Summary
appointing lead plaintiffs on the basis of: continuous ownership of stock by the selected plaintiffs; failure to file a verified complaint by another applicant for lead plaintiff; and the strength of their lawyers' pleadings
Summary of this case from King v. Verifone Holdings, Inc.Opinion
1:03-cv-3831-WSD, 1:03-cv-3832-WSD, 1:04-cv-0058-WSD.
October 1, 2004.
ORDER
Before the Court are Plaintiff Tam's Motion to Appoint Federman and Sherwood as Lead Derivative Counsel and Fleming Fried, P.C. as Liaison Counsel, and to Consolidate Their Related Derivative Action [03-3831, 13], [03-3832, 9], [04-0058, 10], Plaintiffs Millman and Walter's Response to Plaintiff Tam's Motion and Cross-Motion to Consolidate All Related Shareholder Derivative Actions and Appoint a Leadership Structure for Plaintiffs [03-3831, 17], [03-3832, 13], [04-0058, 16], Plaintiff Tam's Response to Plaintiffs Millman and Walter's Cross-Motion and Reply to Response to Plaintiff Tam's Motion [03-3831, 21], [03-3832, 17], [04-0058, 21], and Plaintiffs Millman and Walter's Reply in Support of Their Cross-Motion [03-3831, 23], [03-3832, 20], [04-0058, 22]. Plaintiff Tam also requests an evidentiary hearing and oral arguments on the issue of consolidation and appointment of lead counsel for the consolidated action. [03-3831, 21 at 8].
Background
On December 9, 2003, Plaintiffs Scott Millman ("Plaintiff Millman") and Wayne Walter ("Plaintiff Walter") filed Verified Complaints in their respective shareholder derivative actions on behalf of Friedman's, Inc. ("Friedman's") [03-3831, 1], [03-3832, 1], and on January 9, 2004, Plaintiff Hall P. Tam ("Plaintiff Tam") filed an unverified Complaint in his shareholder derivative action on behalf of Friedman's [04-0058, 1]. On February 19, 2004, Plaintiff Tam filed a Motion to Appoint Federman and Sherwood as Lead Derivative Counsel, and Fleming Fried, P.C. as Liaison Counsel, and to Consolidate their Related Derivative Action. On March 8, 2004, Plaintiffs Millman and Walter filed their Response to Plaintiff Tam's Motion and Cross-Motion to Consolidate All Related Shareholder Derivative Actions and Appoint a Leadership Structure for Plaintiffs. On March 25, 2004, Plaintiff Tam filed his Response to Plaintiffs Millman and Walter's Cross-Motion and his Reply to Response to Plaintiff Tam's Motion, and on April 12, 2004, Plaintiffs Millman and Walter filed their Reply in support of their motion.
The Complaints in all three shareholder derivative actions allege that certain directors and officers of Friedman's (the "Individual Defendants"), breached their fiduciary duties by causing or allowing Friedman's to file false financial statements and to issue misleading statements between January 26, 2000 and November 11, 2003. The Complaints allege the conduct of the Individual Defendants injured Friedman's, severely depressing Friedman's stock value.
Plaintiff Tam and Plaintiffs Millman and Walter move this Court to consolidate all three actions because they each are brought as a shareholder derivative action against substantially similar defendants and contain substantially similar claims.See [03-3831, 14 at 12]; [03-3831, 18 at 7].
Plaintiffs Millman and Walter have agreed to a leadership structure for the case, but have been unable to agree to a structure with Plaintiff Tam. See [03-3831, 14 at 4-5].
Plaintiff Tam and Plaintiffs Millman and Walter also move the Court to designate a leadership structure for the proposed consolidated action. Plaintiff Tam asserts the Court should appoint Federman and Sherwood as lead derivative counsel and Fleming Fried, P.C. as liaison derivative counsel. [03-3831, 14 at 7]. Plaintiffs Millman and Walter assert the Court should appoint Plaintiffs Millman and Walter as co-lead Plaintiffs and Steven Estep of Cohen, Cooper and Estep and Nadeem Faruqi of Faruqi and Faruqi, LLP as Plaintiffs' co-lead counsel. [03-3831, 18 at 8].
Discussion
A. Consolidation
The parties agree that the three shareholder derivative actions filed by Plaintiffs Tam, Millman and Walter should be consolidated because the Individual Defendants and claims are substantially similar. Plaintiffs also request that any similar shareholder derivative actions brought on behalf of Friedman's in the future be consolidated with this action.
The District Court has broad discretionary authority under Federal Rule of Civil Procedure 42(a) to consolidate cases. See Hendrix v. Raybestos-Manhattan, Inc., 776 F.2d 1492, 1495 (11th Cir. 1985) ("district court's decision under Rule 42(a) is purely discretionary"); see also In re Air Crash Disaster at Florida Everglades on December 29, 1972, 549 F.2d 1006, 1014 (5th Cir. 1997) ("trial court has managerial power that has been described as `the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants.'"). Rule 42(a) provides:
When actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all the matters in issue in the action; it may order all the actions consolidated; and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.
Fed.R.Civ.P. 42(a). Consolidating actions where appropriate can help avoid needless duplication of time, effort and expense on the part of the parties and the Court in discovery and at trial. In re Air Crash Disaster, 549 F.2d at 1014. It is particularly appropriate because the "cost of defending these multiple actions may well do serious harm to the very corporation in whose interest they are supposedly brought." MacAlister v. Guterma, 263 F.2d 65, 68 (2d Cir. 1958). When consolidation is appropriate, it is also appropriate to order future consolidation of any later filed similar shareholder derivative action. See, e.g., Dollens v. Zionts, No. 01-5931, 2001 WL 1543524, at *2 (N.D. Ill. Dec. 4, 2001).
All Plaintiffs allege the same Individual Defendants committed the same acts and caused the same damage to the same company during the same time period. In light of the similar factual and legal issues in the three actions pending before the Court, the Court finds it is in the interests of judicial economy and conservation of the parties' resources to consolidate Plaintiff Tam's, Millman's, Walter's, and any future shareholder derivative actions based on the same or similar set of facts and law into one action.
B. Leadership Structure
Counsel for both Plaintiff Tam and Plaintiffs Millman and Walter move for the appointment of a leadership structure among Plaintiffs and Plaintiffs' counsel. The "orderly and economical prosecution of the action necessitates the designation of a general counsel to conduct the litigation on behalf of all the stockholders." Rich v. Reisini, 25 A.D.2d 32, 34 (N.Y.App. Div. 1966) at 33; see also MacAlister at 68 ("appointment of a general counsel may in many instances prove the only effective means of channeling the efforts of counsel along constructive lines"). Plaintiff Tam and Plaintiffs Millman and Walter have been unable to agree on a leadership structure.
Federal Rule of Civil Procedure 23.1 requires the plaintiff in a derivative action to "fairly and adequately represent the interests of the shareholders . . . in enforcing the right of the corporation or association." Each Plaintiff in this action appears to meet the standards for fairly and adequately representing the interests of shareholders because each held shares during the relevant time period, each is represented by capable counsel, and no party appears subject to a unique defense that would make the party's status as lead plaintiff problematic. See, e.g., Dollens at *2.
It is uncertain whether Plaintiff Tam's ownership of shares for only part of the relevant time period is problematic. It is possible that Plaintiff Tam's ownership may be sufficient to satisfy the contemporaneous ownership requirement if a continuing wrong were alleged. See 7C Wright, Miller Kane, Federal Practice and Procedure § 1828 at 67 (2d ed. 1986); see also, Palmer v. Morris, 316 F.2d 649, 650 (5th Cir. 1963). In light of the Court's decision in this matter it is not necessary for the Court to decide this issue.
Here the Court is required to select a lead counsel from among several attorneys who brought the stockholder derivative actions which have been consolidated. This selection rests within the sound discretion of the Court. Id.; see also Rich, 25 A.D.2d at 33. The "guiding principle" is who will "best serve the interest of the plaintiffs." Rich, 25 A.D.2d at 34. The criteria for selecting counsel when appointing a leadership structure include factors such as "experience and prior success record, the number, size, and extent of involvement of represented litigants, the advanced stage of proceedings in a particular suit, and the nature of the causes of action alleged." 3 Herbert B. Newberg Alba Conte,Newberg on Class Actions § 9.35 at 388 (4th ed. 2002). In making a selection, some courts have considered the quality of the pleadings that have been filed as a factor to be weighed.See, e.g., Dollens v. Zionts, No. 01-5931, 2001 WL 1543524, at *5 (N.D. Ill. Dec. 4, 2001).
The Court believes that each proposed lead counsel is a capable lawyer. However, in considering the factors discussed above, the Court finds that Plaintiffs Millman's and Walter's proposed lead counsel, Steven Estep of Cohen, Cooper Estep and Nadeem Faruqi of Faruqi Faruqi, LLP, are the most qualified to serve as lead counsel in this action. The Court makes this decision on the basis of three findings. First, Plaintiffs Millman and Walter have continuously held their stock since 2000 and 2001, respectively. In contrast, Plaintiff Tam purchased his stock in October 2003, only weeks before Friedman's alleged misconduct was revealed and the relevant period closed. This fact weighs in favor of Plaintiffs Millman's and Walter's capacity to better represent the interests of the shareholders. Second, Plaintiff Tam failed to file a verified complaint, a significant pleading shortcoming in a complex matter like the cases before the Court.See 7C Wright, Miller Kane, Federal Practice and Procedure § 1827 at 57 ("When a court finds that a complaint in a derivative suit lacks a valid verification, dismissal is appropriate under Rule 41(b) . . ."). Finally, Plaintiffs Millman and Walter filed their Complaint first and their Complaint appears to be replicated by Plaintiff Tam in his action. Plaintiff Tam's use of Plaintiffs Millman's and Walter's Complaint as a template for the Complaint filed by Plaintiff Tam underscores the quality of Plaintiffs Millman's and Walter's initial pleadings and leads the Court to give them strong marks for the quality of their work. See, e.g., Lloyd v. Indus. Bio-Test Labs., Inc., 454 F. Supp. 807, 813 (S.D.N.Y 1978) (citing which counsel drafted complaint as factor in appointing lead counsel); Dollens at *5-6 (analyzing quality of pleadings; declining to appoint lead plaintiff "where he has simply adopted the complaint of [competing plaintiff] and has not otherwise demonstrated his ability to prosecute the case any more vigorously than other plaintiffs"). All of these factors weigh significantly in favor of appointing Plaintiffs Millman and Walter co-lead Plaintiffs and appointing their counsel co-lead counsel.
Plaintiff Tam's pleadings contain numerous errors. See, e.g., [03-3831, 14 at 11] ("filed actions against Friedman's");Id. at 3 ("Sorbian-Oxley Act").
For the reasons stated above,
IT IS HEREBY ORDERED that Plaintiffs Millman and Walter's Cross-Motion to Consolidate All Related Shareholder Derivative Actions and Appoint a Leadership Structure for Plaintiffs [03-3831, 17], [03-3832, 13], [04-0058, 16] is GRANTED, and that Plaintiff Tam's Motion to Appoint Federman and Sherwood as Lead Derivative Counsel and Fleming Fried, P.C. as Liaison Counsel, and to Consolidate Their Related Derivative Action [03-3831, 13], [03-3832, 9], [04-0058, 10] is GRANTED IN PART and DENIED IN PART. IT IS FURTHER ORDERED that Millman v. Brinkley, et al., No. 03-cv-3831, Walter v. Brinkley, et al., No. 03-cv-3832, Tam v. Suglia, et al., No. 04-cv-0058, and any future shareholder derivative actions that are similar in law and fact, shall be CONSOLIDATED, and all pleadings and papers for the derivative actions will hereafter be filed under the lowest case number, 03-cv-3831. IT IS FURTHER ORDERED that Plaintiffs Millman and Walter are appointed co-lead Plaintiffs, and Cohen, Cooper Estep and Faruqi Faruqi, LLP are appointed as co-lead counsel.
IT IS FURTHER ORDERED that Plaintiff Tam's request for evidentiary hearing and oral arguments is DENIED.
The Court will enter a separate pretrial order addressing scheduling and procedural issues resulting from its appointment of lead counsel and lead Plaintiffs.
SO ORDERED.