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Borochoff v. Glaxosmithkline PLC

October 5, 2007

LEON D. BOROCHOFF, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
GLAXOSMITHKLINE PLC, DR. JEAN-PIERRE GARNIER, AND JULIAN HESLOP, DEFENDANTS.



OPINION and ORDER OF APPOINTMENT

This motion involves competing claims for appointment as lead plaintiff and lead counsel in a securities fraud class action against Glaxosmithkline PLC ("GSK", a corporation headquartered in the United Kingdom), its Chief Executive Officer, and its Chief Financial Officer. The complaint alleges that GSK made "numerous positive statements regarding Avandia, GSK's popular diabetes drug," but never disclosed that it could increase the risk of a user's heart attack. Cmplt. ¶ 3. By separate motions, (1) Deka Investment GmbH, Metzler Investment GmbH, Internationale Kapitalanlagegesellschaft mbH, and INDEXCHANGE Investment AG (a German subsidiary of Barclay's Bank) (collectively the "German Institutional Investor Group"),

(2) Avon Pension Fund administered by Bath & North East Somerset Council ("Avon") and North Yorkshire County Council administering authority for the North Yorkshire Pension Fund ("North Yorkshire") (collectively the "U.K. Pension Funds"), and

(3) the City of Tallahassee Pension Plan ("Tallahassee") seek appointment of themselves as lead plaintiff, and their respective counsel as lead counsel.

Appointment of Lead Plaintiff

The Private Securities Litigation Reform Act ("PLSRA") provides that the court shall appoint the "most adequate plaintiff" as lead plaintiff. 15 U.S.C. § 78u-4(a)(3)(B)(i). The most adequate plaintiff is the person or group of persons that-(aa) has either filed the complaint or made a motion in response to a notice under subparagraph (A)(i); (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). Each of the three motions was made in response to a notice, satisfying the first requirement.

The German Institutional Investor Group, which suffered a loss of over $28 million, has the largest financial interest in the relief sought by the class. It otherwise satisfies the requirements of Fed. R. Civ. P. 23. Accordingly, it is entitled to the presumption that it is the most adequate plaintiff.

That presumption can be rebutted by proof that the Group "is subject to unique defenses that render such plaintiff incapable of adequately representing the class." 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)(bb).

The most serious argument against the German Institutional Investor Group in this respect*fn1 is that all those who purchased in Germany may have to be excluded from the class, because any judgment in this action (whether favoring plaintiffs or defendants) may be refused enforcement by a German court. If this Court's judgment on the merits neither protects a prevailing defendant against relitigation in Germany, nor grants a prevailing German plaintiff an enforceable damage judgment, then for those litigants a class action is not "superior to other available methods for the fair and efficient adjudication of the controversy." Fed. R. Civ. P. 23(b)(3). Rather, it is a waste, and their presence in the class (with its associated problems of notice-giving in Germany) may inflict burdens on the administration of the action.

In In re Vivendi Universal, S.A., 242 F.R.D. 76 (S.D.N.Y. 2007), the court analyzed German procedural law to appraise whether a foreign judgment would be recognized in Germany. In that case, experts agreed "that there is no decision by a German court as to whether a judgment in a U.S. class action would be recognized" under the German procedures, which provide (Vivendi, 242 F.R.D. at 104): for the recognition of foreign judgments if five conditions are met:

(1) if the foreign court was competent for deciding on the claims based on the German provisions on jurisdiction, (2) if the defendant was properly served (in the legal relationships of the United States and Germany according to the Hague Service Convention) in a timely manner enabling defendant to defend itself properly, (3) if the judgment is not inconsistent with an earlier German or foreign judgment which would be itself recognised in Germany, (4) if the contents of the judgment do not infringe the German ordre public, i.e. the indispensable provisions of German law and (5) if reciprocity is guaranteed, i.e. if the foreign court would recognise a corresponding German judgment.

The Vivendi court found that although German notice requirements could be satisfied by measures reasonably calculated to give actual notice to class members of their rights, it seemed that "a U.S. judgment would not be enforced against a class member who did not in fact receive actual notice despite plaintiffs' efforts to broadly disseminate notice." Ibid. The court continued (ibid.):

Leaving aside the question of whether the Hague Service Convention is the exclusive means for notifying the absent class members, can it be said that the use of a collective action is so contrary to German public policy that a U.S. class action judgment will not be recognized under any circumstance? In this regard the Court notes ...


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