United States District Court, S.D. New York
April 14, 2004.
EUGENE ROZENBOOM, individually and on behalf of all others similarly situated, Plaintiff, -against- VAN DER MOOLEN HOLDING, N.V., FRIEDRICH M.J. BOTTCHER, FRANK F. DORJEE, JAMES P. CLEAVER, and CASPER F. RONDLETAP, Defendants
The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge
Linda Greene ("Greene") and Elizabeth Rick ("Rick") have each moved
under the Private Securities Litigation and Reform Act ("PSLRA"),
15 U.S.C. § 78u-4(a)(3), for appointment as lead plaintiff and the
appointment of lead counsel in this securities fraud class action.
Thereafter, Greene and Rick agreed to jointly represent the class as
co-lead plaintiffs, with their respective counsel as co-lead counsel. For
the reasons set forth below, Greene and Rick are appointed co-lead
plaintiffs and Goodkind Labaton Rudoff & Sucharow LLP ("GLR&S")
and Schiffrin & Barroway, LLP ("Schiffrin & Barroway") are
appointed co-lead counsel. Rick's motion to appoint liaison counsel is
denied without prejudice to renewal.
Prior Proceedings and Background
The instant action was commenced on October 20, 2003 with the filing of
a class action complaint against Van der Moolen Holding N.V. ("Van der
Moolen"), a securities trading firm, and several of its officers:
Friedrich M.J. Bottcher ("Bottcher"), James P. Cleaver, Jr. ("Cleaver"),
Frank F. Dorjee ("Dorjee"), and Casper F. Rondeltap ("Rondeltap"). The
complaint alleges that Van der Moolen, through one of its four
operational segments known as VDM Specialists, acts as a specialist firm
on the New York Stock Exchange ("NYSE"). Specialist firms, according to
the complaint, are responsible for maintaining a fair and orderly market in one or
more specific securities and must adhere to NYSE rules that require
specialist firms to refrain from trading on the specialist firm's own
account when enough public investor orders exist to pair up naturally,
without undue intervention.
The complaint alleges that between October 18, 2001 and October 15,
2003, inclusive (the "proposed class period"), Van der Moolen repeatedly
violated its duties by engaging in "front-running" and "trading ahead,"
both activities by which Van der Moolen is alleged to have improperly
made trades in its own interest to the disadvantage of public investors.
As a result of these activities, Van der Moolen is alleged to have
materially overstated and artificially inflated its earnings, net income,
and earnings per share in violation of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 (the "Exchange Act"),
15 U.S.C. § 78j(b) and 78t(a), and Rule 10b-5, 17 C.F.R. § 240.10b-5,
promul-gated thereunder. This class action is brought on behalf of all
persons who purchased American Depository Receipt shares ("ADRs") in Van
der Moolen during the proposed class period and who were damaged thereby.*fn1 Van der Moolen ADRS are alleged to have been
traded actively on the NYSE throughout the proposed class period.
Two investors, Greene and Rick, claim to have sustained losses as a
result of their investment in Van der Moolen ADRs and have moved for
appointment as lead plaintiff and for designation of each investor's
choice of lead counsel in the litigation.*fn2 On December 19, 2003,
Greene moved to be appointed as lead plaintiff based on alleged losses of
approximately $36,980. On that same date, Rick moved for appointment as
lead plaintiff, alleging approximate losses of $6,495. Each movant has
submitted a certificate pursuant to 15 U.S.C. § 78u-4(a)(2)(A) in
support of her motion.
By a letter dated January 13, 2004, the movants announced their
intention to jointly represent the class as co-lead plain-tiffs with
their respective counsel as co-lead counsel, and submitted a stipulation to that effect. No oral arguments were
held, and the case was reassigned to this Court on February 27, 2004.
I. Appointment of Lead Plaintiff
In 1995, Congress enacted the Private Securities Litigation Reform Act
(the "PSLRA") in order to address perceived abuses in securities fraud
class actions. See S. Rep. No. 104-98 (1995), reprinted
in 1995 U.S.C.C.A.N. 679; H.R. Conf. Rep. No. 104-369 (1995),
reprinted in 1995 U.S.C.C.A.N. 730. The PSLRA was intended to
prevent "lawyer-driven" litigation, and to ensure that parties with
significant financial interests in the litigation "`will participate in
the litigation and exercise control over the selection and actions of
plaintiffs counsel.'" In re Oxford Health Plans, Inc. Sec.
Litig., 182 F.R.D. 42, 43-44 (S.D.N.Y. 1998) (quoting H.R. Conf.
Rep. No. 104-369, at 32, reprinted in 1995 U.S.C.C.A.N. at
731); see also In re Initial Public Offering Sec. Litig.,
214 F.R.D. 117, 123 (S.D.N.Y. 2002); In re Donnkenny Inc. Sec.
Litig., 171 F.R.D. 156, 157-58 (S.D.N.Y. 1997). This goal could best
be achieved, according to Congress, by encouraging institutional
investors to serve as lead plaintiffs. See Sofran v. LaBranche &
Co., Inc., F. Supp.2d , 2004 WL 569550, at *4
(S.D.N.Y. Mar. 22, 2004); In re Oxford Health Plans,
182 F.R.D. at 46. Accordingly, the PSLRA amended the Exchange Act*fn3 by, among other
things, setting 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).
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). Plaintiff in this
action caused a detailed notice to be published on October 20, 2003 on
PR Newswire, which is deemed to satisfy the notice requirement.
See Sofran, 2004 WL 569550, at *2 (approving a notice published
on PR Newswire).
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)(i). Both Greene
and Rick so moved on December 19, 2003, the last of the applicable 60
days; therefore, their motions are timely. The PSLRA next provides that within 90 days after publication of the
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 chapter is the person or group
of persons that
(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).
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.'" Sofran, 2004 WL 569550, at *2 (quoting In
re Cavanaugh, 306 F.3d 726, 732 (9th Cir. 2002) (The district court's belief that "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.")); see also In re Cendant Corp. Litig., 264 F.3d 201,
262 (3d Cir. 2001) ("Once the court has identified the movant with `the
largest financial interest in the relief sought by the class, `it should
then turn to the question whether that movant `otherwise satisfies the
requirements of Rule 23 of the Federal Rules of Civil
Procedure'. . . ."); Schulman v. Lumenis, Nos. 02 Civ. 1989
(DAB), et al., 2003 WL 21415287, at *4-6 (S.D.N.Y. June 18,
2003) (commenting that the Second Circuit "has not ruled whether the
requirements of the most adequate plaintiff presumption are to be applied
serially in order, or whether each requirement is applied to the motion
or complaint despite its inability to satisfy all of the presumption's
requirements," but applying the requirements in sequence).
Both Greene and Rick have moved for lead plaintiff appointment in
response to the notice published on October 20, 2003, thereby satisfying
the first requirement. By announcing their joint candidacy Greene and
Rick have bypassed the traditional contest for lead plaintiff appointment
and made the pivotal issue in this matter the propriety of their
alliance. It has become a common phenomenon to see "`groups' of class members who
form to be named as lead plaintiffs jointly, and who seek to aggregate
their losses to enhance their chances of winning selection as lead
plaintiff (and hence, to enhance their counsel's chances of winning
selection as lead counsel)." In re MicroStrategy Inc. Sec.
Litig., 110 F. Supp.2d 427, 434 (E.D. Va. 2000). The PSLRA plainly
allows at least some variations of this practice, permitting a "group of
persons" to be deemed the "most adequate plaintiff" under the Exchange
Act. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I); see also
15 U.S.C. § 78u-4(a)(3)(B)(i) (indicating that the court "shall
appoint as lead plaintiff the member or members of the
purported plaintiff class that the court determines to be most capable of
adequately representing the interests of class members") (emphasis
added); accord In re American Bank Note Holographics, Inc. Sec.
Litig., 93 F. Supp.2d 424, 436 (S.D.N.Y. 2000) ("The nomination of
a group of investors as co-lead plaintiffs is specifically contemplated
by the PSLRA."). Courts are divided, however, as to what sorts of
groupings of persons or entities may be appointed lead plaintiff.
Some courts have denied a motion aggregating unrelated class members on
the ground that groups of unrelated class members are more likely to
abdicate their responsibility to coordinate the litigation to their
attorneys, in contravention of the PSLRA's goal to eliminate
lawyer-driven litigation. See, e.g., In re Donnkenny,
171 F.R.D. at 157-58; see also In re Razorfish, Inc. Sec. Litig., 143 F. Supp.2d 304, 309 (S.D.N.Y. 2001). Other courts have
concluded that a group consisting of previously unrelated persons may be
acceptable as a lead plaintiff candidate so long as the group is
relatively small and therefore presumptively cohesive.
See, e.g., Weltz v. Lee, 199 F.R.D. 129, 133 (S.D.N.Y. 2001);
In re Oxford Health Plans, 182 F.R.D. at 46. Still other courts
have simply required a group seeking appointment as lead plaintiff to
"explain and justify its composition and structure to the court's
satisfaction." In re Network Assocs., Inc. Sec. Litig.,
76 F. Supp.2d 1017, 1026 (N.D. Cal. 1999) (citation omitted); see also In
re MicroStrategy, 110 F. Supp.2d at 439 (evaluating various factors
and concluding that an institutional investor and a family of investors
could seek joint appointment as co-lead plaintiffs). Greene and Rick did
not originally move as a group but instead, nearly a month after the
60-day statutory period had run, announced the formation of an alliance
and of a stipulated agreement, subject to the Court's approval, to act as
co-lead plaintiffs. What is presented here is whether such a post
facto alliance should be permitted.
While the formation of a group of unrelated class members during the
60-day statutory period is arguably justifiable as strategic, the
formation of a bartered coalition among movants after the 60-day period
has run may also represent a manipulation of the lead plaintiff selection
process in a manner that risks "shift[ing] the Court's authority to name lead plaintiffs to
counsel, `effectively nullifying' the aim of the Act." Yousefi v.
Lockheed Martin Corp., 70 F. Supp.2d 1061, 1069 (C.D. Cal. 1999)
(refusing to grant the sole movant's motion to name 137 class members
lead plaintiff and to allow those lead plaintiffs to designate "lead
plaintiff representatives" on their own). The risk of such manipulation
is especially pronounced where, as here, the creation of a coalition
among all movants eliminates any opposition and thus, in many cases,
eliminates the only source of information a court may have, apart from
the movant's own materials, with which to assess whether a movant
satisfies the requirements of Rule 23 of the Federal Rules of Civil
In situations where a coalition is formed among some but not all
movants after the running of the statutory 60 days, the procedural
propriety of permitting such an arrangement may raise additional concerns
in light of the PSLRA's strict filing requirement.*fn4 Moreover,
allowing these belated arrangements to proceed may raise timing concerns to the degree that the formation of such
coalitions during or even after the briefing process can give rise to
added delays in the appointment process, in contravention of the PSLRA's
directive that the appointment process proceed in an expedited
manner.*fn5 As one court concluded, it would clearly thwart the purposes
of the PSLRA
if persons seeking appointment as lead plaintiff
were allowed to manipulate the size of their
financial loss by enlarging the class period or
adding additional persons to a "group" in
supplemental filings. As in this case, the
consequent greater loss asserted would invite
additional briefing by the other persons seeking
appointment as lead plaintiff, which, in turn,
would necessitate responses by the person or group
of persons seeking to enlarge their losses. This
would effectively render the strict timeliness set
forth in the PSLRA meaningless, and would nullify
Congress's attempt to expedite the lead plaintiff
appointment process. In re Telxon Corp. Sec. Litig., 67 F. Supp.2d 803, 819
(N.D. Ohio 1999).*fn6
Notwithstanding the aforementioned concerns, the joint candidacy of
Greene and Rick will be allowed to proceed here. It is well accepted that
Congress, in enacting the PSLRA, considered that the statute's aims would
be best served by having "institu-tional plaintiffs with expertise in
the securities market and real financial interests in the integrity of
the market" as lead plaintiffs. In re Donnkenny, 171 F.R.D. at
157; see also In re Razorfish, 143 F. Supp.2d at 307. As no
such institutional investors have stepped forward here and as neither
Greene nor Rick has indicated any experience serving as a lead plaintiff
in a previous action, this Court concludes that permitting them to be
appointed co-lead plaintiffs, rather than appointing Greene alone, may
help to ensure stability in the litigation and perhaps the exercise of
greater control over the action's progress.
Since their joint financial interests are the only alleged losses
before the Court, Greene and Rick are therefore deemed to have the
greatest financial interest in the relief sought by the class. All that remains is for both Greene and Rick to make
a satisfactory preliminary showing that the relevant requirements of Fed.
R. Civ. P. 23 are met.
Rule 23(a) of the Federal Rules of Civil Procedure 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.
Fed.R.Civ.P. 23(a). 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, "[t]he
moving plaintiff must make only a preliminary showing that the adequacy
and typicality requirements under Rule 23 have been met."
Weinberg, 216 F.R.D. at 252 (citing In re Crayfish Co.
Sec. Liticr., No. 00 Civ. 6766 (DAB), 2002 WL 1268013, at *4
(S.D.N.Y. June 6, 2002); Weltz, 199 F.R.D. at 133). "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.'" Weinberg, 216 F.R.D. at 252 (quoting
In re Party City Sec. Litig., 189 F.R.D. 91, 106 (D.N.J.
1999)). Greene and Rick satisfy the typicality requirement. 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) (citations
omitted). However, the claims of the class representatives need not be
identical to the claims of the class to satisfy the typicality
requirement. Instead, courts have recog-nized that "[t]he 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 Litig.,
163 F.R.D. 200, 218 (S.D.N.Y. 1995) (citation omitted).
Greene and Rick purchased or acquired Van der Moolen ADRs during the
proposed class period at prices alleged to have been artificially
inflated by the false and misleading statements purportedly issued by
defendants, and they claim to have suffered damages as a consequence.
Their claims are therefore 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) (holding that the typicality
requirement is satisfied if a 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'") (quoting Dura-Bilt Corp. v. Chase
Manhattan Corp., 89 F.R.D. 87, 99 (S.D.N.Y. 1981)).
Under Rule 23(a)(4), the representative parties must also "fairly and
adequately protect the interests of the class." In order to 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. Sec. & "ERISA" Litig., 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 alleged injury Greene and Rick suffered by purchasing
Van der Moolen ADRs at prices purportedly inflated by defendants'
violations of the federal securities laws, the interests of the proposed
co-lead plaintiffs are aligned with those of the members of the class,
and there is no suggestion of any antagonism between the interests of
Greene and Rick and those of other class members. In addition, the
proposed co-lead counsel appear highly qualified, experienced, and able
to conduct this litigation in a professional manner. Greene and Rick have
accordingly satisfied the adequacy requirement of Rule 23. Having satisfied the statutory requirements, Greene and Rick are
determined to be suitable co-lead plaintiffs.
II. Appointment of Lead Counsel
Pursuant to 15 U.S.C. § 78u-4(a)(3)(B)(v), the lead plaintiff
shall, subject to the court's approval, select and retain counsel to
represent the class. In that regard, Greene and Rick each initially
selected and retained GLR&S and Schiffrin & Barroway,
respectively, and thereafter proposed that both sets of counsel serve as
co-lead counsel for the class. Based on the materials submitted, these
firms appear to have extensive experience prosecuting complex actions,
including securities class actions, and are well qualified to represent
the class. Accordingly, Greene and Rick may select GLR&S and
Schiffrin & Barroway 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
Donnkenny, 171 F.R.D. at 158.
In light of the selection of GLR&S, which unlike Schiffrin
& Barroway has offices within this district, the appointment
of liaison counsel, previously requested by Rick, appears unnecessary.
Conclusion For the reasons stated above, the motions of Greene and Rick to be
appointed lead plaintiff are granted and they are designated as co-lead
plaintiffs. The co-lead plaintiffs' requests with regard to the
appointment of counsel are granted, and GLR&S and Schiffrin &
Barroway are appointed to serve as co-lead counsel. Rick's motion to
appoint liaison counsel is denied without prejudice to renewal.
It is so ordered.