purchased during the class period; (3) the total net funds expended during the class period; and (4) the approximate losses suffered. See In re Enron Corp Securities Litigation. 206 F.R.D. 427, 440 (SD Tex 2002); In re Nice Systems Securities Litigation. 188 F.R.D. 206, 217 (DNJ 1999); In re Olsten Corp Securities Litigation. 3 F. Supp.2d 286, 295 (EDNY 1998); Lax v First Merchants Acceptance Corp. 1997 US Dist LEXIS 12432 at *18 (ND Ill 1997).
The court's December 11, 2002, order was aimed at obtaining information necessary to make the step 2(a) determination. As directed, each prospective lead plaintiff filed with the court a spreadsheet and accompanying declaration providing information regarding the class period each proposed, the number of shares each purchased or held prior to the class period and the cost of any such shares, the date, number and price per share of any purchase or sale of HPL stock during the proposed class period and the estimated actual (or "true") value of those shares at the time of each purchase or sale. See Docs ## 60, 61, 62.
Based on the information provided, the court reported the following results in its December 23, 2002, order:
• Because the proposed class periods of each prospective plaintiff begin on the date of the initial public offering of HPL stock, no prospective lead plaintiff held shares prior to the class period.
• Because each prospective lead plaintiff asserts that virtually the entire value of the stock during the class period was due to defendants' alleged fraudulent conduct, each identified the true value of the stock as essentially zero.
• Leff and Kelly: — Combining their purchases, Leff and Kelly purchased 16,000 shares during the class period;
— Because neither sold shares during the class period, the number of net shares purchased was also 16,000;
— Together, they expended a total of $192,391;
— Because neither sold shares during the class period, their net expenditure was also $192,391;
— Based on their calculation of the "true" value of the stock ($0.22/share), their estimated losses were $188,871. See Doc #60.
•Local 705:
— Local 705 purchased 26,200 shares during the class period;
— The number of net shares purchased was 24,600;
— Total funds expended were $365,503;
— Net funds expended were $344,383;
— Based on its calculation of the "true" value of the stock ($0.0163/share), Local 705's estimated losses were $344,008. See Doc #62.
•Fuller Thaler:
— Fuller Thaler purchased 226,700 shares during the class period;
— The number of net shares purchased was 199,700;
— Total funds expended were $2,444,965;
— Net funds expended were $2,065,225;
— Based on its calculation of the "true" value of the stock ($0/share), Fuller Thaler's estimated losses were $2,065,225. See Doc #61.
By each of the four measures, Fuller Thaler's financial interest is by far the largest. As Fuller Thaler clearly emerges as having the greatest financial stake by any of these measures, the court, following the dictates of Cavanaugh, turns to that proposed plaintiff to determine whether it meets the typicality and adequacy requirements of FRCP 23(a).
b
"The district court has latitude as to what information it will consider in determining typicality and adequacy." Cavanaugh. 306 F.3d at 732. And "lead plaintiff's choice of counsel and fee arrangements may be relevant," but relevant "only to determine whether the presumptive lead plaintiff's choice of counsel is so irrational, or so tainted by self-dealing or conflict of interest, as to cast genuine and serious doubt on that plaintiff's willingness or ability to perform the functions of lead plaintiff." Id. at 732-33 (quoting In re Cendant Corp Litig. 264 F.3d 201, 266 (3d Cir 2001)). This initial inquiry whether the plaintiff with the greatest financial interest also satisfies the requirements of FRCP 23(a) is one for the court to conduct, generally "not consider[ing] at this stage any arguments by other members of the putative class." Cendant. 264 F.3d at 264.
The Cendant court identified several factors for the court to consider. In assessing typicality, the court should look to any marked differences in the circumstances of the presumptive lead plaintiff or legal theories on which it, as opposed to the other class members, will rely. Id. In assessing adequacy, the court should examine the potential lead plaintiff's ability and incentive to represent the class vigorously. Id at 265. As an element of this inquiry, the Cendant court included an analysis of the potential lead plaintiff's "willingness and ability to select competent class counsel and to negotiate a reasonable retainer agreement with that counsel." Id. (citing In re Quintus Secur Litig. 201 F.R.D. 475, 485 (ND Cal 2001)).
Because Fuller Thaler provided little information in its certification on which the court might base its determination, the court conducted an inquiry of Fuller Thaler's counsel (no representative of Fuller Thaler being present), regarding the nature of its business generally and its holdings in HPL specifically. In the interest of economizing the court's and the parties' time, the court conducted a similar inquiry of Local 705's representative and counsel for Leff and Kelly.
Because some of the representations of Fuller Thaler's counsel regarding his client were incomplete or tentative, the court requested that Fuller Thaler file a supplemental declaration on or before January 3, 2003, with additional information for the court to consider in determining whether Fuller Thaler meets the adequacy and typicality requirements of FRCP 23(a). See Doc # 64. Fuller Thaler filed such declaration on January 2, 2003. Doc # 65.
The results of the inquiries and declaration are as follows: Fuller Thaler is a money management firm located in San Mateo, California. It has been in business for roughly ten to fifteen years and manages mutual funds as well as private accounts for institutional investors and wealthy individuals. Fuller Thaler purchased HPL shares on behalf of five separate account — holders, which were the accounts of pension funds and other institutional investors. Fuller Thaler's counsel was not aware of the breakdown of the shares purchased among the five accounts, but believed that the shares purchased and any returns on shares sold were distributed among the accounts in the same proportion each time. Record title of the shares is held by Fuller Thaler, the account — holders holding the beneficial interest. Fuller Thaler purchased the shares for investment. Fred Stanske, Fuller Thaler's small capitalization securities portfolio manager, was responsible for the decisions to purchase and sell HPL shares. Stanske was also identified as the person at Fuller Thaler responsible for managing this litigation, if Fuller Thaler is selected as lead plaintiff. See Jan Decl Frederick W Stanske (Stanske Decl II) 2:1-2, 2:10-14. Additionally, should Fuller Thaler be appointed as lead plaintiff, they would select the firm of Gold, Bennet, Cera Sidener LLP to represent the class. Fuller Thaler Lead Pl Mot 6:28-7:4. This law firm, Fuller Thaler, asserts, is quite experienced in securities litigation and was recently appointed lead counsel in a major securities fraud class action in the Western District of Pennsylvania. Id. at 7:13-21; see also Decl Joseph M Barton (Barton Decl), Exh C (Doc # 22).
Local 705 was represented at the hearing by John Naughton, a member of the board of trustees of the pension plan and chair of the board's investment subcommittee, who appeared specifically to address any questions the court might have about the local and its investments in HPL. Naughton informed the court that Local 705 has approximately 23,500 members in the greater Chicago area, mostly freight workers and employees of United Parcel Service. During the time of the class period, the fund held roughly $1.2 billion. The distribution of those holdings was roughly 45% in equities, 45% in bonds and 10% in real estate. Jack Witt is managing director of the fund and heads the board of trustees. Local 705 purchased HPL shares on the advice of one of its money managers, a San Diego firm called Capital Works. The stock was purchased for investment and Local 705 holds record title and the beneficial interest. If named lead plaintiff, Witt would supervise the litigation, perhaps assisted by James Daley, Local 705's in — house counsel.
Finally, Leff and Kelly were represented by their counsel, who informed the court that both are individual investors interested in jointly supervising the litigation. Leff is a resident of Cambridge, Massachusetts, and Kelly a resident of New York state. If selected, they intend to represent the class jointly, but have not reached an agreement on how they would proceed if appointed as lead counsel.
Based on the information provided to the court, it can reasonably conclude that Fuller Thaler satisfy the requirements of typicality and adequacy. With respect to the typicality requirement, the lead plaintiff must present "claims or defenses * * * typical of the claims or defenses of the class.* * *" FRCP 23(a). Additionally, as noted above, the court must examine any marked differences in the circumstances of the presumptive lead plaintiff or legal theories on which it, as opposed to the other class members, will rely. Cendant. 264 F.3d at 264.
Here, Fuller Thaler assert that it meets the requirement of typicality because it "has suffered the same or similar injuries as absent class members due to a common course of conduct by defendants." See Fuller Thaler Lead Pl Mot 5:19-21. Specifically, it contends that, like other members of the class, it: (1)acquired HPL common stock during the class period; (2) it acquired the stock at artificially inflated prices, due to defendants' alleged false and misleading statements and failure to disclose material information; and (3) it thus suffered damages. Id. at 6:5-10.
The court agrees that Fuller Thaler has suffered similar injuries as the rest of the members of the class. This, however, does not end the inquiry. Despite such similar injury, the court must also consider whether the plaintiff's circumstances "are markedly different" from those of other class members. Cendant. 264 F.3d at 265.
Fuller Thaler, in some respects, does have significantly different circumstances from some of the other members of the class. As noted above, the investment firm does not hold the beneficial interest of the HPL shares it purchased. Rather, it purchased those shares on behalf of several of its account — holders. While it retains the record title to the shares, the beneficial interest in the shares is actually held by the account — holders. Thus, although Fuller Thaler made the initial decision to purchase the shares, it no longer has an ownership interest in the shares beyond record title. Arguably, this difference might affect Fuller Thaler's incentives to prosecute the case effectively. In other words, the fact that it only holds record title to the shares might give it less reason to prosecute the case vigorously than a plaintiff who actually held the beneficial interests in such shares. Thus, its interests in the case might not be typical.
Despite this difference, it should be noted that of the three prospective lead plaintiffs in this case, only one both made the initial investment decision and has retained the beneficial ownership of the shares. Local 705, while holding both record title and beneficial ownership of the shares, did not make the decision to invest. Instead, the decision to purchase the shares was made by Capital Works, the San Diego firm that functioned as one of Local 705'S money managers. Leff and Kelly, who hold the lowest number of HPL shares, are the only plaintiffs who both made the purchase choice and retained beneficial interest. See id at 7:25-8:1. Given the variation amongst these plaintiffs' circumstances, therefore, there does not seem to be a clear norm as far as ownership status.
Thus, despite lacking beneficial ownership, the court concludes that Fuller Thaler's circumstances here are not so markedly different from the other class members as to make it atypical. Accordingly, the court finds that Fuller Thaler meet FRCP 23(a)'s typicality requirement.
Turning to the second FRCP 23(a) requirement, the court now must evaluate whether Fuller Thaler will likely be able to represent the class fairly and adequately. The lead plaintiff's primary responsibilities in this regard are (1) monitoring the conduct of class counsel, and (2) deciding whether and when the case should be settled or taken to trial. Quintus. 201 F.R.D. at 481. In conducting this inquiry, the court must ask whether the prospective plaintiff has incentive to represent the class vigorously. Cendant. 264 F.3d at 265.
One component of this inquiry is to "consider the manner in which [the potential plaintiff] has retained counsel and negotiated an attorney's fee for the class." Quintus. 201 F.R.D. at 482. A prospective lead plaintiff might not meet the adequacy requirement "if it lacked legal experience or sophistication, intended to select as lead counsel a firm that was plainly incapable of undertaking the representation, or had negotiated a clearly unreasonable fee agreement with its chosen counsel." Cendant. 264 F.3d at 265-66. Of course, the "choice of counsel has traditionally been left to the parties," Cavanaugh, 306 F.3d at 734, and the court should not "improperly interfere with the lead plaintiff's authority and responsibility to select counsel who[m] he believes will best serve his own interests and the interests of the class." Id. Thus, the court merely reviews Fuller Thaler's relationship with counsel to ensure that it is reasonable.
Fuller Thaler appear to meet this requirement. First, it cannot seriously be doubted that Fuller Thaler has the experience and sophistication necessary to handle the responsibilities of being a lead plaintiff. Fuller Thaler is a nationally known investment firm with over $1.4 billion under management. Nov Decl Frederick W Stanske (Stanske Decl I) 1:23-25. One of the named principals, Russell J Fuller, has nearly thirty years of experience in academic research, financial analysis, and investment management; he is also the author of an investment textbook. Id. at 1:26-28. The other named principal, Richard H Thaler, is a professor of behavioral science and economics at the University of Chicago business school. Id. at 2:2-4. Fred Stanske, who would be the person at Fuller Thaler responsible for overseeing the litigation, has extensive fund management responsibility and holds an MBA from the University of Chicago. See id at 2:5-7. Additionally, Fuller Thaler has served as the lead plaintiff in four separate securities class actions. Id. at 2:13-24. Thus, it is apparent that Fuller Thaler has both professional experience and sophistication in the realms of securities and securities litigation.
Second, Fuller Thaler's choice of counsel for this case seems reasonable. It has chosen the firm Gold, Bennett, Cera Sidener as prospective lead counsel. The firm lists securities litigation as one of its specialties. See Barton Decl, Exh C, 1. Many of its attorneys have extensive experience in securities litigation cases, see id at 4-8, and one of its named partners, Paul F Bennet, has authored several articles and commentaries on the subject. Id. at 4. The firm lists upwards of fifty securities litigation cases in which it has participated. See id at 9-12. Based on this information, it seems unlikely that "the presumptive lead plaintiff's choice of counsel is so irrational, or so tainted by self — dealing or conflict of interest, as to cast genuine and serious doubt on that plaintiff's willingness or ability to perform the functions of lead plaintiff."Cavanaugh at 732-33 (quoting Cendant. 264 F.3d at 266).
Having determined that Fuller Thaler satisfy the requirement of adequate ability to choose counsel, the court must also consider whether the putative plaintiff has adequate incentive to represent the class vigorously. See Cendant. 264 F.3d at 265. As noted earlier with respect to typicality, Fuller Thaler has not retained the beneficial ownership of the HPL shares that it purchased, and this presents the possibility that its incentive to pursue the class action vigorously may be lacking.
The investment firm's incentives, however, also include the incentive that arises from the enormous amount of HPL shares it purchased. Fuller Thaler, as noted above, purchased and holds record title to an overwhelming number of HPL shares. Specifically, it purchased over a quarter of a million shares; in contrast, Leff and Kelly and Local 705 only purchased 16,000 shares and 26,200 shares, respectively. Further, Fuller Thaler's estimated losses totaled more than two million dollars, which again stands in sharp contrast with the several hundred thousand dollars lost by each of the other prospective plaintiffs.
Additionally, despite its lack of beneficial ownership, Fuller Thaler retains a great deal of control over the securities it purchased. It has "full and complete investment discretion and decision — making authority with respect to the securities it purchases for its clients' accounts." Stanske Decl I, 2:25-26. It alone made the decision to purchase the HPL stock, and it retains sole voting authority over those shares. See id 3:4-10. Given the size of the loss and the degree of control, the court finds that Fuller Thaler possesses adequate incentive to maintain vigorously the securities class action against HPL. Accordingly, Fuller Thaler meets the adequacy requirement of FRCP 23(a) and Cavanaugh.
Having determined that Fuller Thaler satisfies the requirements of the second step of Cavanaugh. the court turns to the third and final step of the inquiry.
3
The third step of Cavanaugh presents the other potential lead plaintiffs with the opportunity to raise arguments why Fuller Thaler does not satisfy the requirements of typicality and adequacy. Cavanaugh, 306 F.3d at 730. The other two potential lead plaintiffs — Leff and Kelly, and Local 705 — each present arguments in their moving papers why Fuller Thaler is not an appropriate choice under the requirements of FRCP 23(a).First, Leff and Kelly challenge Fuller Thaler's appointment on the grounds that the court does not have adequate information about the investment firm to choose it as lead plaintiff. Specifically, Leff and Kelly allege that Fuller Thaler fail to provide information about its qualifications, who will be responsible for the litigation, or whether it retains beneficial ownership of the stock. See Leff and Kelly Opp 5:24-6:6 (Doc # 47).
This objection, at least subsequent to the additional information the court has obtained about Fuller Thaler, is without merit. As noted earlier, Fuller Thaler was founded by individuals with considerable experience in the securities field. Additionally, the firm has provided that Fred Stanske will be in charge of supervising the litigation. Further, the court has been made aware of the fact that Fuller Thaler does not retain beneficial ownership over the HPL securities; but as discussed above, the court has determined that this information does not prevent it from finding Fuller Thaler to be either typical or adequate.
Leff and Kelly's second apparent objection to Fuller Thaler's appointment as lead plaintiff is that, as an investment advisor, it may not have the authority to serve in such capacity. See Leff and Kelly Opp 6:3-4. This is not the case.
As Fuller Thaler point out, FRCP 17(a) requires that all actions be prosecuted by the "real party in interest," which is determined by the substantive law that governs the cause of action. Lemanik v McKinley Allsopp, Inc. 125 F.R.D. 602, 607 (SDNY 1989). Since the claims in this case concern causes of action under the Exchange Act, the Exchange Act thus governs who can be a real party in interest.
Section 10(b) of the Exchange Act and Rule 10b-5 concern fraud "in connection with the purchase or sale of any security." The Supreme Court has found that private civil remedies under the Exchange Act are limited to those individuals who have actually purchased or sold such securities, rather than individuals who may have acquired the securities in some other fashion. Blue Chip Stamps et al v Manor Drug Stores. 421 U.S. 723, 736 (1975). Investment advisors who make the decisions to purchase the securities qualify as purchasers within the meaning of 10b-5, regardless of whether they purchased securities for their own accounts or for the accounts of their customers. Lemanik, 125 F.R.D. at 607; see also Monetary Management Group of St Louis. Inc v Kidder Peabody Co. 604 F. Supp. 764, 766-67 (ED Mo 1985) (finding that § 12(2) of the Exchange Act required that plaintiff be a purchaser rather than owner, and thus holding that an advisor who purchased on behalf on its clients was a real party in interest); Odette v Shearson. Hammill Co. 394 F. Supp. 946, 959 (SDNY 1975) (noting that a "broker who purchases or sells as agent for his customer satisfies the purchaser — seller requirement"). Indeed, such advisors' status as the parties who make investment decisions is an important qualification for being a real party in interest. Medline Industries. Inc. et al v Blunt. Ellis Loewi. Inc. 1993 US Dist LEXIS 581, at *6 (ND Ill 1993) (citing Congregation of the Passion, Holy Cross Province v. Kidder Peabody Co. et al. 800 F.2d 177 (8th Cir 1986)).
Fuller Thaler meets these qualifications to be a real party in interest for this action. As an investment advisor, it actually consummated the purchases of the HPL securities for its clients, thus bringing it within the definition of "purchaser." Additionally, according to the declaration of Mr Stanske, it had complete discretion over its clients' accounts and thus made the actual decision to purchase the HPL shares. Therefore, Fuller Thaler is a real party in interest within the meaning of both Rule 10b-5 and FRCP 17(a) and thus has standing to serve as lead plaintiff in this action.
Local 705 also opposes the appointment of Fuller Thaler as lead plaintiff, but on different grounds from Leff and Kelly. It argues that Fuller Thaler is presumptively barred from serving as lead plaintiff because it has previously been appointed as lead plaintiff in five other securities litigation actions. Local 705 Opp 2:1-16 (Doc # 49). Such appointments, Local 705 contends, trigger the PSLRA's bar against serving as lead plaintiff in more than five securities actions in a three — year time period. See id at 2:14-20; see also 15 U.S.C. § 78u-4 (a)(3)(B) (vi).
Local 705'S argument fails for several reasons. First, Fuller Thaler has only been appointed as lead plaintiff in four actions within the relevant three — year period. On January 10, 2001, it was appointed as lead plaintiff in In re Westell Technologies Secur Litig. C-00-6735 (ND Ill). Stanske Decl I, 2:16-18. On September 20, 2002, it was appointed as lead plaintiff in In re Uniroval Tech. C-02-1141 (MD Fla). Id. at 2:18-19. On October 21, 2002, it was appointed lead plaintiff in In re See Bevond Tech Corp. C-02-5330 (CD Cal). Id. at 2:19-20. It was also appointed lead plaintiff in two more cases, Wireless Facilities IPO Litia. C-01-4779 (SDNY), and ON Semiconductor IPO Litig. C-01-6114 (SDNY), in summer of 2001; however, those two cases have been consolidated into In re IPO Securities Litigation. C-01-92 (SDNY). See id at 2:20-24. Thus, as a result of the consolidation, Fuller Thaler has been appointed as lead plaintiff in only four securities class action suits, which does not trigger the PSLRA's presumptive bar.
Second, many courts in this circuit have recognized that the presumptive bar can be lifted in the cases of qualified institutional plaintiffs. As Fuller Thaler suggests, the PSLRA ensures that "large institutional plaintiffs with expertise in the securities market would control the litigation, rather than lawyers."Naiditch v Applied Micro Circuits Corp. 2001 US Dist LEXIS 21374, *6 (SD Cal). Keeping this purpose in mind, the court notes that the PSLRA also provides the court with discretion to appoint a lead plaintiff who has already served in that capacity in five other suits within the time period. In re Critical Path. Inc. Secur Litig. 156 F. Supp.2d 1102, 1108 (ND Cal 2001); In re Network Associates. Inc. Secur Litia. 76 F. Supp.2d 1017, 1030 (ND Cal 1999); see also 15 U.S.C. § 78u-4(a)(3)(B) (vi).
Further, the statute itself does not seem to restrict institutional plaintiffs to only five appointments within three years. For one thing, the language of § 78u-4(a)(3)(B)(vi) applies the restriction only to wperson[s]." The conference report describes such persons as "individuals" rather than entities. HR Conf Rep No 104-369. For another, the conference report explicitly states that "[i]institutional investors seeking to serve as lead plaintiff may need to exceed this limitation and do not represent the type of professional plaintiff this legislation seeks to restrict." Id. Rather, Congress was much more concerned about preventing "[i]ndividuals who are motivated by the payment of a bounty or bonus" from becoming repeat lead plaintiffs. Id. "As a result, the Conference Committee grants courts discretion to avoid the unintended consequence of disqualifying institutional investors from serving more than five times in three years." Id. Evidently, the presumptive bar was not intended to apply to institutional plaintiffs or to thwart the purpose of the PSLRA.
A number of courts in this circuit have exercised their discretion under § 78u-4(a)(3)(B)(vi) to lift the presumptive bar with respect to institutional plaintiffs. In Naiditch. for example, the court found that lifting the bar was appropriate in light of Congress' purpose in enacting the PSLRA: "Appointing [the institutional plaintiff] FSBA would be entirely consistent with the purposes of this section. FSBA is an experienced institutional investor. * * *" Naiditch. 2001 US Dist 21374 at *6-*7. This was especially true in light of the fact that the other prospective lead plaintiffs suffered much smaller losses than did the institutional plaintiff and had less experience in securities litigation than did the institutional plaintiff. Id. at *8; see also Critical Path, 156 F. Supp.2d at 1112 (approving the appointment of an institutional investor who exceeded presumptive limitation, since it was the only acceptable institutional investor and large shareholder); Network Associates. 76 F. Supp.2d at 1030-31 (finding institutional investor to be presumptive lead plaintiff despite exceeding presumptive limitation).
As Local 705 points out in its papers, not all courts in this circuit, indeed in this district, have allowed institutional investors to overcome the presumptive bar. In Aronson v McKesson HBOC. Inc. 79 F. Supp.2d 1146 (ND Cal 1999), Judge Whyte refused to lift the presumptive bar against an institutional investor, saying that the statute's text "contains no flat exemption for institutional investors" and that the prospective plaintiff "ha[d] not demonstrated why it should be excepted from the ban against frequent litigants." Id. at 1156-57. Aronson. however, did not hold that institutional investors could never be exempt from the presumptive bar. Rather, Judge Whyte was unconvinced that he should exercise his discretion to exempt the particular plaintiff in question. See id.
In the case at bar, the court finds that Fuller Thaler should be exempted from PSLRA's presumptive bar, even if the bar applies. As noted above, the investment firm is only serving in four class actions, due to consolidation; this should not trigger the bar in the first place. Even if it did, the court would exercise its discretion under § 78u-4(a)(3)(B)(vi) to exempt Fuller Thaler. In keeping with the purposes of the PSLRA to promote the appointment of experienced institutional investors, Fuller Thaler are the kind of qualified institution that should be exempted from the bar. Their professional and legal experience in the securities realm makes them an appropriate candidate for lead plaintiff. Additionally, their participation in securities class actions, while extensive, is not excessive: At most, they have been appointed as lead plaintiff in five other lawsuits. Finally, the magnitude of their investment and loss is so much greater than the other prospective plaintiffs that exemption would be appropriate.
Accordingly, because Leff and Kelly and Local 705 have failed to rebut the presumption that Fuller Thaler should be appointed lead plaintiff in this class action, the court GRANTS Fuller Thaler's motion to be appointed lead plaintiff. The court also DENIES both Leff and Kelly's motion and Local 705'S motion to be appointed as lead plaintiff.
B
Fuller Thaler also move the court to grant its motion to approve Gold, Bennett, Cera Sidener as lead counsel in this action. The PSLRA gives the lead plaintiff the authority, subject to the approval of the court, to appoint lead counsel. 15 U.S.C. § 78u-4(a)(3)(B)(v). "The choice of counsel has traditionally been left to the parties * * * Selecting a lawyer in whom a litigant has confidence is an * * * important client prerogative." Cavanaugh. 306 F.3d at 734. As the court has already discussed at some length, Fuller Thaler's choice of counsel seems reasonable. Accordingly, the court approves Fuller Thaler's choice of counsel and GRANTS its motion to appoint Gold, Bennett, Cera Sidenar as class counsel. The court also, therefore, DENIES Leff and Kelly's motion and Local 705'S motion to approve their choices for lead counsel.
III
On August 27, 2003, the court received a letter from Local 705 requesting a status conference, based on its concerns that the class would be prejudiced if steps were not taken to preserve certain evidence. As such, Local 705 requested that one of the topics of discussion at the status conference be the possibility of lifting the discovery stay for the purpose of obtaining certain evidence. See Local 705 Letter (Doc # 75). HPL did not oppose the scheduling of a status conference, but did oppose the lifting of the discovery stay. See HPL Letter (Doc # 76).Given the fact that the court has just ruled on the motions for appointment of lead plaintiff and counsel, and given that no motion to dismiss is currently pending before the court, no discovery stay is currently in effect. See 15 U.S.C. § 78u-4(b)(3)(B). Because the court herein rules on the various motions to appoint lead plaintiff and counsel, however, holding a status conference to discuss the upcoming schedule seems appropriate. Accordingly, the court GRANTS Local 705'S request for a status conference. Counsel for the parties are ORDERED to appear at a status conference in this matter on Wednesday, November 12, 2003, at 9:00 am.
IV
For the foregoing reasons, plaintiffs' motions to consolidate (Docs ## 10, 13, 39, 40) are GRANTED. Fuller Thaler's motions to be appointed lead plaintiff and to approve lead counsel (Docs ## 20, 29, 35) are GRANTED. Leff and Kelly's motions to be appointed lead plaintiff and to approve lead counsel are DENIED (Docs ## 10, 40). Local 705's motions to be appointed lead plaintiff and to approve lead counsel (Docs ## 12, 38) are DENIED. Local 705's request for a status conference (Doc #75) is GRANTED.IT IS SO ORDERED.