Opinion
ORDER GRANTING PUBLIC RETIREMENT SYSTEMS' MOTION FOR APPOINTMENT AS LEAD PLAINTIFF AND APPROVAL OF ITS SELECTION OF LEAD COUNSEL; DENYING STATIONARY ENGINEERS LOCAL 39 PENSION TRUST FUND'S MOTION; AND DENYING THE PENSION FUNDS' MOTION
LUCY H. KOH, District Judge.
On August 15, 2011, the City of Royal Oak Retirement System ("Plaintiff") filed a private securities class action complaint against Defendants Juniper Networks, Inc., Kevin R. Johnson, Robyn M. Denholm, and Scott G. Kriens (collectively "Defendants"). ECF No. 1 ("Compl."). After Plaintiff published the pendency of this action on August 16, 2011, as required by federal law, three parties moved the Court for appointment as lead plaintiff and for approval of lead counsel: (1) City of Omaha Police and Fire Retirement System and City of Bristol Pension Fund (collectively, the "Public Retirement Systems"), see ECF No. 17; (2) Stationary Engineers Local 39 Pension Trust Fund (the "IUOE Local 39"), see ECF No. 19; and (3) Roofers Local No. 149 Pension Fund and Steamship Trade Association-International Longshoremen's Pension Benefit Fund (collectively, the "Pension Funds"), see ECF No. 21.
IUOE Local 39 filed a Notice of Nonopposition to Public Retirement Systems' and the Pension Funds' motions for appointment as lead plaintiff. Upon review of the competing lead plaintiff motions, IUOE Local 39 conceded that "it appears that IUOE Local 39 does not possess the largest financial interest in the litigation." ECF No. 36 at 1. Accordingly, IUOE Local 39 stated that it did not oppose appointment of the Public Retirement Systems or the Pension Funds as lead plaintiff. Id.
The Pension Funds did not file an opposition or statement of non-opposition to the motions for appointment of lead plaintiff filed by IUOE Local 39 or Public Retirement Systems. Moreover, the Pension Funds did not file a reply to Public Retirement Systems' Opposition to Pension Funds' motion. See ECF No. 37 (Public Retirement Systems' Opposition to Competing Lead Plaintiffs' Motions).
Thus, only the Public Retirement Systems' motion is unopposed. Pursuant to Civil Local Rule 7-1(b), the Court finds this matter appropriate for determination without oral argument and hereby VACATES the hearing on these motions set for January 12, 2012. Having considered the parties' submissions and the relevant legal authorities, and for the reasons discussed herein, the Court GRANTS Public Retirement Systems' motion and DENIES IUOE Local 39's and the Pension Funds' motions. The case management conference scheduled for January 12, 2012 at 1:30 p.m. remains as set.
I. BACKGROUND
This is a securities class action on behalf of all persons who purchased or otherwise acquired the common stock of Juniper Networks, Inc. ("Juniper" or "Company") between July 20, 2010 and July 26, 2011 (the "Class Period"), against Juniper and certain of its officers and directors for alleged violations of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. Compl. ¶¶ 1, 11. Juniper designs, develops, and sells products and services that provide its customers with network infrastructure for accelerating the deployment of services and applications over a single network. Id. ¶ 2. The Complaint alleges that during the Class Period, Defendants issued materially false and misleading statements regarding the Company's business practices and financial results. Id. ¶ 3. The Complaint alleges that Defendants knew of the Company's negative business trends, but failed to disclose such information to investors, causing the Company's stock to be traded at artificially inflated prices during the Class Period, reaching a high of $44.46 per share on March 8, 2011. Id. ¶¶ 3, 34, 43-44.
On June 1, 2011, Defendant Kevin R. Johnson, CEO of Juniper, cautioned investors that "there's reason to be somewhat cautious in the near term." Id. ¶¶ 4, 38. Subsequently, the Company's stock suffered a one-day decline of 10% on high volume, closing at $32.97 per share on June 1, 2011. Id. ¶ 39. On July 26, 2011, Juniper's stock closed at $31.17 per share. After the close of trading that day, Juniper issued a release reporting the Company's actual second quarter 2011 financial and operating results and forward guidance, both of which came in well below what Defendants had led stock analysts and the investment community to expect. Id. ¶ 7, 41. On this news, Juniper's stock dropped nearly 21%, or $6.51 per share, to close at $24.66 on volume of 61.6 million shares the following trading day. Id. at 42.
II. LEGAL STANDARD
The Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-4, governs the selection of a lead plaintiff in private securities class actions. In the PSLRA's own words, this plaintiff is to be the "most capable of adequately representing the interests of class members." 15 U.S.C. § 89u-4(a)(3)(B)(i). Under the PSLRA, a three-step process determines the lead plaintiff. In re Cavanaugh, 306 F.3d 726, 729 (9th Cir. 2002). First, the first plaintiff to file an action governed by the PSLRA must publicize the pendency of the action, the claims made, and the purported class period "in a widely circulated national business-oriented publication or wire service." 15 U.S.C. § 78u-4(a)(3)(A)(i)(I). This notice must also alert the public that "any member of the purported class may move the court to serve as lead plaintiff." 15 U.S.C. § 78u-4(a)(3)(A)(i)(II).
This publication is to be made "[n]o later than 20 days after the date on which the complaint is filed." 15 U.S.C. § 78u-4(a)(3)(A)(i).
Those who wish to move the court for appointment as lead plaintiff must do so "not later than 60 days after the date on which the notice is published." 15 U.S.C. § 78u-4(a)(3)(A)(i)(II).
Second, the court must select the presumptive lead plaintiff. See In re Cavanaugh, 306 F.3d at 729-30 (citing 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)). The PSLRA provides that the presumptive lead plaintiff is the person or group of persons with "the largest financial interest in the relief sought by the class, " who also "otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure." 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I). To determine the presumptive lead plaintiff, "the district court must compare the financial stakes of the various plaintiffs and determine which one has the most to gain from the lawsuit." In re Cavanaugh, 306 F.3d at 730 (footnote omitted). Once the district court identifies the plaintiff with the most to gain, the district court must determine whether that plaintiff, based on the information he provides, "satisfies the requirements of Rule 23(a), in particular those of typicality' and adequacy.'" Id. If he does, that plaintiff becomes the presumptive lead plaintiff. Id. If not, the court selects the plaintiff with the next largest financial stake and determines whether that plaintiff satisfies the requirements of Rule 23. Id. The court repeats this process until it selects a presumptive lead plaintiff. Id.
Third, those plaintiffs not selected as the presumptive lead plaintiff may "rebut the presumptive lead plaintiff's showing that it satisfies Rule 23's typicality and adequacy requirements." Id. (citing 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)). This is done by showing that the presumptive lead plaintiff either "will not fairly and adequately protect the interests of the class" or "is subject to unique defenses that render such plaintiff incapable of adequately representing the class." 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)(aa)-(bb). If the court determines that the presumptive lead plaintiff does not meet the typicality or adequacy requirement, then it must return to step two, select a new presumptive lead plaintiff, and again allow the other plaintiffs to rebut the new presumptive lead plaintiff's showing. In re Cavanaugh, 306 F.3d at 731. The court repeats this process "until all challenges have been exhausted." Id. (citation and footnote omitted).
Under the PSLRA, the lead plaintiff is given the right, subject to court approval, to "select and retain counsel to represent the class." 15 U.S.C. § 78u-4(a)(3)(B)(v). "[T]he district court should not reject a lead plaintiff's proposed counsel merely because it would have chosen differently." Cohen v. U.S. Dist. Court for N. Dist. of Cal., 586 F.3d 703, 711 (9th Cir. 2009) (citation omitted). "[I]f the lead plaintiff has made a reasonable choice of counsel, the district court should generally defer to that choice." Id. at 712 (citations omitted).
III. ANALYSIS
Before the Court are three motions for appointment as lead plaintiff and for approval of lead counsel, filed by Public Retirement Systems, IUOE Local 39, and Pension Funds, respectively. Public Retirement Systems' motion is unopposed. See ECF Nos. 36 (IUOE Local 39's Notice of Nonopposition), 38 (Public Retirement Systems' Reply, noting the Pension Funds' failure to file an opposition or notice of nonopposition). IUOE Local 39's and Pension Funds' motions are opposed by Public Retirement Systems. See ECF No. 37. In conformity with the procedure established by the PSLRA and the Ninth Circuit in In re Cavanaugh, the Court will determine which of these three movants should serve as the lead plaintiff in the instant action.
A. Procedural Requirements
In accordance with the requirements under the PSLRA, Plaintiff City of Royal Oak Retirement System timely published a notice in Business Wire on August 16, 2011, one day after filing this action, informing the class of the pendency of the action, the claims made, and the purported class period. See ECF No. 5 & Ex. A. Public Retirement Systems, IUOE Local 39, and Pension Funds all filed their respective motions for appointment as lead plaintiff and approval of lead counsel on October 17, 2011, which is within 60 days of publication of the notice. Therefore, all three motions are timely and shall be considered by the Court. See 15 U.S.C. § 78u-4(a)(3)(A)(i)(II); id. § 78u-4(a)(3)(B)(i).
B. Presumptive Lead Plaintiff
1. Largest Financial Interest
In selecting a lead plaintiff, the Court begins by "compar[ing] the financial stakes of the various plaintiffs and determin[ing] which one has the most to gain from the lawsuit." In re Cavanaugh, 306 F.3d at 730. Neither the PSLRA nor the Ninth Circuit has provided specific guidance for calculating which plaintiff has the largest financial interest. See Perlmutter v. Intuitive Surgical, Inc., No. 10-cv-03451-LHK, 2011 WL 566814, at *3 (N.D. Cal. Feb. 15, 2011). The Ninth Circuit has instructed only that "the court may select accounting methods that are both rational and consistently applied." In re Cavanaugh, 306 F.3d at 730 n.4.
Here, all three movants advocate calculating their financial interests based on approximate losses suffered, which requires the Court to consider: "(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 during the class period." In re Olsten Corp. Sec. Litig., 3 F.Supp. 286, 295 (E.D.N.Y. 1998) (citing Lax v. First Merchants Acceptance Corp., No. 97 Civ. 2715, 1997 WL 461036, at *5 (N.D. Ill. Aug. 11, 1997)). Courts applying the Olsten test generally place the greatest emphasis on the last of these factors. See Perlmutter, 2011 WL 566814, at *7.
Under the "last-in, first-out" method for calculating losses suffered, which this and other courts have approved as a reasonable accounting method, see id., Public Retirement Systems claims that it purchased 125, 008 shares of Juniper securities during the Class period and suffered losses of $2, 092, 159. See ECF No. 17 at 5-6; Blasy Decl. Ex. B; ECF No. 37 at 3-5. The Pension Funds assert that they purchased 46, 087 shares of Juniper securities during the Class Period and suffered losses of approximately $717, 795. See ECF No. 21 at 4; McCormick Decl. Exs. A & B. IUOE Local 39 asserts that it purchased 43, 280 shares and suffered losses of approximately $518, 872. See ECF No. 19 at 4; Goldberg Decl. Exs. B & C. There is no dispute that Public Retirement Systems suffered the greatest loss during the Class Period under the last-in, first-out calculation method. See, e.g., IUOE Local 39 Notice of Nonopposition, ECF No. 36 at 1 (conceding that "it appears that IUOE Local 39 does not possess the largest financial interest in the litigation"). Moreover, neither IUOE Local 39 nor Pension Funds argues that under a different calculation method, it would possess the largest financial interest in the litigation. Accordingly, the Court finds that Public Retirement Systems has the largest financial interest in the relief sought by the class.
2. Rule 23 Requirements
Having determined that Public Retirement Systems is the plaintiff with the greatest financial interest in this case, the Court next considers whether Public Retirement Systems satisfies the requirements of Rule 23(a), in particular the typicality and adequacy requirements. See In re Cavanaugh, 306 F.3d at 730; see also Fed.R.Civ.P. 23(a). This showing need not be as thorough as would be required on a motion for class certification. See Zhu v. UCBH Holdings, Inc., 682 F.Supp.2d 1049, 1053 (N.D. Cal. 2010).
"The test of typicality is whether other members have the same or similar injury, whether the action is based on conduct which is not unique to the named plaintiffs, and whether other class members have been injured by the same course of conduct." Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992) (internal quotation marks and citation omitted). Here, the Court finds that the claims asserted by Public Retirement Systems are based on the same conduct giving rise to the other class members' claims, namely Defendants' alleged misrepresentations during the Class Period. The Court also finds that Public Retirement Systems has suffered the same injury as other plaintiffs, namely the purchase of Juniper stock during the Class Period at prices artificially inflated by Defendants' materially false and misleading statements and omissions. Accordingly, the Court finds that Public Retirement Systems satisfies the typicality requirement of Rule 23(a).
The test for adequacy is whether the class representative and his counsel "have any conflicts of interest with other class members" and whether the class representative and his counsel will "prosecute the action vigorously on behalf of the class." Staton v. Boeing Co., 327 F.3d 938, 957 (9th Cir. 2003) (citations omitted). The Court finds that the claims of Public Retirement Systems are typical of the class and that Public Retirement Systems' interests are aligned with the interests of the absent class members. The Court further finds, upon review of their submitted declarations, that the Public Retirement Systems and their selected counsel have amply demonstrated they will vigorously prosecute the action on behalf of the class. See Blasy Decl. Ex. C (sworn certifications) & D (firm resume); Public Retirement Systems Decl. ¶¶ 4-7. Accordingly, the Court finds that Public Retirement Systems has shown it will fairly and adequately protects the interests of the class, satisfying the adequacy requirement of Rule 23(a).
3. Rebuttal of Presumptive Lead Plaintiff
Having established that it has the greatest financial stake and that it satisfies the requirements of Rule 23(a), Public Retirement Systems is presumptively the most adequate plaintiff to represent the class in this securities litigation. This presumption may be rebutted only upon proof by a member of the purported plaintiff class that Public Retirement Systems either (1) "will not fairly and adequate protect the interests of the class, " or (2) "is subject to unique defenses that render [it] incapable of adequately representing the class." 15 U.S.C. § 78u-4(a)(3)(3)(B)(iii)(II). No purported class member has come forward with such rebuttal evidence. Neither IUOE Local 39 nor Pension Funds opposed Public Retirement Systems' motion for appointment as lead plaintiff. Accordingly, the presumption that Public Retirement Systems is the most adequate lead plaintiff has not been rebutted, and the Court therefore need not proceed to consider the motion of the movant with the next largest financial stake. See In re Cavanaugh, 306 F.3d at 730-31.
C. Lead Counsel
The PSLRA provides that "[t]he most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class." 15 U.S.C. § 78u-4(a)(3)(B)(v). The statute expressly provides that the power to select lead counsel rests with the lead plaintiff, not with the Court. Cohen, 586 F.3d at 709. So long as the lead plaintiff has made "a reasonable choice of counsel, the district court should generally defer to that choice." Id. at 712. Here, the Public Retirement Systems has selected the law firm of Scott+Scott LLP ("Scott+Scott"), a firm with substantial experience in the prosecution of shareholder and securities class actions and with the necessary resources to conduct this litigation efficiently. See Blasy Decl. Ex. D. The Court has reviewed the firm's resume and is satisfied that Public Retirement Systems has made a reasonable choice of counsel. See id. Accordingly, the Court defers to that choice and hereby approves Public Retirement Systems' selection of Scott+Scott as lead counsel.
IV. CONCLUSION
For the foregoing reasons, the Court GRANTS Public Retirement Systems' motion for appointment of lead plaintiff and approval of its selection of lead counsel, and DENIES IUOE Local 39's and Pension Funds' motions. Public Retirement Systems is hereby appointed lead plaintiff in this action, and Scott+Scott LLP is hereby appointed lead counsel.
IT IS SO ORDERED.