United States District Court, S.D. New York
DANIEL ELSTEIN, Individually and On Behalf of All Others Similarly Situated, Plaintiff,
NET1 UEPS TECHNOLOGIES, INC., SERGE CHRISTIAN P. BELAMANT, and HERMAN GIDEON KOTZE, Defendants.
OPINION AND ORDER
EDGARDO RAMOS, District Judge.
This case arises out of alleged violations of the Securities Exchange Act of 1934 (the "Exchange Act") by Net 1 UEPS Technologies ("Net 1" or "the Company"); Serge P. Christian Belamant, the Company's co-founder, Chairman of the Board, and Chief Executive Officer; and Herman Gideon Kotze, the Company's Chief Financial Officer, Treasurer, and Secretary (collectively, "Defendants"). The Complaint alleges that Defendants made material misstatements and/or omissions relating to Net 1's attempts to secure contracts in South Africa, causing certain Company financial statements to be materially false and misleading, in violation of Sections 10(b) and 20(a) of the Exchange Act and Securities and Exchange Commission Rule 10b-5. Doc. 1. Plaintiff Daniel Elstein brought the action as a class action on behalf of all those who purchased or otherwise acquired Net 1 securities between August 27, 2009 and November 27, 2013, and sustained losses upon the revelation of alleged corrective disclosures (the "Class"). Compl. ¶ 69. Plaintiffs Elstein and Ruhama Lipow now move to be appointed lead plaintiffs.
Daniel Elstein, through his counsel, Pomerantz Grossman Hufford Dahlstrom & Gross LLP (the "Pomerantz Firm"), filed the Complaint on December 26, 2013. Doc. 1. On February 24, 2014, Plaintiffs Lipow and Elstein (collectively, "Plaintiffs") filed the instant motion for appointment as lead plaintiff and approval of the Pomerantz Firm as lead counsel. On the same day, Plaintiff David Macquart moved for appointment as lead plaintiff and approval of Levi & Korsinsky LLP as lead counsel. Doc. 8. On March 5, 2014, Plaintiff Macquart filed a notice of withdrawal of his motion in support of Plaintiffs Lipow and Elstein's motion. Doc. 14. As such, Plaintiffs Lipow and Elstein's motion is the only pending application for lead plaintiff and approval of lead counsel.
Lipow and Elstein have each submitted certifications attesting that they are "willing to serve as a representative party on behalf of [the Class], including providing testimony at deposition and trial, if necessary." Exhibit B to the Declaration of Jeremy A. Lieberman in Support of Plaintiffs' Motion for Appointment as Lead Plaintiff and Approval of Counsel. Plaintiffs have similarly stated that they have the ability and desire to fairly and adequately represent the Class, and that "[t]here is no antagonism between [their] interests and those of the Class." Pls. Mem. L. 7, 8. Plaintiffs additionally claim to be an "appropriate group" for the purposes of acting as lead plaintiff because "the group is small, cohesive, consisting of only two members who share an interest and ability in prosecuting the claims of fellow shareholders, " and note that they are sophisticated individual investors who "share the same goals and objectives." Id. at 8, 9. Plaintiffs also state that they have "reviewed [the] Complaint... [and] authorize the filing of a motion on [their] behalf for appointment as lead plaintiff." Ex. B to the Lieberman Decl. Finally, they point to the "extensive experience, " skill, and knowledge of their counsel, the Pomerantz Firm, as support for its fitness as lead counsel. Pls. Mem. L. 9.
Lipow and Elstein have also submitted certain details regarding their individual and collective financial interests in the litigation. In particular, Lipow purchased a total of 17, 000 shares of Net 1 on April 17, 2012 and May 14, 2012 for $155, 819, and sold all of her shares on December 5, 2012. Ex. C to the Lieberman Decl. Lipow received $67, 990 for the sale of her stock, reflecting a loss of $87, 829. Id. Elstein purchased a total of 3, 000 shares of Net 1 on April 5, 2010 for $50, 160. Id. Because Plaintiffs estimated the value of these shares as of the filing of the instant motion to be $25, 837, they submit that Elstein has suffered a total loss of $24, 323. Id.  Collectively, Plaintiffs claim that, during the Class Period, they (i) purchased 20, 000 shares of Net 1 stock; (ii) spent $205, 979 on their purchases of Net 1 stock; (iii) retained over 3, 000 of their Net 1 shares; and (iv) suffered losses in the amount of $112, 152 as a result of the Defendants' alleged violations of the securities laws. Pls. Mem. L. 5.
Defendants contend that the motion should be denied because Plaintiffs have not made any showing that appointing Lipow and Elstein - two unrelated plaintiffs - would best serve the class. For the reasons discussed below, Plaintiffs' motion to be appointed lead plaintiff as a group is DENIED, Plaintiff Ruhama Lipow is appointed lead plaintiff and the Pomerantz Firm is approved as lead counsel.
II. Appointment of Lead Plaintiffs
Under the Private Securities Litigation Reform Act of 1995 ("PSLRA"), the Court is required to "appoint as lead plaintiff the member or members of the purported plaintiff class that the court determines to be most capable of adequately representing the interests of class members...." 15 U.S.C. § 78u-4(a)(3)(B)(ii). The PSLRA further directs the Court to adopt the rebuttable presumption that the most adequate plaintiff is "the person or group of persons" that (i) has either filed the complaint or made a motion in response to a notice; (ii) in the determination of the court, has the largest financial interest in the relief sought by the class; and (iii) 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 purpose behind these PSLRA provisions is to "prevent lawyer-driven' litigation, and to ensure that parties with significant holdings in issuers, whose interests are more strongly aligned with the class of shareholders, will participate in the litigation and exercise control over the selection and actions of plaintiffs' counsel.'" Weltz v. Lee, 199 F.R.D. 129, 131 (S.D.N.Y. 2001) (quoting In re Oxford Health Plans, Inc., Sec. Litig., 182 F.R.D. 42, 43-44 (S.D.N.Y. 1998)). The presumption created by the statute may be rebutted only upon proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff will not fairly and adequately protect the interests of the class or is subject to unique defenses that render such plaintiff incapable of adequately representing the class. See Goldberger v. PXRE Grp., Ltd., Nos. 06-CV-3410 (KMK), 06-CV-3440 (GBD), 06-CV-3544 (KMK), 06-CV-4638 (KMK), 2007 WL 980417, at *3-4 (S.D.N.Y. Mar. 30, 2007) (quoting 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)).
Here, it is undisputed that Plaintiffs satisfy the first requirement for the rebuttable presumption, as Elstein filed the complaint on behalf of the class and Lipow and Elstein filed the instant motion pursuant to counsel's December 26, 2013 Class Action Notice. Pls. Mem. L. 4.
The second element of the rebuttable presumption - the question of which plaintiff or group of plaintiffs has the greatest financial stake - "is the pivotal factor under the PSLRA." Reimer v. Ambac Fin. Grp., Inc., Nos. 08 Civ. 411 (NRB), 08 Civ. 1273 (NRB), 08 Civ. 1825 (NRB), 08 Civ. 1918 (NRB), 2008 WL 2073931, at *2 (S.D.N.Y. May 9, 2008). The Second Circuit has not yet addressed whether unrelated class members may aggregate their claims in order to establish the "largest financial interest" element. See Goldberger, 2007 WL 980417, at *4. In an early and oft-cited application of the PSLRA, this court declined to aggregate the financial stakes of two unrelated institutional investors and four individual plaintiffs. In re Donnkenny Inc. Sec. Litig., 171 F.R.D. 156 (S.D.N.Y. 1997). There, the court opined that "[t]o allow an aggregation of unrelated plaintiffs to serve as lead plaintiffs defeats the purpose of choosing a lead plaintiff, " and would serve to "allow and encourage lawyers to direct the litigation." Id. at 157, 158. However, the court's position in Donnkenny is "now the minority view." Reimer, 2008 WL 2073931, at *2; see In re Tarragon Grp. Sec. Litig., No. 07 Civ. 7972 (PKC), 2007 WL 4302732, at *2 (S.D.N.Y. Dec. 6, 2007) ("The issue is not whether losses or holdings may be aggregated by members of a group seeking to become the lead plaintiff; indisputably, they may."); see also Janbay v. Canadian Solar, Inc., 272 F.R.D. 112, 119 (S.D.N.Y. 2010) ("The PSLRA explicitly permits a group of persons' to serve as lead plaintiff" (quoting 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)). While the majority of courts in this Circuit now allow the aggregation of unrelated plaintiffs' financial interests for the purposes of appointment, this court has required that unrelated plaintiffs first demonstrate that appointment as a group would best serve the class.
As the court in Tarragon made clear, "to enjoy the rebuttable presumption that the [PSLRA] confers, there must be some evidence that the members of the group will act collectively and separately from their lawyers." 2007 WL 4302732, at *2. Indeed, the "majority of courts, including those in this District, " follow an intermediate approach that allows lead plaintiff groups on a case-by-case basis, and only if "a grouping would best serve the class." Varghese v. China Shenghuo Pharm. Holdings, Inc., 589 F.Supp.2d 388, 392 (S.D.N.Y. 2008); see also Beckman v. Ener 1, Inc., No. 11 Civ. 5794 (PAC), 2012 WL 512651, at *2 (S.D.N.Y. Feb. 15, 2012) (quoting Varghese for the same); In re Oxford Health Plans, Inc., Sec. Litig., 182 F.R.D. at 49 ("Because the PSLRA does not recommend or delimit a specific number of lead plaintiffs, the lead plaintiff decision must be made on a case-by-case basis, taking account of the unique circumstances of each case."). Accordingly, courts have required that unrelated plaintiffs seeking appointment as a group make an evidentiary showing that they will be able to "function cohesively and to effectively manage the litigation apart from their lawyers...." Varghese, 589 F.Supp.2d at 392.
In evaluating whether a group of unrelated plaintiffs will function cohesively and separately from their lawyers, courts have considered (1) the existence of a pre-litigation relationship between group members; (2) involvement of the group members in the litigation thus far; (3) plans for cooperation; (4) the sophistication of its members; and (5) whether the members chose outside counsel, and not vice versa. Id.
Defendants challenge Plaintiffs' motion on the basis that the movants have "failed to offer, among other things, any explanation as to the reason for its formation, how its members intend to work together to manage the litigation, or how the group structure benefits the rest of the class." Defs. Opp. 7. While Plaintiffs have proffered that the proposed group is cohesive, shares an interest and ability in prosecuting the claims of fellow shareholders and are both "sophisticated investors, " they have failed to offer any insight as to how the group will proceed with its representation of the Class. Pls. Mem. L. 8, 9. They have similarly failed to proffer any background information as to their relationship, including whether it was formed prior ...