United States District Court, S.D. New York
March 22, 2004.
ROBERT and GERALDINE SOFRAN, individually and on behalf of all others similarly situated, Plaintiffs, -against- LABRANCHE & CO., INC., G. MICHAEL LABRANCHE, ROBERT MURPHY, ALFRED O. HAYWOOD, JR., WILLIAM J. BURKE, III, and HARVEY S. TRAISON, Defendants; TODD SEMON, Plaintiff, -against- LABRANCHE & CO., INC. et al., Defendants; MARTIN HUAG, Plaintiff, -against- LABRANCHE & CO., INC. et al.,; EUGENE MURPHY, Plaintiff, -against- LABRANCHE & CO., INC. et al.,; CHARLES E. STRAIN, Plaintiff, -against- LABRANCHE & CO., INC. et al.,; JACK G. YOPP, Plaintiff, -against- LABRANCHE & CO., INC. et al.,; THEODORE V. FERRIS, Plaintiff, -against- LABRANCHE & CO., INC. et al., JONATHAN LEVIN, Plaintiff, -against- LABRANCHE & CO., INC. et al
The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge
The above-captioned cases are actions for securities fraud brought on
behalf of shareholders of LaBranche & Co., Inc. ("LaBranche"),
seeking damages for violations of Section 10(b) and Section 20(a) of the
Securities and Exchange Act of 1934 (the "Exchange Act"), as amended,
15 U.S.C. § 78t(a) and 78j(b), and Rule 10b-5 promulgated thereunder.
17 C.F.R. § 240.10b-5.
Two groups of investors who have sustained losses as a result of their
investment in LaBranche have moved for consolidation of the related cases
and for appointment as lead plaintiffs of a proposed class of persons or
entities who purchased or acquired the securities of LaBranche between
August 19, 1999 and October 15, 2003 (the "Class Period."). In addition,
each proposed lead plaintiff has requested its choice of lead counsel in
The first group, consisting of investors Anthony Johnson, Clyde Farmer,
Edwin Walthall, Donald Stahl and City of Harper Woods Retirement System
(collectively, the "Harper Woods Group") have lost approximately
$52,099.78 in connection with their purchases of LaBranche securities
during the Class Period. The second group, consisting of Joseph C.
Eckrich as Custodian for Alexander and Estelle Eckrich, Dorothy J.
Johnson, G. Ronald Stallings, Alien Routzahn, Betty M. Mickey, and Merl
Williams (collectively, the
"Williams Group") have lost approximately $27,176.90 in connection
with their purchases of LaBranche securities during the Class Period.
For the reasons set forth below, each of the related actions are
consolidated, the motion for appointment of the Harper Woods Group is
granted, the motion for appointment of the Williams Group is denied, and
the Harper Woods Group's choice of lead counsel is approved.
The first of the above-captioned actions was commenced on or about
October 16, 2003. Pursuant to 15 U.S.C. § 78u-4(a)(3)(A)-(I), on
October 16, 2003, the first notice that a class action had been initiated
against defendants was published over the PR Newswire. See
In re Party City Securities Litigation, 189 F.R.D. 91, 105 (D.N.J.
1999) (holding that the notification requirement had been met by the
publication of "the notice of pendency of the instant action in a
widely-circulated national business-oriented wire service, the PR
Newswire."). The notice indicated that applications for appointment
as lead plaintiff were to be made no later than December 15, 2003.
The Harper Woods Group and the Williams Group both filed motions to be
appointed as lead plaintiffs on December 15, 2003.
After submission of briefs, the motion was argued on February 11,
2004, at which time it was deemed fully submitted.
The Related Cases Are Consolidated
Both groups of plaintiffs have requested consolidation. Each of the
above-captioned actions involves class action claims on behalf of class
members who purchased or otherwise acquired LaBranche securities during
the Class Period. Each of the actions asserts essentially similar and
overlapping claims brought on behalf of purchasers of LaBranche
securities who purchased in reliance of the materially false and
misleading statements and omissions at all relevant times. Consolidation
is appropriate when, as here, there are actions involving common
questions of law or fact. See Fed.R.Civ.P. 42(a); Johnson
v. Celotex Corp., 899 F.2d 1281, 1284 (2d Cir.), cert.
denied, 498 U.S. 920 (1990). Accordingly, the cases are hereby
consolidated under the caption In re LaBranche Securities
The Harper Woods Group is Appointed as Lead Plaintiffs
The Private Securities Litigation Reform Act ("PSLRA") sets forth a
procedure governing the appointment of a lead plaintiff or plaintiffs in
"each action arising under the [Exchange Act] that is brought as a
plaintiff class action pursuant to the
Federal Rules of Civil Procedure." 15 U.S.C. § 78u-4(a)(1) and
First, the plaintiff who files the initial action must, within 20 days
of filing the action, publish a notice to the class informing class
members of their right to file a motion for appointment as lead
plaintiff. 15 U.S.C. § 78u-4 (a)(3)(A)(I). As indicated above,
plaintiff in the first-filed action filed a notice in PR
Newswire, which is deemed to satisfy the notice requirement.
Within 60 days after publication of the required notice, any member or
members of the proposed class may apply to the Court to be appointed as
lead plaintiff(s). 15 U.S.C. § 78u-4(a)(3)(A) and (B).
Second, the PSLRA provides that within 90 days after publication of
notice, the Court shall consider any motion made by a class member and
shall appoint as lead plaintiffs the member or members of that class that
the Court determines to be most capable of adequately representing the
interests of the class members. 15 U.S.C. § 78u-4(3)(B)(I). In
determining the "most adequate plaintiff," the PSLRA provides that:
[T]he court shall adopt a presumption that the
most adequate plaintiff in any private action
arising under this title is the person or group of
(aa) has either filed the complaint or made a
motion in response to a notice . . .
(bb) in the determination of the court, has the
largest financial interest in the relief sought by
the class; and
(cc) otherwise satisfies the requirements of Rule
23 of the Federal Rules of Civil Procedure.
15 U.S.C. § 78u-4(a)(3)(B)(iii); see also Weinberg v.
Atlas Air Worldwide Holdings, Inc., 216 F.R.D. 248, 252 (S.D.N.Y.
2003); Albert Fadem Trust v. Citigroup, Inc., 239 F. Supp.2d 344,
347 (S.D.N.Y. 2002).
Both the Harper Woods Group and the Williams Groups have timely filed
their motion to be appointed lead plaintiffs along with their
certifications attesting to their transactions in LaBranche securities
during the Class Period. Because the Harper Woods Group has lost the most
money in connection with the purchase of LaBranche securities a
fact that the Williams Group has not contested that group is
deemed the most adequate plaintiff so long as it fulfills the remaining
statutory requirements. As the Ninth Circuit recently held:
Once . . . the court identifies the plaintiff
with the largest stake in the litigation, further
inquiry must focus on that plaintiff alone and be
limited to determining whether he satisfies the
other statutory requirements. That the district
court believes another plaintiff may be "more
typical" or "more adequate" is of no consequence.
So long as the plaintiff with the largest losses
satisfies the typicality and adequacy
requirements, he is entitled to lead plaintiff
status, even if the district court is convinced
that some other plaintiff would do a better job.
In re Cavanaugh, 306 F.3d 726
, 732 (9th Cir. 2002).
The Harper Woods Groups does satisfy the requirements of Rule 23.
Rule 23(a) provides that a party may serve as a class representative only if
the following four requirements are satisfied:
(1) the class is so numerous that joinder of all
members is impracticable, (2) there are questions
of law or fact common to the class, (3) the claims
or defenses of the representative parties are
typical of the claims or defenses of the class,
and (4) the representative parties will fairly and
adequately protect the interests of the class.
Of the four prerequisites to class certification, only two
typicality and adequacy directly address the personal
characteristics of the class representative. Consequently, in deciding a
motion to serve as lead plaintiff, w[t]he moving plaintiff must make only
a preliminary showing that the adequacy and typicality requirements under
Rule 23 have been met." Weinberg, 218 F.R.D. at 252
(citing In re Crayfish Co. Sec. Litig., 00 Civ. 6766, 2002 WL
1268013, at *4 (S.D.N.Y. June 6, 2002); Weltz v. Lee,
199 F.R.D. 129, 133 (S.D.N.Y. 2001)). "In fact, a `wide ranging analysis under
Rule 23 is not appropriate [at this initial stage of the litigation] and
should be left for consideration of a motion for class certification.'"
Id. (quoting In re Party City, 189 F.R.D. 91, 106
The Harper Woods Group satisfies the typicality requirements.
Typicality exists if claims "arise from the same course of events, and
each class member makes similar legal arguments to prove the defendant's
liability." In re Drexel Burnham Lambert Group, Inc.,
960 F.2d 285, 291 (2d Cir. 1992), cert. dismissed sub nom. Hart Holding Co.
Inc. v. Drexel Burnham Lambert Group, Inc., 506 U.S. 1088 (1993).
However, the claims of the class representatives need not be identical to
the claims of the class to satisfy typicality. Instead, courts have
The possibility of factual distinctions between
the claims of the named plaintiffs and those of
other class members does not destroy typicality,
as similarity of legal theory may control even in
the face of differences of fact.
In re Prudential Securities, Inc. Ltd. Partnerships
Litigation, 163 F.R.D. 200, 218 (S.D.N.Y. 1995).
The Harper Woods Group seeks to represent a class of purchasers of
LaBranche common stock who have identical, non-competing and
non-conflicting interests. The members of the Group satisfy the
typicality requirement because they: (1) purchased or acquired LaBranche
securities during the Class Period; (2) at prices allegedly artificially
inflated by defendants' allegedly materially false and misleading
statements and/or omissions; and (3) suffered damages thereby. The claims
are typical of those of other class members because their claims and the
claims of other
class members arise out of the same course of events. See
Walsh v. Northrup Grumman Corp., 162 F.R.D. 440, 445 (E.D.N.Y. 1995)
(typicality requirement satisfied because movant's claims arise "from the
same event or course of conduct that gives rise to claims of other class
members and the claims are based on the same legal theory.").
Under Rule 23(a)(4), the representative parties must also "fairly and
adequately protect the interests of the class." In order
[t]o satisfy the adequacy requirement of Rule
23(a), "(1) there should be no conflict between the
interests of the class and the named plaintiff nor
should there be collusion among the litigants; and
(2) the parties' attorney must be qualified,
experienced, and generally able to conduct the
In re AOL Time Warner, Inc. Securities and "ERISA"
Litigation, No. MDL 1500, 2003 WL 102806, at *2 (S.D.N.Y. Jan. 10,
2003) (quoting Jackson v. Foley, 156 F.R.D. 538, 543 (E.D.N.Y.
1994)). As evidenced by the injury suffered by the investors in the
Harper Woods Group who purchased shares of LaBranche common stock at
prices allegedly inflated by defendants' violations of the federal
securities laws, the interests of the Group is clearly aligned with the
members of the class, and there is no evidence of any antagonism between
the interests of the Group and those of other members of the class. In
addition, the proposed lead counsel is highly qualified, experienced, and
able to conduct this litigation in a
professional manner. The Harper Woods Group has accordingly
satisfied the adequacy requirements of Rule 23.
In the third and final step, the competing plaintiffs are given the
opportunity to rebut the presumption that the Harper Woods Group is the
most adequate plaintiff. "That presumption can be rebutted `only upon
proof by a member of the purported plaintiff class' that the presumptive
lead plaintiff `will not fairly and adequately protect the interests of
the class' or is subject to `unique defenses' that prevent the plaintiff
from adequately representing the class." In re WorldCom, Inc.
Securities Litigation, 294 F. Supp.2d 392, 421 (S.D.N.Y. 2003)
(quoting 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)).
The Williams Group makes three arguments to rebut the presumptive
adequacy of the Harper Woods Group: (1) the certifications provided by
the Harper Woods Group are inadequate to demonstrate their understanding
of the litigation and their willingness to serve as lead plaintiffs; (2)
the City of Harper Woods Retirement System (the "CHWRS") does not have
standing to pursue this action; and (3) institutional lead plaintiffs are
prone to dropping out as lead plaintiffs due to conflicts or other
reasons. Each of these reasons is insufficient to rebut the presumption
of the adequacy of the Harper Woods Group.
As the Harper Woods Group argues, it has executed and submitted the
precise certifications required under the PSLRA. `See
15 U.S.C. § 78u-4 (a)(2)(A) (laying out the content of the sworn
certifications to be provided by proposed lead plaintiffs). The Williams
Group has cited no case which requires that the certifications include
language beyond the statutory requirements. The certifications provided
by the Harper Woods Group are therefore sufficient.
The Williams Group argues that because the CHWRS is not the beneficial
owner of the shares reported on its certification, and because the shares
are held beneficially for its clients, it has no standing to pursue an
action because it has provided no evidence from its clients that it has
been authorized to sue on their behalf. To support the point, the
Williams Group cites a number of pre-PSLRA cases for the proposition that
only purchasers and sellers of the security at issue have standing to
bring suit for violations of § 10(b) of the Exchange Act. See
e.g., Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723,
755 (1975). The Williams Group, however, ignores the preference expressed
by Congress for having institutional investors as lead plaintiffs,
see House Conf. Rep. No. 104-369, 104th Cong. 1st Sess. at 34
(1995) ("Institutional investors and other class members with large
amounts at stake will represent the interests of the plaintiff class more
effectively than class members with small amounts at stake."), as well as
the numerous cases in which pension funds have
been appointed as lead plaintiffs under the PSLRA. See, e.g.,
In re MSC Indus. Direct Co., Inc., 283 F. Supp.2d 838, 841 (E.D.N.Y.
2003) (noting that the court had previously appointed the International
Association of Machinists National Pension Fund as lead plaintiff);
In re Network Associates Sec. Litig., 76 F. Supp.2d 1017, 1034
(N.D. Cal. 1999) (appointing the Board of Pensions and Retirement of the
City of Philadelphia as lead plaintiff).
The Williams Group also cites a number of cases in which institutional
lead plaintiffs have dropped out, either because of a conflict or because
the obligations to their members makes representing an entire class of
shareholders too daunting a task. See e.g., In re Initial
Public Offering Sec. Litig., 21 MC 92 (SAS) (S.D.N.Y. 2001);
Turberg v. CVS Corp., 1:01 CV 11464 (D. Mass. Aug. 22, 2001).
However, the Williams Group has provided no proof, as required by the
PSLRA, that the Harper Woods Group is likely to drop out as lead
plaintiff in this litigation. Without such proof, the citations to other
cases provides only speculation as to such a possibility.
Finally, the Williams Group requests in the alternative that it be
appointed as co-lead plaintiff with the CHWRS, arguing that "[d]iversity
among the group members, which would then include an institutional
investor and significant individual investors, would help insure that all
class members' interests were represented." Williams Group Reply Mem. at
4. However, the Harper Woods
Group already consists of an institutional investor and several
individual investors. Accordingly, there is no reason to join the
Williams Group as co-lead plaintiffs.
The motion for appointment of the Harper Woods Group as lead plaintiff
is therefore granted, and the motion for the appointment of the Williams
Group is denied.
The Harper Woods Group's Choice of Counsel is Approved
Pursuant to 15 U.S.C. § 78u-4 (a)(3)(B)(v), the lead plaintiff
shall, subject to Court approval, select and retain counsel to represent
the class. In that regard, the Harper Woods Group has selected and
retained Schiffrin & Barroway, LLP and Cauley Geller Bowman &
Rudman, LLP to serve as lead counsel for the class. These firms have
extensive experience in prosecuting complex securities actions and are
well qualified to represent the class. See Weinberg,
216 F.R.D. at 256 (finding that "Schiffrin & Barroway has the requisite
experience and expertise to serve as Lead Counsel."); Holly v. Kitty
Hawk, Inc., 200 F.R.D. 275, 281 (N.D. Tex. 2001) (finding, after
reviewing the resume of Cauley Geller, that it "could adequately
represent the plaintiff class in this action.").
Accordingly, the Harper Woods Groups may select Schriffin &
Barroway, LLP and Cauley Geller Bowman & Rudman, LLP to serve as
"co-lead counsel provided that there is no duplication of
attorneys' services, and the use of co-lead counsel does not in any way
increase attorneys' fees and expenses." In re Donkenny Inc.
Securities Litigation, 171 F.R.D. 156, 158 (S.D.N.Y. 1997).
For the reasons stated above, the above-captioned cases are
consolidated, the motion of the Harper Woods Group to be appointed lead
plaintiff is granted, the motion of the Williams Group to be appointed
lead plaintiff is denied, and the request of the Harper Woods Group to
appoint Schriffin & Barroway, LLP and Cauley Geller Bowman &
Rudman, LLP to serve as co-lead counsel is granted.
It is so ordered.
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