Opinion
Nos. 05 Civ. 2154 (NRB), 05 Civ. 2268 (NRB), 05 Civ. 2374 (NRB), 05 Civ. 2391 (NRB), 05 Civ. 2503 (NRB), 05 Civ. 2826 (NRB).
July 1, 2005
Robert I. Harwood, Wechsler Harwood LLP, New York, NY, Counsel for Plaintiff Shi.
Steven S. Schulman, Milberg Weiss Bershad Schulman LLP, New York, NY, Counsel for Plaintiff O'Riordan.
Paul Thomas Curley, Murray Frank Sailer LLP, New York, NY, Counsel for Plaintiff Zhu.
Robert I. Harwood, Wechsler Harwood LLP, New York, NY, Counsel for Plaintiff Lin.
Stephen A. Weiss, Seeger Weiss LLP, New York, NY, Counsel for Plaintiff Herrity.
Samuel Howard Rudman, Lerach Coughlin Stoia Geller Rudman Robbins LLP, Melville, NY, Counsel for Plaintiff Wei.
Samuel Howard Rudman, Lerach Coughlin Stoia Geller Rudman Robbins LLP, Melville, NY, Counsel for Movant MAPERS Funds Group.
Steven S. Schulman, Milberg Weiss Bershad Schulman LLP, New York, NY, Counsel for Movant SINA Individual Investor Group.
John T.A. Rosenthal, Esq., Orrick Herrington Sutcliffe LLP, New York, NY, Counsel for Defendants.
MEMORANDUM AND ORDER
Presently before this Court are six securities actions brought against SINA Corporation ("SINA") and certain of its officers and directors on behalf of a purported class of investors who purchased securities of SINA between October 26, 2004, and February 7, 2005 inclusive (the "Class Period"). The first class complaint was filed on February 15, 2005, and notice was published that same day in PR Newswire, a national newswire, in accordance with the requirements of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). 15 U.S.C. § 78u-4(a)(3)(B). The other five actions were filed shortly thereafter.
Two groups of class members have filed motions to consolidate the actions, to appoint their respective groups as lead plaintiff, and to designate their lawyers as lead counsel. Class members City of Sterling Heights General Employees' Retirement System, City of St. Clair Shores Police and Fire Retirement System, and Charter Township of Clinton Police and Fire Retirement System (collectively the "MAPERS Funds Group") have moved for selection as lead plaintiff and the selection of Lerach Coughlin Stoia Gellar Rudman Robbins LLP ("Lerach Coughlin") as lead counsel for the class. Class members E. James Souvagis, Jian Wen Zang on behalf of Lek Ka Chang, Warren Zeikowitz, Cai Yao Chen and Cai Deng Chen, and Dominador Mangonon and Maria Belen Mangonon (collectively the "SINA Individual Investor Group") have moved for selection as lead plaintiff and the appointment of Milberg Weiss Bershad Schulman LLP ("Milberg Weiss") as lead counsel. Both groups support consolidation of the action, and oppose each other's motions. For the reasons set forth below, we consolidate the actions, appoint the MAPERS Funds Group as lead plaintiff, and designate the firm of Lerach Coughlin as lead counsel.
A third class member initially made a similar motion for consolidation of the action, appointment as lead plaintiff, and for approval of lead counsel, but later withdrew this motion.
In their papers, this group refers to themselves as the "SINA Lead Plaintiff Group." To avoid confusion in our discussion of potential lead plaintiffs, we have employed a different designation.
DISCUSSION
I. Consolidation of the Actions
Under Rule 42(a) of the Federal Rules of Civil Procedure, consolidation is appropriate when the actions involve common questions of law or fact. Fed.R.Civ.P. 42(a). District courts have broad discretion in determining whether to consolidate actions, and consider whether judicial economy favors consolidation. Johnson v. Celotex Corp., 899 F.2d 1281, 1285 (2d Cir. 1990).
In the instant case, each of the actions involves the same allegedly false and misleading statements by defendants and the same alleged violations of the Securities and Exchange Act of 1934. Because each complaint is premised on the same facts and legal theories, judicial economy would be served by consolidating the actions. Accordingly, the actions are hereby consolidated pursuant to Rule 42(a).
II. The PSLRA
In 1995, Congress passed the PSLRA in order to curb abuses in securities fraud class actions. The PSLRA was designed to prevent lawyer-driven litigation, and 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." H.R. Conf. Rep. 104-369, at 34, reprinted in 1995 U.S.C.C.A.N. 730, 733. To that end, the PSLRA provides that a court "shall appoint as lead plaintiff the member . . . of the purported plaintiff class that the court determines to be the most capable of adequately representing the interests of class members," known as the "most adequate plaintiff." 15 U.S.C. § 78u-4(a)(3)(B)(i). This appointment is to be done in a timely fashion after the consolidation decision. 15 U.S.C. § 78u-4 (a)(3)(B)(ii).
The PSLRA provides a rebuttable presumption regarding the appointment of lead plaintiff. Under the statutory provision, a plaintiff is presumed to be the most adequate plaintiff if it (i) has brought the motion for lead counsel in response to the publication of notice; (ii) has the "largest financial interest in the relief sought by the class;" and (iii) otherwise satisfies the requirements of Federal Rule of Civil Procedure 23. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I). This presumption may be rebutted by proof that the presumptive lead plaintiff will not "fairly and adequately protect the interests of the class" or is subject to "unique defenses" that render the plaintiff incapable of adequately representing the class. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II).
III. The Proposed Lead Plaintiffs
A. The Presumptive Lead Plaintiff
There are currently two groups of class members seeking appointment as Lead Plaintiff: the SINA Individual Investor Group and the MAPERS Funds Group. Both groups have satisfied the first requirement for lead plaintiffs by filing complaints and submitting motions for lead plaintiff status. Accordingly, we turn to the second requirement for the presumption of lead plaintiff status — the plaintiff's financial interest in the action.
The PSLRA does not state how to determine which plaintiff has the largest financial interest in the relief sought by the class. In certain situations, this omission can lead to disputes over the appropriate method to calculate the largest financial interest among potential lead plaintiffs. See Pirelli Armstrong Tire Corp. v. LaBranche Co., No. 03 Civ. 8264, 2004 WL 1179311, at *7 (S.D.N.Y. May 27, 2004). In the instant case, however, it is undisputed that the SINA Individual Investor Group has largest financial interest in the case, with approximately $570,438.76 in claimed losses. The members of the MAPERS Funds Group claim only $190,248.15 in alleged losses and concede that the SINA Individual Investor Group has the larger financial interest. However, the MAPERS Funds Group contends that other factors make the MAPERS Funds Group the most adequate lead plaintiff. These arguments will be addressed after determining whether the SINA Individual Investor Group has satisfied the final requirement for presumptive lead plaintiff status.
To satisfy the third requirement for the presumption of lead plaintiff, the proposed lead plaintiff must meet the requirements of Rule 23 of the Federal Rules of Civil Procedure. In applying Rule 23, "[t]ypicality and adequacy of representation are the only provisions relevant to the determination of lead plaintiff under the PSLRA." In re Oxford Health Plans, Inc. Sec. Litig., 182 F.R.D. 42, 49 (S.D.N.Y. 1998). At this stage, only a preliminary showing of typicality and adequacy is required.Ferrari v. Impath, Inc., No. 03 Civ. 5667, 2004 WL 1637053, at *4 (S.D.N.Y. Jul. 20, 2004). Furthermore, in making this initial assessment, "the court generally will not consider . . . any arguments by other members of the putative class." In re Cendant Corp. Litig., 264 F.3d 201, 264-65 (3d Cir. 2001).
The threshold typicality determination is satisfied if the claims of the proposed lead plaintiff "arise from the same conduct from which the other class members' claims and injuries arise." In re Oxford Health Plans, 182 F.R.D. at 50. The claims of the proposed lead plaintiff and the other class members need not be identical, but if the claims of the proposed lead plaintiff are markedly different than those of the other class members, the statutory presumption will not apply. Id.
As an initial assessment, it appears that the members of the SINA Individual Investor Group executed stock trades during the proposed class period at prices alleged to have been affected by the alleged conduct of the defendants. These claims are similar in substance to the allegations of the other class members, who claim similar injuries. Accordingly, the typicality requirement of the statute is met. See Pirelli Armstrong Tire Corp., 2004 WL 1179311, at *15.
With respect to the adequacy requirement, Rule 23(a)(4) requires that the representative party must "fairly and adequately protect the interests of the class." Fed.R.Civ.P. 23 (a) (4). In order to do so, (1) there should be no conflict between the proposed lead plaintiff and the members of the class, (2) the selected counsel should be qualified, experienced, and able to conduct the litigation, and (3) the lead plaintiff should have a sufficient interest in the outcome to insure vigorous advocacy. Ferrari, 2004 WL 1637053, at *5.
The SINA Individual Investor Group has alleged a sufficient financial interest to insure a vigorous advocacy, and has retained competent counsel for the litigation. There is also nothing in the SINA Individual Investor Group's papers to indicate that they have interests that are adverse to the other members of the purported class. Accordingly, the SINA Individual Investor Group is entitled to the most adequate plaintiff presumption.
B. The Rebuttal Evidence
The most adequate plaintiff presumption may be rebutted only upon proof by that the presumed lead plaintiff will either "not fairly and adequately protect the interest of the class" or "is subject to unique defenses that render the plaintiff incapable of adequately representing the class." 15 U.S.C. § 78u-4(a) (3) (B) (iii) (II).
The MAPERS Funds Group challenges the SINA Individual Investor Group's adequacy to serve as lead plaintiff on a number of bases. Most significantly, the MAPERS Funds Group alleges that: (1) the large, disparate nature of the SINA Individual Investor Group makes it incapable of managing the litigation; and (2) the prior felony conviction of the group's member with the largest financial stake makes the group an inappropriate choice for lead plaintiff.
The plain language of the PSLRA clearly permits for a "group of persons" to be deemed the most adequate lead plaintiff. 15 U.S.C. § 78u-4(a) (3) (B) (iii) (I). However, many courts have noted that large groupings of individuals or entities can impair the ability of the lead plaintiff to control the litigation. See In re Cendant Corp. Litig., 264 F.3d at 267 ("Courts must also inquire whether a movant group is too large to represent the class in an adequate manner."). Because the PSLRA envisions the lead plaintiff managing the litigation, "allow[ing] an aggregation of unrelated plaintiffs to serve as lead plaintiffs defeats the purpose of choosing a lead plaintiff." In re Razorfish, Inc. Sec. Litig., 143 F. Supp. 2d 304, 308 (S.D.N.Y. 2001); see also In re Donnkenny Inc. Sec. Litig., 171 F.R.D. 156, 157-58 (S.D.N.Y. 1997) ("To allow lawyers to designate unrelated plaintiffs as a `group' and aggregate their financial stakes would allow and encourage lawyers to direct litigation."). While there is no bright line rule as to the size or interconnection necessary for a proposed group to qualify as lead plaintiff, "courts should generally presume that groups with more than five members are too large to work effectively." In re Cendant Corp. Litig., 264 F.3d at 267 (applying the recommendation of the Securities and Exchange Commission on the acceptable size for lead plaintiff groups); but see Weltz v. Lee, 199 F.R.D. 129, 133 (S.D.N.Y. 2001) (appointing as lead plaintiff a seven member group).
The SINA Individual Investor Group is composed of seven individuals from around the country. Within the larger group of seven are two sets of family relations, two brothers and a husband and wife, leaving five wholly-distinct, unrelated sub-groups. See In re Microstrategy Inc. Sec. Litig., 110 F. Supp. 2d 427, 439 (E.D. Va. 2000) (allowing immediate family members to be considered as one movant for purposes of the PSLRA). The MAPERS Funds Group contends that the large size and disparate nature of the members of the SINA Individual Investor Group compromises its ability to adequately represent the proposed class.
As evidence of the SINA Individual Investor Group's inability to function effectively, the MAPERS Funds Group points to an affidavit that the SINA Individual Investor Group submitted to this Court. This affidavit was offered by the SINA Individual Investor Group as evidence of its effectiveness. However, the affidavit was signed by only five of the seven members of the group because the SINA Individual Investor Group was apparently unable to obtain the signatures of two of the members. Seidman Supp. Decl., Ex. A. With respect to the two missing members, the affidavit states that "plaintiff's counsel has notified [the absent members of the lead plaintiff group] of the proposal for how the group will function cohesively as Lead Plaintiff." Id.
In addition to challenging the effectiveness of the group because of its size, the MAPERS Funds Group contends that Mr. Souvagis, the member of the SINA Individual Investor Group's with the largest individual loss, is an unsuitable choice for a member of the lead plaintiff group. Mr. Souvagis, who suffered approximately $292,000 of the group's overall loss of $570,000, is a convicted felon who pled guilty in 1995 to providing false information to a financial institution. As a result of this plea, Mr. Souvagis was sentenced to three years of probation, and five months of community confinement. Souvagis Aff. ¶ 4. The SINA Individual Investor Group does not deny this charge, but argues that Mr. Souvagis's plea of guilty in 1995 is irrelevant to his ability to serve as a member of lead plaintiff group.
The MAPERS Funds Group also alleges that Mr. Souvagis lost his citizenship as a result of this conviction. This charge is denied by Mr. Souvagis, and is not supported by the available record.
"A class representative, once designated by the Court, is a fiduciary for the absent class members." In re Oxford Health Plans, Inc. Sec. Litig., 182 F.R.D. at 46. Honesty and trustworthiness are thus relevant factors in determining and individual's ability to serve as a class representative. See Savino v. Computer Credit, Inc., 164 F.3d 81, 87 (2d Cir. 1998). As such, convictions of fraud or other forms of dishonesty undermine the qualifications of a potential class representative. For this reason, numerous courts have rejected the appointment of convicted felons as class representatives. See Hartsell v. Source Media, No. 98 Civ. 1980, 2003 WL 21245989, at *3 (N.D. Tex. Mar. 31, 2003); In re Proxima Corp. Sec. Litig., No. 93-1139-IEG, 1994 WL 374306, at *17 (S.D. Cal. May 3, 1994) (rejecting plaintiff that had admitted to fraud as unfit to serve as class representative); see generally Pirelli Armstrong Tire Corp., 2004 WL 1179311, at *18-*19 (discussing the fitness of convicted felons to serve as class representatives).
The evidence presented by the MAPERS Funds Group convinces this Court that the SINA Individual Investor Group should not be appointed lead plaintiff. Given the disparate nature of its membership and the criminal conviction of its member with the largest financial interest, we do not believe that the group will fairly and adequately protect the interests of the proposed class. In light of the evidence submitted regarding the SINA Individual Investor Group's adequacy to represent the class, we find that the statutory presumption that the SINA Individual Investor Group is the most adequate plaintiff has been rebutted.
C. The MAPERS Funds Group As Lead Plaintiff
The purpose of appointing a Lead Plaintiff is to insure that the most capable plaintiff controls the litigation and protects the interests of the absent class members. "In enacting the PSLRA, Congress expressed an intention to encourage institutional investors to step forward and assume the role of lead plaintiff in an effort to prevent lawyer-driven litigation." Pirelli Armstrong Tire Corp., 2004 WL 1179311, at *20. Because the size and experience of institutional investors can be of significant assistance to the prosecution of the action, a number of courts "have understood [the PSLRA] to favor large institutional investors" as lead plaintiff. Id.
The MAPERS Funds Group is the type of lead plaintiff envisioned by Congress in passing the PSLRA. The three institutions have a prior relationship with each other as members of the MAPERS group for Michigan pension plans. Each institution is a sophisticated investor with millions of dollars of assets under its control. MAPERS Funds Group Joint Decl. With such experience and resources, these institutional investors will be well-suited to oversee the litigation and ensure that the class members, rather than their lawyers, control the litigation.
The MAPERS Funds Group satisfies all the lead plaintiff requirements of the PSLRA. As noted earlier, it has complied with the notice requirement and has a substantial financial interest in the litigation, though admittedly not the largest. In addition, it is undisputed that the MAPERS Funds Group satisfies the typicality and adequacy requirements of Rule 23. Accordingly, we find that the MAPERS Funds Group is the most adequate plaintiff under the PSLRA, and appoint it lead plaintiff for the consolidated action.
The SINA Institutional Investors Group objects to the MAPERS Funds appointment only on the grounds that it has not suffered the largest financial loss.
D. Appointment of Lead Counsel
Under 15 U.S.C. § 78u-4(a)(3)(B)(v), the lead plaintiff shall select counsel to represent the class, subject to court approval. The MAPERS Funds Group has selected Lerach Coughlin to serve as Lead Counsel. Lerach Coughlin has extensive experience prosecuting securities litigation actions, and is well qualified to represent the proposed class. Accordingly, the selection of Lerach Coughlin as Lead Counsel is approved.
CONCLUSION
For the reasons stated above, the above-captioned cases are consolidated for all purposes under the caption In re SINA Corporation Securities Litigation, and under the docket number 05 Civ. 2154 (NRB). The motion of the MAPERS Funds Group to be appoint lead plaintiff is granted, and the motion of the SINA Institutional Investors Group is denied. Lerach Coughlin is appointed lead counsel.
SO ORDERED.