Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

PIRELLI ARMSTRONG TIRE CORP. v. LaBRANCHE & CO. INC.

May 27, 2004.

PIRELLI ARMSTRONG TIRE CORPORATION RETIREE MEDICAL BENEFITS TRUST, on behalf of Itself and all Others Similarly Situated, Plaintiffs, — against — LaBRANCHE & CO., INC., LaBRANCHE & CO., LLC, MICHAEL LaBRANCHE, BEAR WAGNER SPECIALISTS LLC, SPEAR, LEEDS & KELLOGG SPECIALISTS LLC, SPEAR, LEEDS & KELLOGG LP, THE GOLDMAN SACHS GROUP, INC., VAN DER MOOLEN SPECIALISTS USA, LLC, FLEETBOSTON FINANCIAL CORPORATION and FLEET SPECIALISTS, INC., Defendants, THIS DOCUMENT RELATES TO CASE NOS. 03 Civ. 8521, 03 Civ. 8935, 03 Civ. 9968 and 04 Civ. 2038


The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge

OPINION

The above-captioned cases are actions for securities fraud brought on behalf of a purported class of investors*fn1 who claim to have sustained losses as a result of a fraudulent scheme perpetrated by Defendants, specialist firms on the New York Stock Exchange ("Specialist Defendants")*fn2 and the New York Stock Exchange ("NYSE") itself (collectively, "Defendants"), in violation of, inter alia, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), as well as Rule 10b-5 promulgated thereunder. For the reasons set forth below, each of the above-captioned actions are consolidated, the motions for appointment of CalPERS and Empire as lead plaintiff are granted, and CalPERS and Empire are hereby designated Co-Lead Plaintiffs. The motion for appointment of Sea Carriers as lead plaintiff is denied. CalPERS' and Empire's respective choices of lead counsel are approved, and Lerach Coughlin Stoia & Robbins LLP and Lovell Stewart Halebian, LLP are appointed Co-Lead Counsel. CalPERS' motion for an order directing the preservation of relevant documents and other evidence relating to this litigation is denied.

The Complaints

  According to the complaints filed in these actions, trades in stocks for the NYSE's more than 2,500 listed companies are handled by one of seven specialist firms, the Specialist Defendants. All trading on the NYSE is conducted through an auction process, and each specialist firm is granted an exclusive franchise by the NYSE to conduct the auction in each of the NYSE-listed stocks assigned to that specialist firm. Specialist firms, acting through individuals known as specialists, are responsible for maintaining a two-sided auction market by providing an opportunity for public orders to be executed against each other. Under NYSE rules, specialists are prohibited from trading in their clients' stock for their own firm accounts, except when such trading is necessary to maintain a fair and orderly market in those securities. The official NYSE Display Book of each specialist firm contains all electronic orders facilitated by the NYSE's electronic order entry system, known as the Super Designated Order Turnaround System ("SuperDOT"). It is also alleged that the Specialist Defendants maintained another book containing inside information about large orders not facilitated by SuperDOT. Under NYSE rules, specialists are required to abstain from taking part in orders to purchase or sell stocks that could be executed against each other without the specialist's intervention or involvement. This obligation is referred to as the specialists' "negative obligation," and the Specialist Defendants are alleged to have systematically violated this obligation by intervening and trading for their own firm accounts, thereby causing harm to their customers.*fn3 The Specialist Defendants are also alleged to have engaged in "front running," by taking advantage of their confidential knowledge of public investors' orders to trade ahead and on their own account as principals before completing the orders placed by public investors. Finally, the Specialist Defendants are alleged to have engaged in a practice known as "freezing" the specialist firm's Display Book, whereby the specialist firm freezes its Display Book on a stock so it can first engage in trades for its own account through "inter-positioning" or "front running" prior to entering and then executing public investors' orders.

  The Specialist Defendants are alleged to have engaged in these activities with the knowledge and active participation of the NYSE. The complaints allege that Defendants misrepresented that the Specialist Defendants were substantially complying with the NYSE's rules and with the Exchange Act or otherwise making good-faith efforts to make the markets in particular stocks more efficient. It is also alleged that misrepresentations were made concerning the effectiveness of the NYSE's supervision of the Specialist Defendants. In addition, the complaints allege that Defendants failed to disclose that NYSE orders were not being filled at the best available prices. The Specialist Defendants are further alleged to have breached their fiduciary duties to customers, and the NYSE is alleged to have both aided and abetted in the breach by the Specialist Defendants and violated Section 6(b) of the Exchange Act. Many of the allegations contained in the complaints are based on or derived from published accounts of investigations by the U.S. Securities and Exchange Commission ("SEC") and the NYSE into alleged mishandling of customer orders by some of the specialist firms at the NYSE.

 The Movants

  Several entities and individuals who claim to have sustained losses as a result of Defendants' alleged actions have moved for consolidation of the related cases and for appointment as lead plaintiffs of a class of persons or entities who purchased or sold defendants' clients' stocks either between October 17, 1998 and October 15, 2003 (the "proposed class period") or during a portion of that same time, from January 1, 2000 through December 31, 2002 (the "alternate proposed class period").*fn4 In addition, each proposed lead plaintiff has requested its choice of lead counsel in the litigation.

  Generic Trading of Philadelphia, LLC ("Generic Trading"), a proprietary trading firm, moved on December 15, 2003 to consolidate the pending related cases, for appointment as lead plaintiff, and for approval of its choice of lead counsel. Generic Trading claims to have traded over 8.9 billion shares on the NYSE, having a total value of $379 billion, during the proposed class period. Generic subsequently removed itself from consideration in favor of another movant, as set forth below.

  Empire Programs, Inc. ("Empire") claims to have traded over 4 billion shares of NYSE-listed stock via SuperDOT, among other means, during the alternative proposed class period, and approximately 4.5 billion shares during the longer proposed class period. Empire estimates the dollar value of its trades from 1998 through 2002 to be approximately $183 billion. Empire moved to consolidate the pending related actions, for appointment as lead plaintiff, and for appointment of lead counsel on December 16, 2003. Market Street Securities, Inc. ("Market Street"), a specialist and market maker for options on the Philadelphia Stock Exchange, moved on December 16, 2003 to consolidate all related actions pending in this Court, for appointment as lead plaintiff, and for approval of its choice of lead counsel. Market Street claims to have traded in excess of 283 million shares of stock*fn5 on the NYSE, although it does not allege a specific dollar amount of losses or provide a total value of its transactions. Market Street withdrew its motion in favor of another movant, as described below.

  North River Trading Company, LLC ("North River"), a privately held investment company, moved on December 16, 2003 for consolidation of the pending related cases, appointment as lead plaintiff and appointment of lead counsel. North River claims to have traded over 305 million shares of stock of NYSE-listed companies in transactions worth more than $7.8 billion during the proposed class period on behalf of its clients, who are alleged to have suffered losses as a result. After filing its initial motion papers, North River offered no opposition to the other movants.

  Chet Robinson ("Robinson") moved on December 16, 2003 for consolidation of the pending related cases, appointment as lead plaintiff and appointment of lead counsel. Robinson claims to have traded some 24 million shares of NYSE-listed companies during the proposed class period. Robinson provided no opposition to the other movants.

  Sea Carriers LP I ("Sea Carriers"), a limited partnership firm trading in equity securities, moved to consolidate the pending related cases, for appointment as lead plaintiff, and for approval of its choice of lead counsel on December 16, 2003. Sea Carriers claims to have traded approximately 1.3 billion shares during calendar year 2003, with a total dollar value of such trades amounting to approximately $59.9 billion.*fn6 Sea Carriers has not provided comparable information for the proposed class period, claiming that the production of records of trades "during the relevant period" would not be "practicable." (Affidavit of Per G. Barre, dated Dec. 16, 2003 ("Barre Aff."), ¶ 7.)

  The California Public Employees' Retirement System ("CalPERS"), the largest public employee retirement system in the United States, claims to have purchased or sold approximately 2.8 billion shares of NYSE-listed stock in trades executed during the proposed class period and, as a result thereof, suffered damages. The total value of CalPERS' transactions in NYSE-listed stock during the proposed class period is approximately $98 billion. CalPERS, which filed a complaint on December 16, 2003, originally moved to consolidate four of the above-captioned cases, for appointment as lead plaintiff, for approval of its choice of lead counsel, and to preserve relevant evidence.

  Thereafter, on January 6, 2004, CalPERS filed a joint memorandum along with Generic Trading and Market Street, announcing that Market Street is no longer seeking lead plaintiff status and that Generic Trading and Market Street support the designation of CalPERS as the sole lead plaintiff. The joint memorandum also announces that the alliance is seeking the appointment of both CalPERS' counsel, Milberg Weiss Bershad Hynes & Lerach LLP ("Milberg Weiss"),*fn7 and Generic Trading's counsel, Entwistle & Cappucci, as co-lead counsel. CalPERS, Generic Trading and Market Street propose that if CalPERS is to be appointed lead plaintiff, Generic Trading and Market Street would, subject to the Court's approval, serve as class representatives. According to the joint memorandum, CalPERS and Generic Trading together claim a total of 11.7 billion shares traded during the proposed class period, at a value of $477 billion. Prior Proceedings

  The first of the above-captioned actions, Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust v. LaBranche & Co., Inc., et al., No. 03 Civ. 8264 (RWS), was commenced on October 17, 2003. Pursuant to 15 U.S.C. & sec; 78u-4(a)(3(A)(I), on that same date the plaintiff in that action caused notice to be published over the Business Wire. The notice indicated that applications for appointment as lead plaintiff were to be made no later than 60 days from the date of publication, or by December 16, 2003.

  Empire, Generic Trading, Market Street, North River, Robinson and Sea Carriers filed motions to consolidate the related actions, to be appointed as lead plaintiffs, and to appoint lead counsel on or by December 16, 2004. CalPERS submitted its own motion on or about that same date.*fn8 On January 6, 2004, Empire and Sea Carriers each submitted an opposition brief to the competing movants, and CalPERS, Generic Trading and Market Street filed a joint memorandum in favor of CalPERS' appointment as the sole lead plaintiff and in opposition to the remaining movants.*fn9 Neither North River nor Robinson submitted any opposition, and their motions were thereafter deemed withdrawn. After submission of all briefs, letter-briefs and various other supporting materials, the remaining motions were argued on February 11, 2004. Following the announcement of several settlements reached among the NYSE, the SEC and certain of the Specialist Defendants, Empire and Sea Carriers submitted letters to the Court dated, respectively, March 30, 2004 and April 1, 2004, and CalPERS requested leave to file a response to those letters on April 9, 2004. CalPERS' request having been granted, Sea Carriers then requested and was granted leave to file a sur-response, which was submitted on April 28, 2004. The competing motions were thereupon deemed fully submitted.*fn10

 I. The Related Cases Are Consolidated

  CalPERS, Empire and Sea Carriers have each moved to consolidate some or all of the above-captioned related cases.*fn11 Each of these actions involves class action claims brought on behalf of class members who traded stock on the NYSE during the proposed class period or a portion of that period. Each of the actions asserts essentially similar and overlapping claims and involves common issues of law and fact, in that each action alleges that some or all of Defendants engaged in a fraudulent scheme that violated the specialist firms' "negative obligations" and/or engaged in "front running" to the detriment of plaintiffs and other members of the proposed class, in violation of Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder, among other things.

  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). That certain defendants are named in only one or some of the complaints does not require a different result. See Pinkowitz v. Elan Corp., PLC, Nos. 02 Civ. 865 (WK) et al., 2002 WL 1822118, at *3 (S.D.N.Y. July 29, 2002) ("[A]lthough certain class actions here name defendants not otherwise present in the other class actions, `consolidation is not barred simply because the actions to be consolidated allege claims against different parties.'") (quoting Skwortz v. Crayfish Co., Ltd., Nos. 00 Civ. 6766 (DAB) et al., 2001 WL 1160745, at *2 (S.D.N.Y. Sept. 28, 2001), reconsideration granted in part on other grounds sub nom., In re Crayfish Co. Sec. Litig., No. 00 Civ. 6766 (DAB), 2002 WL 1268013 (S.D.N.Y. June 6, 2002)); Werner v. Satterlee, Stephens, Burke & Burke, 797 F. Supp. 1196, 1211 (S.D.N.Y. 1992) ("The fact that there are different parties in this action does not mean this case should not be consolidated."). Nor do differences among the class periods proposed preclude consolidation. See Skwortz, 2001 WL 1160745, at *2 n.3 (citing In re Olsten Corp. Sec. Litig., 3 F. Supp.2d 286, 293 (E.D.N.Y. 1998)).

  Accordingly, the four above-captioned cases are hereby consolidated under the caption In re NYSE Specialists Securities Litigation, and the files of these consolidated actions shall be maintained in one file under Master File No. 03 Civ. 8264 (RWS). In addition, and for similar reasons as those stated above, the Court hereby consolidates a fifth related class action, Rosenbaum Partners, LP v. NYSE et al., No. 04 Civ. 2038 (RWS), commenced on March 16, 2004. See Devlin v. Transp. Communications Int'l Union, 175 F.3d 121, 130 (2d Cir. 1999) ("A district court can consolidate related cases under Federal Rule of Civil Procedure 42(a) sua sponte."). All actions now pending in, subsequently filed in or transferred to this District that arise out of or are related to the same facts as alleged in the above-referenced actions may be consolidated for all purposes upon application to this Court.

 II. Empire and CalPERS Are Appointed Co-Lead Plaintiffs

  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 ("Senate Report"); H.R. Conf. Rep. No. 104-369 (1995), reprinted in 1995 U.S.C.C.A.N. 730("House Report"). 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 House Report at 731); see also In re Initial Public Offering Sec. Litig., 214 F.R.D. 117, 123 (S.D.N.Y. 2002) ("In re Initial Public Offering I"); 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., 220 F.R.D. 398, 403 (S.D.N.Y. 2004); In re Oxford Health Plans, 182 F.R.D. at 46.

  Accordingly, the PSLRA amends the Exchange Act*fn12 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) & 78u-4(a)(3)(B). A. The Notice and Filing Requirements Are Satisfied

  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, the plaintiff in the first-filed action here caused notice to be published over the Business Wire on October 17, 2003. (See, e.g., Affidavit of Christopher J. Gray, dated Dec. 16, 2003 ("Gray Aff."), Ex. 1.) As Business Wire is a suitable vehicle for meeting the statutory requirement that notice be published, see, e.g., Weltz v. Lee, 199 F.R.D. 129, 130 (S.D.N.Y. 2001); Greebel v. FTP Software, Inc., 939 F. Supp. 57, 62-64 (D. Mass. 1996), and no challenges to the adequacy of the October 17, 2003 notice have been raised, the notice requirement is deemed satisfied.

  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)(II) & 78u-4(a)(3)(B). Both Empire and Sea Carriers so moved on December 16, 2003, the last of the applicable 60 days. While CalPERS filed a complaint on December 16, its motion papers have not appeared on the docket of any of the above-captioned cases, although courtesy copies were received by this Court on December 17, 2003. CalPERS' motion will not be denied based on what appears to be a docketing irregularity, nor will the possibility that the motion papers were filed one day late be determinative here.*fn13 Although courts may, and have, deemed class members ineligible to serve as lead plaintiff based solely on the tardiness of their filings, see Shulman v. Lumenis, Ltd., Nos. 02 Civ. 1289 (DAB) et al., 2003 WL 21415287, at *4 (S.D.N.Y. June 18, 2003) (collecting cases); Carson v. Clarent Corp., No. 01 Civ. 3361 (CRB), 2001 Wl 1782712, at *2 (N.D. Cal. Dec. 14, 2001) (same), CalPERS' motion will not be denied further consideration on that basis.

  B. Empire and CalPERS Are Presumed To Be The Most Adequate Plaintiffs

  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 title 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) (I); see also Weinberg v. Atlas Air Worldwide Holdings, Inc., 216 F.R.D. 248, 252 (S.D.N.Y. 2003); Albert Fadem Trust v. Citi group, Inc., 239 F. Supp.2d 344, 347 (S.D.N.Y. 2002).

  Each of the remaining movants*fn14 for appointment as lead plaintiff has satisfied the first requirement. CalPERS and Empire have both filed complaints and submitted motions for lead plaintiff status. Sea Carriers has not filed a complaint but has submitted a motion for appointment as lead plaintiff in response to the notice published on October 17, 2003. It is not immediately evident, however, how to assess which of the movants has the "largest financial interest" in the relief sought by the class in this execution price fraud action. 1. Empire and CalPERS Have the Largest Financial Interests

  In many securities fraud class actions, an investor purchases shares of a specific security at a price later alleged to be inflated by one or more defendants' violations of the federal securities laws. In order to assess the relative financial interests of various candidates for lead plaintiff in such a case, and in the absence of any explicit guidance from either the higher courts or Congress,*fn15 a number of courts have adopted a four-factor test first promulgated in Lax v. First Merchants Acceptance Corp., Nos. 97 Civ. 2715 et al., 1997 WL 461036 (N.D. Ill. Aug. 11, 1997). According to the Lax test, a candidate's financial interest may be determined by looking to (1) the number of shares purchased during the class period; (2) the number of net shares purchased during the class period; (3) the total net funds expended during the class period; and (4) the approximate losses suffered. Lax, 1997 WL 461036, at *5; see also Schulman, 2003 WL 21415287, at *5 (applying four-factor test); In re Initial Public Offering I, 214 F.R.D. at 121 (same); In re Crayfish, 2002 WL 1268013, at *4 (same); In re Olsten Corp. Sec. Litig., 3 F. Supp.2d 286, 295 (E.D.N.Y. 1998) (same); cf. In re Cendant Corp. Litig., 264 F.3d 201, 262 (3d Cir. 2001) ("Cendant II") (noting approval of a variation of the Lax test). See generally 7 Alba Conte & Herbert B. Newberg, Newberg on Class Actions § 22:5 (4th ed. 2002 & Supp. 2003) (describing Lax test).

  While certain other courts have declined to follow the Lax test, they have done so in favor of a test that focuses on one or more of the factors identified in Lax. See, e.g., In re Critical Path, Inc. Sec. Litig., 156 F. Supp.2d 1102, 1107-08 (N.D. Cal. 2001) (adopting an approach according to which the number of net shares purchased during the class period is determinative, as supplemented with in/out losses); In re Network Assocs., Inc. Sec. Litig., 76 F. Supp.2d 1017, 1027 (N.D. Cal. 1999) ("The test simply reduces to the net number of shares bought and sold during the class period."); cf. In re Ribozyme Pharms., Inc. Sec. Litig., 192 F.R.D. 656, 660 (D. Colo. 2000) (employing the retention value method, "the most common ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.