The opinion of the court was delivered by: Nicholas G. Garaufis, United States District Judge
On September 27, 2006, Magistrate Judge Ramon E. Reyes issued a memorandum and order appointing Plumbers and Pipefitters National Pension Fund (P&P) and its counsel, Lerach Coughlin Stoia Geller Rudman & Robbins LLP, as lead plaintiff and lead counsel in this consolidated action under the Private Securities Litigation Reform Act of 1995 ("PSLRA"). (Memorandum & Order (Docket Entry # 45).) Menorah Insurance Co. Ltd. and Mivtachim Pension Funds Ltd. (collectively, the "Menorah Group") appealed Judge Reyes's decision to this court. On March 2, 2007 this court issued a Memorandum and Order vacating Judge Reyes's order and appointing Menorah Group and its counsel, Pomerantz Haudek Block Grossman & Gross LLP, as lead plaintiff and lead counsel. (Memorandum & Order ("March 2, 2007 Order") (Docket Entry # 65).) P&P has now filed a motion for reconsideration of the March 2, 2007 Order, arguing that it, and not Menorah Group, is the proper lead plaintiff in this action. (Plumbers and Pipefitters National Pension Fund's Memorandum in Support of Its Motion for Reconsideration of the March 2, 2007 Order Appointing the Menorah Group as Lead Plaintiff ("P&P Mem.") (Docket Entry # 73).) For the reasons stated below, P&P's motion for reconsideration is GRANTED. Upon reconsideration, the court adheres to its ruling of March 2, 2007.
Familiarity with the March 2, 2007 Order, as well as with the court's February 20, 2008 order deciding Defendants' various motions to dismiss, is assumed. (See Memorandum & Order ("February 20, 2008 Order") (Docket Entry # 165).)
Eastern District of New York Local Civil Rule 6.3 provides that a party seeking reconsideration of a court order determining a motion must set forth "concisely the matters or controlling decisions which counsel believes the court has overlooked."
II. P&P'S ENTITLEMENT TO RECONSIDERATION
Under the PSLRA, the procedure for selecting the "most adequate plaintiff" who is to be appointed lead plaintiff begins with the adoption of a presumption that the most adequate plaintiff is the plaintiff 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)(I). The plaintiff who satisfies these conditions is presumptively the lead plaintiff, subject to rebuttal only upon proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff--(aa) will not fairly and adequately protect the interests of the class; or (bb) is subject to unique defenses that render such plaintiff incapable of adequately representing the class.
Id. at § 78u-4(a)(3)(B)(iii)(II). In its March 2, 2007 Order, the court stated that "[T]he decision in this case turns on the court's determination of which plaintiff has the 'largest financial interest' in the relief sought by the class." (March 2, 2007 Order at 4.) After determining that Menorah Group had the largest such financial interest, the court designated Menorah Group lead plaintiff. (Id. at 16.)
As P&P points out, however, the court never considered (1) whether Menorah Group had made a prima facie showing that it satisfied Rule 23's typicality and adequacy requirements under 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I); or (2) the rebuttal evidence P&P presented to the court under 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II) that Menorah Group could not fairly and adequately protect the class. (See, e.g., P&P Mem. at 12 n.11.)*fn1 P&P has therefore demonstrated that it is entitled to reconsideration under Local Civil Rule 6.3.
III. P&P'S FAILURE TO MEET ITS BURDEN
P&P argues that Menorah Group cannot adequately represent the class because it purchased shares of Comverse Technology, Inc. only after Comverse had partially disclosed the options-backdating scheme on March 14, 2006. On that day Comverse issued a press release disclosing the creation of a special committee to review matters relating to the company's stock option grants, including, but not limited to, the accuracy of the stated dates of option grants and whether all proper corporate procedures were followed. . . . Although it has not been determined whether the review will result in any restatement of the company's historical financial statements and, if so, the years affected and the amounts involved, management believes that certain restatements will likely be required. Any such restatements will not have an impact on historical revenues or operating results excluding stock option related expenses. (P&P Mem., Exh. A.)
P&P argues that because Menorah Group purchased Comverse shares only after this press release was issued, it cannot demonstrate that it would not have bought its shares had it known about the options-backdating scheme at Comverse. It is therefore subject to what P&P calls a "crippling unique defense" sufficient to disqualify it as lead plaintiff. (Plumbers and Pipefitters National Pension Fund's Reply Memorandum in Further Support of Its Motion for Reconsideration of the March 2, 2007 Order Appointing the Menorah Group as Lead Plaintiff (Docket Entry # 77) at 3.) P&P argues that because of this unique defense, Menorah Group's attention during this litigation will be diverted from issues applicable to the class at large, as defense counsel will try to make Menorah Group's "unusual trading patterns" a focus of litigation. (P&P Mem. at 12.) Menorah Group's attention to these issues, P&P argues, would not be in the best interests of the rest of the class.
The ability of a class representative to adequately represent a class commonly becomes an issue at the class certification stage, when the court must determine whether "the representative parties will fairly and adequately protect the interests of the class." Fed. R. Civ. P. 23(a)(4). The Second Circuit has ruled, for example, that it was not an abuse of discretion for the district court to refuse to certify a class action where the purported class representative was aware of, and had actually investigated, an alleged fraud involving the marketing of CDs, but in spite of this knowledge had purchased more CDs. Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 176, 179-80 (2d Cir. 1990). If the class action were allowed to proceed, the Second Circuit stated, "there is a danger that absent class members will suffer if their representative is preoccupied with defenses unique to it." Id. at 180 (citations omitted). In a different case, where an investor was a "sophisticated broker" who had access to more information than other investors in the class and who bought the stock at issue after its value had declined "amidst reports of financial difficulties," the Second Circuit found that it was within the district court's discretion to reject the investor as a class representative. Baffa ...