United States District Court, Eastern District of New York
January 22, 2000
HOWARD GREENBERG, PLAINTIFF,
BEAR STEARNS & CO., INC., AND BEAR STEARNS SECURITIES CORP., DEFENDANTS. ROBERT LEVITT FOR HIMSELF AND AS CUSTODIAN FOR RICHARD LEVITT AND MONICA LEVITT, ROBERT RICE, STEPHEN G. SIBEN, STEPHEN STROBEHN, STANLEY VELTKAMP, PHILIP C. VITANZA FOR HIMSELF AND ELIZABETH VITANZA AND LUKE VITANZA, JOHN T. WHITE, GUY V. WOOD, CARL ZANDER, JR., AND TED M. AND KATHRYN N. JONES, AS TRUSTEES, PLAINTIFFS, V. BEAR STEARNS & CO., INC., AND BEAR STEARNS SECURITIES CORP., DEFENDANTS.
The opinion of the court was delivered by: Spatt, District Judge.
MEMORANDUM OF DECISION AND ORDER
On January 19, 1999, Howard Greenberg filed a class action on
behalf of purchasers of ML Direct stock against Bear Stearns in
the United States District Court, Southern District of New York,
Greenberg v. Bear Stearns (No. 99 CIV 359[JSM]). On February
9, 1999, additional plaintiffs, in an action entitled Robert
Levitt, et al. v. Bear Stearns (No. 99 CIV 1115[JSM]), filed a
second action for the same class in the United States District
Court, Southern District of New York. The Greenberg and Levitt
plaintiffs are both represented by the Morley & Trager law firm.
On March 1, 1999, the Greenberg and Levitt plaintiffs moved in
the Southern District to be appointed lead plaintiffs for the
class of all persons who purchased ML Direct stock or warrants
through Sterling Foster during the period of September 4, 1996
through December 31, 1996 (the "Class Period").
Prior to a decision being rendered by the Honorable John S.
Martin, Jr., the plaintiffs in the In Re Sterling Foster multi
district litigation (97 CV 189[ADS]), moved to transfer the
Greenberg and Levitt cases to this Court. The Judicial Panel for
Multi District Litigation entered an order effective April 6,
1999 granting the motion to transfer the actions entitled
Greenberg v. Bear Stearns (No. 99 CIV 359[JSM]) and Robert
Levitt, et al. v. Bear Stearns (No. 99 CIV 1115[JSM]) to this
Court. In addition, the cases were given new civil action
numbers as reflected in the caption above. Due to the transfer,
Greenberg and Levitt's motion for lead plaintiffs was never
decided and is now pending before this Court. Also pending
before the Court are the motions filed by defendant Bear Stearns
to dismiss the Greenberg and Levitt complaints.
A. The Motion to Dismiss the Greenberg Complaint
On May 13, 1997, prior to Greenberg filing his class action
complaint in the United States District Court, Southern District
of New York, a Statement of Claim was filed by Greenberg against
Bear Stearns in a National Association of Securities Dealers
("NASD") Arbitration alleging the same fraudulent scheme
involving ML Direct and Bear Stearns. On March 9, 1999, the NASD
dismissed Greenberg's Claim against Bear Stearns.
In Greenberg's opposition to Bear Stearns' motion to dismiss
it is stated:
Defendant Bear Stearns has made a motion in the
Greenberg case to dismiss the class action brought by
Greenberg on the ground that Greenberg cannot be a
class representative until the arbitration award
dismissing his claim is vacated. Plaintiff agrees and
asks that this Court defer consideration of the
motion with respect to the Greenberg class action
until a determination has been made with respect to
the motion to vacate. The motion to vacate has been
fully briefed and has been submitted to the Honorable
John S. Martin in April, 1999. . . . Thus, once the
arbitration award is vacated, Greenberg will then be
entitled to pursue his class action remedies.
On August 23, 1999, Judge Martin denied Greenberg's motion to
vacate the arbitral award and affirmed the decision of the
arbitration panel dismissing the complaint. See Greenberg v.
Bear Stearns & Co., Inc., 99 CV 359(JSM), 1999 WL 642859
(S.D.N.Y. Aug. 23, 1999). Judge Martin found that the arbitral
panel's decision did not "reflect a manifest disregard of the
evidence or the law." Id. at * 2.
It is well settled that the doctrine of res judicata precludes
a party from re-litigating issues that have been previously
decided. Maharaj v. Bankamerica Corp., 128 F.3d 94, 97 (2d
Cir. 1997) (citing Federated Dep't Stores, Inc. v. Moitie,
452 U.S. 394, 101 S.Ct. 2424 ) (other citations omitted). A
decision by an arbitrator is "as binding and conclusive under
the doctrine of res judicata and estoppel as the judgment of a
court." Katz v. Financial Clearing & Servs. Corp., 794 F. Supp. 88,
94 (S.D.N.Y. 1992); American Renaissance Lines, Inc. v.
Saxis S.S. Co., 502 F.2d 674, 679 (2d Cir. 1974).
The unsuccessful claims presented by Greenberg to the
arbitration panel do not differ in any respect to the claims
presently before this Court. Accordingly Bear Stearns' motion to
dismiss the Greenberg complaint must be granted on the ground of
B. The Motion to Dismiss the Levitt Complaint
One of the principal arguments in Bear Stearns' motion to
dismiss the Levitt complaint is that it is barred by the
applicable statute of limitations. As a similar argument was
made in a motion filed on December 20, 1999 on behalf of Bear
Steams in the Rogers v. Sterling Foster & Co., Inc. et al., 97
CV 189(ADS) multi district litigation, the Court will hear oral
argument on the motion to dismiss the Levitt complaint
simultaneously with the numerous motions to dismiss already
filed and to be filed in the near future with respect to the
multi district litigation. Accordingly, the motion to dismiss
the Levitt complaint is denied with leave to renew after the
Court notifies all parties of the date and time of oral argument
on the numerous separately filed motions to dismiss in the In
Re Sterling Foster multi district litigation.
C. The Motion for Lead Plaintiff Status
Even in the event the Levitt complaint is not dismissed, the
Court is of the view that the Levitt plaintiffs should not be
appointed lead plaintiffs for the subclass of ML Direct Inc.
against Bear Stearns.
As previously stated, the Levitt plaintiffs seek to be
appointed additional lead plaintiffs for a subclass of the
current class in the In Re Sterling Foster multi district
litigation. The subclass consists of purchasers of defendant ML
Direct securities, and is limited to their claims against the
defendant Bear Stearns.
On October 27, 1997, prior to the multi district litigation
being transferred to this Court, the Honorable Denis R. Hurley
appointed as lead class plaintiffs in the In Re Sterling
Foster matter (97 CV 189, 97 CV
610, 97 CV 1689, 97 CV 3253, 97 CV 3775) the representatives of
purchasers of ML Direct, Lasergate Systems, Advanced Voice
Technologies, Com/Tech Communications Technologies, Embryo
Development Corporation and Applewoods (the "Rogers
plaintiffs"). One of the law firms representing these plaintiffs
is Kirby, McInerney & Squire LLP.
In December 1998, lead class plaintiffs in the multi district
litigation moved to amend the complaint to add Bear Stearns as a
defendant. On February 12, 1999, the motion to amend was
As stated above, on January 19, 1999, the law firm of Morley
and Trager, on behalf of Greenberg, filed a class action against
Bear Stearns in the Southern District of New York. On January
25, 1999, Morley and Trager filed a notice of the Greenberg
class action on the internet. The Levitt plaintiffs apparently
responded to the Greenberg notice. As such, on February 9, 1999,
Morley and Trager filed another complaint in the Southern
District, on behalf of the Levitt plaintiffs, almost identical
to the Greenberg complaint.
As previously stated, on August 23, 1999, Judge Martin upheld
the arbitration panel's decision which found that Greenberg's
complaint against Bear Stearns was unfounded. Greenberg v. Bear
Stearns & Co., Inc., 99 CV 359(JSM), 1999 WL 642859 (S.D.N.Y.
Aug. 23, 1999). The decision by Judge Martin resulted in the
dismissal of the Greenberg complaint presently before this
Court. Accordingly, the only issue remaining is whether the
Levitt plaintiffs should be appointed lead plaintiffs for the ML
Direct/Bear Stearns subclass.
Under the Private Securities Litigation Reform Act of 1995
("PSLRA"), 15 U.S.C. § 78u-4(a)(3)(B), the Court must consider
all motions made by purported class members seeking to be
appointed lead plaintiff and to determine the "member or members
of the purported plaintiff class that . . . [is] most capable of
adequately representing the interests of the class members."
15 U.S.C. § 78u-4(a)(3)(B)(i).
In this regard, 15 U.S.C. § 78u-4(a)(3)(A)(i) states:
Not later than 20 days after the date on which the
complaint is filed, the plaintiff or plaintiffs shall
cause to be published, in a widely circulated
national business-oriented publication or wire
service, a notice advising members of the purported
plaintiff class —
(I) of the pendency of the action, the claims
asserted therein, and the purported class period;
(II) that, no later than 60 days after the date
on which the notice is published, any member of the
purported class may move the court to serve as lead
plaintiff of the purported class.
After publication of the notice described above, the Court must
appoint, as lead plaintiff, the class member or members who are
most capable of adequately representing the class. See
15 U.S.C. § 78u-4(a)(3)(B)(i); see also Metro Services Inc. v.
Wiggins, 158 F.3d 162, 164 (2d Cir. 1998). The Court must
presume that the most adequate lead plaintiff is the shareholder
who (i) has either filed the complaint or has filed a motion
seeking designation as lead plaintiff; (ii) has the largest
financial interest in the relief sought by the class; and (iii)
otherwise satisfies the requirements of the Federal Rules of
Civil Procedure. See Metro Services, 158 F.3d at 164-65;
Mitchell v. Complete Management, Inc., 1999 WL 728678, * 2 — *
3 (S.D.N.Y. Sept. 17, 1999); In Re Olsten Corp. Securities
Litig., 3 F. Supp.2d 286, 294-95; Gluck v. CellStar Corp.,
976 F. Supp. 542, 544-45 (N.D.Texas 1997). This presumption is
rebuttable only where the plaintiff will not adequately and
fairly represent the class. Mitchell, 1999 WL 728678, * 3.
The Levitt plaintiffs essentially make two arguments in
support of their contention that they should be named lead
plaintiffs for the subclass of ML Direct purchasers against the
Stearns. First, the plaintiffs in the Rogers multi district
litigation action did not file the required notice as described
above when they filed an amended complaint naming Bear Stearns
as a co-defendant. While the Levitt plaintiffs cannot dispute
that the Rogers plaintiffs followed the notice requirements when
the complaint was originally filed, it is their position that
another notice was required to be published when the complaint
was amended on February 12, 1999. As a result, the Levitt
plaintiffs argue that because the Rogers plaintiffs did not
either publish a notice after the amended complaint was filed or
move to be considered lead plaintiffs in response to the notice
filed by the Greenberg and Levitt plaintiffs, they are not
eligible to be appointed lead plaintiffs with respect to the
class action of purchasers of ML Direct against Bear Stearns.
The Court disagrees. The assertion by the Levitt plaintiffs
that the Rogers plaintiffs should be barred from being appointed
lead plaintiffs with respect to the class action of ML Direct
against Bear Stearns because of their failure to publish a
notice within 20 days of filing an amended complaint is not
supported by any case law authority or by the provisions of the
PSLRA. None of the cases cited by the Levitt plaintiffs stand
for the proposition that another notice by the lead plaintiffs
must be published after an amended complaint naming a new
defendant is filed. In fact, the Court is unable to locate any
authority within this Circuit or elsewhere, which stands for
that proposition. In addition, the unambiguous language of the
PSLRA states that "[n]ot later than 20 days after the date on
which the complaint is filed, the plaintiff . . . shall cause to
be published . . . a notice advising the members of the
purported plaintiff class. . . ." 15 U.S.C. § 78u-4(a)(3)(A)(i)
(emphasis added). The statute does not mandate, nor does it
suggest, that a Court approved lead plaintiff must re-publish a
notice of the purported class after an amended complaint is
As the lead class plaintiffs in the multi district litigation
had previously published a notice informing potential plaintiffs
of the existing litigation involving purchasers of ML Direct
against the defendant Sterling Foster, the Court finds that
neither case law nor the provisions of the PSLRA require a
second notice to be published when the complaint was amended to
add the Bear Stearns additional defendant.
The Levitt plaintiffs second argument is that they have the
largest financial interest in the outcome of the litigation. In
an affidavit submitted by Leslie Trager on behalf of the Levitt
plaintiffs, it is stated that the "maximum losses [of the lead
class plaintiffs in the multi district litigation] comes to
$154,192 . . . [while] plaintiffs in the Levitt action sustained
losses totaling $469,276.19. . . ."
As previously stated, the PSLRA states that when considering
who should be appointed lead plaintiff in a class action, a
rebuttable presumption is created in favor of the plaintiff or
plaintiffs that have "the largest financial interest in the
relief sought by the class."
15 U.S.C. § 78u4(a)(3)(B)(iii)(I)(bb) (emphasis added). Counsel for the
plaintiffs in the Levitt action ask this Court to assess the
financial interests of the respective plaintiffs by comparing
the sub class of purchasers of ML Direct Stock against the
defendant Bear Stearns, rather than considering the entire class
of plaintiffs and defendants. If the Court were to consider the
entire class, "[t]he current lead plaintiffs, have suffered
total damages probably exceeding $1,400,000." (See Affidavit
of Lewis S. Sandier in opposition to Morley & Trager Motion to
be Appointed Lead Plaintiffs).
The PSLRA provides that a rebuttable presumption is created in
favor of the plaintiff or plaintiffs that have "the largest
financial interest in the relief sought by the class."
15 U.S.C. § 78u4(a)(3)(B)(iii)(I)(bb) (emphasis added). The Court will
not, as suggested by counsel for the Levitt plaintiffs, sub
divide the class in the In Re Sterling Foster multi
district litigation matter and appoint lead plaintiffs in
separate sub classes. To do so would be contrary to the
unambiguous language in the statute and run counter to one of
the stated purposes of the PSLRA which is to "minimize costs"
and to "giv[e] control of the litigation to lead plaintiffs with
substantial holdings to the securities of the issuer."
Conference Report on Securities Litigation Reform, H.R.Rep. No.
104-369, 104th Congress, 1st Sess.
The current lead class plaintiffs in the multi district
litigation have the largest financial interest in the relief
sought by the entire class. When attempting to resolve who is
the most adequate plaintiff to represent the class, the Court is
of the view that the largest financial interest of the class
should be considered, not the largest financial interest of
separate sub classes. The Court also notes that the current lead
class plaintiffs in the multi district litigation have been
adequately managing the multi district litigation from the
outset. To disturb the litigation by appointing a subclass of
lead plaintiffs absent any convincing evidence that they would
otherwise be prejudiced, would undoubtedly create further delays
and costs in this litigation. Accordingly, the current lead
plaintiffs in the multi district litigation are the most
adequate representatives of the class in the present litigation
before this Court, which includes the purchasers of ML Direct
against Bear Stearns.
Having reviewed the parties' submissions, and afforded them
the opportunity to present oral argument, it is hereby
ORDERED, that Bear Stearns' motion to dismiss the
Greenberg (99 CV 2788) complaint is GRANTED; and it is
ORDERED, that the Clerk of the Court is directed to close
civil case number 99 CV 2788; and it is further
ORDERED, that Bear Stearns' motion to dismiss the Levitt
(99 CV 2789) complaint is DENIED with leave to renew in
conjunction with the motions to dismiss in the In Re Sterling
Foster (97 CV 189) multi district litigation; and it is further
ORDERED, that the renewed motion to dismiss the Levitt
complaint shall be re-briefed within thirty days from the date
of this order; and it is further
ORDERED, that the Levitt plaintiffs' motion to be appointed
Lead Plaintiffs for the sub-class of ML Direct against Bear
Stearns is DENIED.
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