United States District Court, S.D. New York
July 1, 2005.
XIANGLIN SHI, Individually and On Behalf of All Others Similarly Situated, Plaintiff,
SINA CORPORATION, et al., Defendants. ALEXANDER O'RIORDAN, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. SINA CORPORATION, et al., Defendants. SONGOING ZHU, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. SINA CORPORATION, et al., Defendants. RICK LIN, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. SINA CORPORATION, et al., Defendants. ROBERT HERRITY, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. SINA CORPORATION, et al., Defendants. GANG WEI, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. SINA CORPORATION, et al., Defendants.
The opinion of the court was delivered by: NAOMI BUCHWALD, District Judge
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.*fn1 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")*fn2 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.
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
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
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)
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
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.*fn3 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.
"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.*fn4
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.
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.
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.