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October 11, 2005.

JOSEPH P. LASALA, as assignee of, Inc., Plaintiff,

The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge



  A. Prior Proceedings

  In an Opinion and Order dated August 30, 2005 ("August 30 Opinion"), I stayed this action until resolution of a pending partial settlement between the class of plaintiff investors and the issuer defendants ("Issuers") in the hundreds of coordinated securities actions known as In re Initial Public Offering Securities Litigation ("the IPO Litigation").*fn1 In the IPO Litigation, investors seek recovery for securities fraud against numerous underwriters and issuers of stock, pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934.*fn2 This Court preliminarily approved the partial settlement in February 2005.*fn3 As part of this partial settlement, the Issuers agreed to assign their interest in all claims against the Underwriters for "Excess Compensation" to a Litigation Trust, which will be created upon final approval of the settlement and will be represented by plaintiffs' class counsel.*fn4 These claims will be referred to as the "Assigned Claims."*fn5 Of the fifty-five Underwriters named as defendants in the IPO Litigation, almost all have entered into agreements with plaintiffs which toll the applicable statute of limitations for the Assigned Claims until the Issuers Settlement is approved.*fn6 To ensure that the statute of limitations on the Assigned Claims does not expire,*fn7 the plaintiffs and the Issuers have arranged to assign each Issuer's Assigned Claims against the non-tolling Underwriters to Joseph LaSala, who will (subject to court approval) become the Litigation Trustee once the Issuers Settlement is approved.*fn8 These assignments are conditional and for an extremely limited purpose, giving LaSala the power to do only two things: 1) file a separate action for each Issuer who has assigned claims to him; and 2) immediately seek a stay of that action.*fn9

  In accordance with his conditional assignments, LaSala has filed dozens of separate actions in this Court ("LaSala Actions"), along with a contemporaneous motion to stay each action.*fn10 Each action is the result of a conditional assignment of claims from a different Issuer, and each action names as defendants one or more of the non-tolling Underwriters. LaSala has filed each action shortly before the six-year anniversary of the IPO of the assignor-Issuer for that action (to avoid expiration of the statute of limitations), and defendants have filed a motion to dismiss in each action.*fn11

  As already noted, I granted LaSala's motion to stay in the August 30 Opinion.*fn12 Pursuant to a stipulation between the parties,*fn13 that Opinion had the effect of staying proceedings in fifty-four other cases currently pending in this Court, as well as future cases raising materially identical issues.*fn14 I granted the stay because the interests of the prospective beneficiaries of the Litigation Trust in preserving a potentially valuable benefit of the Issuer Settlement outweighed the claims of prejudice asserted by defendants.*fn15 I wrote that "[i]t would be unjust for this court to allow the statute of limitations on these claims to expire because the procedural safeguards accorded class-action settlements place these claims in a kind of limbo where the settling plaintiffs cannot yet vindicate the claims they obtained through the settlement."*fn16

  But a countervailing consideration exists which favors considering defendants' pending, and fully briefed, motion to dismiss now. Hundreds of thousands of settlement class members are about to receive notice of the complicated terms of the Issuers Settlement, in advance of the March 24, 2006 deadline to either opt-out or object to that settlement.*fn17 A timely evaluation of the true worth of the Assigned Claims is important for the decision-making process of settlement class members. And the pending fully-briefed motion to dismiss provides a vehicle by which that evaluation can be provided.*fn18

  As with the August 30 Opinion, although this Opinion will discuss only the facts of LaSala (as assignee of v. Needham & Co., the parties have stipulated that this Opinion will govern the resolution of the parallel motions to dismiss pending in the other LaSala Actions.*fn19 B. Background of the LaSala Action

  Joseph LaSala is a New Jersey resident, who had no connection to the events giving rise to the Complaint's allegations prior to receiving his assignment.*fn20 The assignor of these claims, ("Fatbrain"), was "an online retailer of information resources focused on the technical professional."*fn21 At the time of its IPO, Fatbrain was a Delaware corporation.*fn22

  The defendants are three of the non-tolling Underwriters, with whom Fatbrain entered into a "firm commitment underwriting" on or about November 20, 1998.*fn23 Needham & Co., Inc. was a co-lead managing underwriter for the Fatbrain IPO, receiving and reselling Fatbrain stock as part of that offering.*fn24 J.P. Morgan Securities, Inc. and Morgan Stanley were also members of the underwriting syndicate for the IPO.*fn25 All three defendants are Delaware corporations, with principal executive offices in New York City.*fn26 LaSala invokes this court's jurisdiction on the basis of diversity of citizenship between himself (New Jersey) and the defendants (Delaware-registered corporations principally doing business in New York).*fn27

  As part of the underwriting agreement, defendants contracted to buy three million shares, which they would then sell to investors in an IPO.*fn28 According to LaSala, the prospectus for the Fatbrain IPO provided that the underwriters were entitled to receive "certain disclosed underwriting discounts and commissions of $0.70 per share."*fn29

  LaSala alleges that defendants also received "Excessive Compensation" for the performance of the underwriting agreement, as a result of agreements extracted from their customers who purchased Fatbrain shares from the Underwriters on the IPO and in the aftermarket. Specifically, LaSala alleges that defendants' customers were forced to "kick back" a portion of the profits they derived through participation in the IPO through: 1) payment of inflated brokerage commissions; 2) transactions in unrelated securities made through or at the direction of a defendant to generate commissions; and 3) purchases of, and payments of commissions for, stock in future offerings underwritten by one or more of the defendants, including "follow-on" offerings of Fatbrain stock.*fn30 Based on these allegations, LaSala pleads three causes of action — breach of contract, unjust enrichment, and breach of fiduciary duty.*fn31

  Defendants first question LaSala's standing, arguing that his assignment did not convey a sufficient personal interest in the Assigned Claims.*fn32 Defendants also argue that this court lacks diversity jurisdiction, both because Fatbrain (a non-diverse party) should be considered the real party in interest, and because the assignment to LaSala should be considered a collusive assignment made solely to create diversity jurisdiction.*fn33

  Faced with a motion to dismiss raising both 12(b)(1) and 12(b)(6) grounds, I would normally consider the defendants' jurisdictional challenges before turning to the legal sufficiency of plaintiff's claims. However, as I noted in the August 30 Opinion, the possible jurisdictional defects of the Assigned Claims at this juncture are a product of the unique procedural posture of the LaSala Actions as they relate to the IPO Litigation.*fn34 For this reason, and in light of the pressing need to convey accurate information to class members regarding the value of the ...

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