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Kuriakose v. Federal Home Loan Mortgage Co.

November 24, 2008


The opinion of the court was delivered by: John F. Keenan, United States District Judge

Opinion & Order


This proposed securities class action is brought on behalf of all persons who purchased the common stock of the Federal Home Loan Mortgage Company ("Freddie Mac") from November 21, 2007 through August 5, 2008 (the "class period"). Freddie Mac is the shareholder-owned corporation chartered by Congress to provide stability in the secondary market for residential mortgages, increase the liquidity of mortgage investments, and improve the distribution of investment capital available for residential mortgage financing. See 12 U.S.C. § 1451 Note. In September 2008, the company was placed into conservatorship by the Federal Housing Finance Agency.

The complaint in this action, filed on August 15, 2008, asserts that Freddie Mac and several of its directors and/or officers violated § 10(b) and § 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Rule 10b-5 promulgated thereunder, by allegedly misrepresenting to investors the soundness of the company's mortgage portfolio, its underwriting standards, and the sufficiency of its capital.*fn1

(Compl. ¶¶ 3-4, 75-85).

On August 18, 2008, notice of this action was published on Globe Newswire informing members of the proposed class of their ability to move within sixty days to serve as lead plaintiff, pursuant to the Private Securities Litigation Reform Act of 1995 ("PSLRA" or "the Act"), 15 U.S.C. § 78u(4)(a)(3)(A)(i). The sixty-day period in which class members could move to be appointed as lead plaintiff expired on October 17, 2008.

Presently before the Court are the timely motions of three pension funds that invested in Freddie Mac common stock during the class period: (1) the City of Austin Police Retirement System ("Austin Police"); (2) Central States, Southeast and Southwest Areas Pension Fund ("Central States"); (3) Richard H. Moore ("Treasurer Moore"), as Treasurer of the State of North Carolina and as the "Sole Trustee" of the North Carolina Retirement Systems ("NCRS"). Each also moves to have its attorney designated as lead counsel, pursuant to 15 U.S.C. § 78u-(4)(a)(3)(B)(v).*fn2

The prospective lead plaintiffs provide the following information about themselves:

Austin Police is a public pension fund that provides pension retirement and disability benefits to active and retired police officers and beneficiaries. (Austin Police Mem. at 2) It currently has approximately 2000 members. As of December 31, 2007, its total assets were valued at over $515 million. (Id.) During the class period, Austin Police spent $2.11 million to acquire 122,700 shares of Freddie Mac common stock. (Id.) It claims to have suffered losses of about $1.77 million, based on either a first-in, first-out ("FIFO") analysis or a last-in, first-out ("LIFO") analysis. (Id.) If appointed as lead plaintiff, Austin Police moves to have the law firm of Berman, Devalerio, Pease, Tabacco, Burt & Pucillo ("Berman DeValerio") appointed as lead counsel and Roy Jacobs & Associates as local counsel. (Id. at 8-10; 1st Block Decl., Exh. D (Profile of Berman DeValerio)).

Central States is one of the nation's largest Taft-Hartley Funds, with approximately 100,000 active participants and more than $26 billion in assets at year-end 2007. (2nd Rosenfeld Decl., Exh. E (Decl. of James P. Condon) ¶ 2.) During the class period, it purchased 932,709 total shares and 581,593 net shares*fn3 of Freddie Mac stock, expending net funds of $17.17 million. (Id., Exh. D.) Central States sustained FIFO losses of $25.2 million, and LIFO losses of $15.601 million. (Central States Mem. in Opp. at 5-6 & n.3.) If appointed lead counsel, Central States moves to have the law firm of Coughlin, Stoia, Geller, Rudman & Robins, LLP ("Coughlin Stoia") appointed as lead counsel. (See Central States Mem. at 10-11; 1st Rosenfeld Decl., Exh. D (Profile of Coughlin Stoia)).

Treasurer Moore claims to be the "sole trustee" of NCRS and duly authorized to institute legal action on its behalf. (Treasurer Moore Mem.; 1st Narwold Decl., Exh. A (Certification of Treasurer Moore) ¶ 2.) He moves for an order appointing NCRS as lead plaintiff. NCRS is the tenth-largest public pension fund in the United States. (Treasurer Moore Mem. at 5.) During the class period, it purchased 1,281,186 total and 1,156,345 net shares of Freddie Mac common stock, expending net funds of $20.12 million to acquire the shares. (Treasurer Moore Mem. in Opp. at 6.) NCRS's FIFO losses were $18.15 million, and its LIFO losses were $15.624 million. (Id.) Treasurer Moore moves to have the law firm of Motley Rice LLC ("Motley Rice") appointed as lead counsel. (See Treasurer Moore Mem. at 10-11; 1st Narwold Decl., Exh. D (Profile of Motley Rice)).

The motions became fully briefed on November 13, 2008, and oral argument was heard on the following day. Upon due consideration, and for the reasons set forth below, the Court appoints Central States as lead plaintiff and approves of its selection of Coughlin Stoia as lead counsel.


I. Statutory Overview

The PSLRA requires the Court to "appoint as lead plaintiff the member or members of the purported plaintiff class that the court determines to be the most capable of adequately representing the interests of class members." 15 U.S.C. § 78u-4(a)(3)(B)(i). The Act creates a rebuttable presumption that the most adequate plaintiff is that "person or group of persons" who (1) "has either filed the complaint or made a motion in response to a notice [published pursuant to 15 U.S.C.A. § 78u-4(a)(3)(A)(i)];" (2) "in the determination of the court, has the largest financial interest in the relief sought by the class;" and (3) "otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure." 15 U.S.C.A. § 78u-4(a)(3)(B)(iii)(I)(aa)-(cc).

In order to identify the presumptively most adequate plaintiff, the district court must compare the financial stakes of the various plaintiffs and determine which one has the most to gain from the lawsuit. It must then focus its attention on that plaintiff and determine, based on the information he has provided in his pleadings and declarations, whether he satisfies the requirements of Rule 23(a), in particular those of 'typicality' and 'adequacy.' If the plaintiff with the largest financial stake in the controversy provides information that satisfies these requirements, he becomes the presumptively most adequate plaintiff. If the plaintiff with the greatest financial stake does not satisfy the Rule 23(a) criteria, the court must repeat the inquiry, this time considering the plaintiff with the next-largest financial stake, until it finds a plaintiff who is both willing to serve and satisfies the requirements of Rule 23.

In re Host America Corp. Sec. Litig., 236 F.R.D. 102, 105 (D. Conn. 2006) (quoting In re Cavanaugh, 306 F.3d 726, 730 (9th Cir. 2002).

Once established, the presumption may be rebutted "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." 15 U.S.C. ยง 78u-1(a)(3)(B)(iii)(II). At this step, "the process turns adversarial and other plaintiffs may present ...

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